MALAYSIAINVESTING IN

2020

Contents

04

05

08

0912

13

14

Demographics

Economics and FDI in 2019

Free Trade Agreements

Doing Business in Malaysia

Employment

Taxes and Incentives

Labuan International Business and Financial Centre

4INVESTING IN MALAYSIA 2020

POLITICAL SYSTEM

Parliamentary democracy with constitutional monarchy

POPULATION

32.73 million (as at first quarter 2020)

CAPITAL

Kuala Lumpur

CURRENCY

Ringgit Malaysia (RM)

MIDSHORE CENTRE

Labuan International Business Centre

NATIONAL LANGUAGE

Malay

STATES

13 states and 3 federal territories

TIME ZONE

GMT +8

AREA

330,000 km2 (rounded)

2019 GDP GROWTH

4.4%

BORDERING COUNTRIES

Thailand, Singapore, Indonesia, Brunei, Philippines

LABOUR FORCE

15.71 million (as at May 2020)

AVERAGE ANNUAL INCOME

RM7,901 per household

01Demographics

MYANMAR

LAOS

THAILAND

CAMBODIA

VIETNAM

PHILIPPINES

BRUNEI

SINGAPORE

INDONESIA

MALAYSIAKuala Lumpur

Labuan International Business Centre

SARAWAK

SABAH

JOHOR

PAHANG

TERENGGANUKELANTAN

PERLIS

KEDAH

PENANG

PERAK

SELANGOR

MELAKANEGERI SEMBILAN

5INVESTING IN MALAYSIA 2020

02Economics and FDI in 2019

2008 -2019 Foreign Direct Investment in Malaysia (RM Billion)

Source: Department of Statistics, Malaysia

Net FDI Flows

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

2018

2019

5.1

47639.7

691.6

23.9

30.7 31.7

50.0

45.0

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

100.0

200.0

300.0

400.0

500.0

600.0

700.0

0.0

Foreign Direct Investment Income by Main Sectors

2018

2019

Services

Manufacturing

Mining & quarrying

Others

RM15.4bRM15b

RM0.3bRM0.6b

RM17bRM2.4b

RM5.1b

RM7.2b

Source: Department of Statistics, Malaysia

2019Largest Foreign Direct Investment by Country

Japan

Hong Kong

Netherlands RM3.9b

RM8.6b

RM10.4b

Source: Department of Statistics, Malaysia

FDI in 2019

RM31.7 billion

FDI Growth Rate

3.1%

Ease-of-doing-business rank (Doing Business Report 2020, World Bank)

12

GDP in 2019

RM1,510.7 billion

GDP Growth Rate

4.4%

GDP per capita

USD11,414.8

Total Exports in 2019

RM986.38 billion

Source: Department of Statistics Malaysia, World Bank

6INVESTING IN MALAYSIA 2020

RM986.38 billion RM849.07 billion(by Country)Total Export Total Import (by Country)

2019

2019Total Imports by Products

2019Total Exports by Products RM986.38 billion RM849.07billion

Source: Malaysia External Trade Development Corporation (MATRADE)

Source: Malaysia External Trade Development Corporation (MATRADE) Source: Malaysia External Trade Development Corporation (MATRADE)

EquipmentRM38.56 billion

Palm OilRM38.03 billion

Crude PetroleumRM26.35 billion

Rubber ProductsRM25.63 billion

Manufactures of MetalRM41.49 billion

LNGRM41.54 billion

4.2%

4.2%

Electrical &Electronic Products

RM372.67 billion

Chemicals &Chemical Products

RM57.01 billion5.8%

Petroleum ProductsRM71.49 billion 7.2%

37.8%

Machinery,Equipment & Parts

RM41.39 billion4.2%

3.9%

3.9%

2.7%

2.6%

Other ProductsRM232.22 billion23.5%

Iron & Steel ProductsRM31.19 billion

Crude PetroleumRM25.24 billion

EquipmentRM24.18 billion

Processed FoodRM20.28 billion

Manufactures of MetalRM47.10 billion

Machinery,Equipment & Parts

RM69.64 billion

5.5%

8.2%

Electrical &Electronic Products

RM245.47 billion

Petroleum ProductsRM77.51 billion 9.1%

Chemicals &Chemical Products

RM81.55 billion9.6%

28.9%

Transport EquipmentRM40.78 billion 4.8%

3.7%

3.0%

2.8%

2.4%

Other ProductsRM186.14 billion21.9%

RM139.61 billion

RM136.89 billion

RM95.78 billion

RM66.54 billion

RM65.24 billion

RM55.81 billion

RM37.55 billion

RM36.95 billion

RM34.73 billion

RM33.76 billion

14.2%

13.9%

9.7%

6.7%

6.6%

5.7%

3.8%

3.7%

3.5%

3.4%

OTHERS28.7%RM283.52 billion

ROK

VIETNAM

TAIWAN

INDIA

THAILAND

JAPAN

HONG KONG

USA

SINGAPORE

CHINARM175.59 billion

RM89.55 billion

RM68.67 billion

RM63.58 billion

RM57.03 billion

RM44.23 billion

RM38.80 billion

RM38.80 billion

RM26.75 billion

RM24.29 billion

20.7%

10.5%

8.1%

7.5%

6.7%

5.2%

4.6%

4.6%

3.1%

2.9%

OTHERSRM221.79 billion

INDIA

GERMANY

INDONESIA

ROK

THAILAND

TAIWAN

JAPAN

USA

SINGAPORE

CHINA

26.1%

7INVESTING IN MALAYSIA 2020

Source: Department of Statistics Malaysia

2019Total Exports to ASEAN

2019Performance of GDP by State

INDUSTRY FOCUSMAP OF MALAYSIA

A total of 72.3% of Malaysia’s total GDP

was contributed by 6 main states.

RM136.89 billion

RM55.81 billion

RM34.73 billion

RM30.8 billion

RM18.2 billion

RM7.67 billion19.7%

10.9%SINGAPORE

THAILAND

VIETNAM

INDONESIA

PHILIPPINES

OTHERS

23.2%

48.2%

6.4%

2.7%

Exports to ASEAN amounted to

RM284.03billion, constituting 28.8% of

Malaysia’s totalexports.

Modern Agriculture Manufacturing & Design

Tourism

Logistics

Education & Health

Northern Corridor InvestmentAuthority (NCIA)

Tourism

Oil & Gas

Manufacturing

Education

East Coast Economic Region Development Council (ECERDC)

Iskandar Region Development Authority (IRDA)

Financial Services

Petrochemical and Maritime

Healthcare

Tourism and Logistic Industry

Manufacturing & Services

Agro-based Industry

Tourism

Logistics

Manufacturing

Sabah Economic Development Investment Authority (SEDIA)

Regional Corridor DevelopmentAuthority (RECODA)

Resource Based Industry

Aluminum, Glass, Steel, Oil-based Industry, Palm Oil, Fishing & Aquaculture, Livestock, Timber-based, Marine

Energy

Tourism

SARAWAK

SABAH

PENINSULAR MALAYSIA

Source: Malaysian Investment Development Authority (MIDA)

9.4 %

6.7%PULAU PINANG

W.P. KUALA LUMPUR16.4%

SELANGOR24.2%

JOHOR

SARAWAK9.6%

6.0%SABAH

8INVESTING IN MALAYSIA 2020

03Free Trade Agreements

Source: Ministry of International Trade and Industry

9INVESTING IN MALAYSIA 2020

04Doing Business in Malaysia

Types of entities

Process to establish a company in Malaysia

Separate Legal Entity Authority Features Approval time

Representative Office No Malaysian Investment

Development Authority

Non-profit generating activities such as collecting information on investment opportunities in Malaysia, enhance bilateral trade relations, promote the export of Malaysian goods and services and carry out research and development

30 days

Regional Office No Malaysian Investment Development Authority

Non-profit activities such as acting as coordination centre for the foreign company’s affiliates, subsidiaries, and agents in South East Asia and the Asia Pacific

30 days

Company Yes Companies Commission of Malaysia

Types of companies include companies limited by shares, limited by guarantee, unlimited companies, public companies, private companies, and branch of a foreign company

2 to 7 working days

Partnership No Companies Commission of Malaysia

All partners are personally liable for the liabilities of the partnership

2 to 7 working days

Limited Liability Partnership Yes Companies Commission

of Malaysia

All partners are only liable up to the capital committed into the partnership as stated in the partnership agreement

2 to 7 working days

Sole Proprietorship No Companies Commission of Malaysia

The sole proprietor is personally liable for the liabilities of the partnership

2 to 7 working days

Labuan entities See page 14 on entities incorporated in Labuan

Process to establish a company in Malaysia

STEP 1 Appoint company secretaryTime depends on onboarding process of each company secretarial firm

STEP 2 Reservation of Name

STEP 4 Receive notice of approval and registration (legal entity established)

STEP 3 Submit incorporation documents

STEP 5 Filing of statutory documents, apply business licences, labour and tax registration, set up bank accountSetting up bank account requires clearing of each bank’s KYC procedures, which could take up to a few months

10INVESTING IN MALAYSIA 2020

Other Considerations when Setting Up a Company in Malaysia

There are no foreign ownership restrictions for incorporating a local company or registering a foreign company in Malaysia. Investments are encouraged through the incremental liberalisation of equity conditions by various government agencies based on the provisions of the Promotion of Investments Act 1986. However, limits on foreign ownership do remain in place across what the authorities consider strategic sectors such as telecommunications, oil & gas, tourism, wholesale and retail redistributive trade, and financial services. Such equity conditions are mostly set out in ministerial guidelines.

Private companies require a minimum of one director, whereas public companies require a minimum of two directors. A company may have foreign directors but the minimum number of directors must ordinarily reside in Malaysia by having a principal place of residence in Malaysia.

Minimum number of shareholder is one. Shareholders are classed based on the type of shares held, i.e. ordinary or preference shares. Generally, the rights of ordinary shareholders are set out in the Companies Act 2016, unless otherwise provided in the constitution of a company. These include the rights to vote in general meetings and equal shares in distribution of assets and dividends. Preference shares carry no voting rights, and the rights attached to preference shares are required to be set out in the constitution of a company.

Shareholder’s meetings are termed as “general meetings” in the Companies Act 2016. General meetings allow shareholders the opportunity to attend and vote. There are three types of general meetings recognised by Malaysian law:• annual general meetings• extraordinary general meetings• class meetings

Since the coming into effect of the Companies Act 2016 on 31 January 2017, private companies are no longer obligated to convene annual general meetings. However, shareholders have the right to request for the directors of the company to convene a general meeting. This right is subject to several conditions.

The appointment of an auditor is mandatory. However, the Registrar may exempt private companies from adopting an auditor where the company is dormant, a zero-revenue company or a threshold-qualified company. Companies that elect to be exempted from audit must still lodge unaudited financial statements and the required statutory certificates with the Registrar of Companies.

Malaysia houses a number of special economic zones, i.e.• East Coast Economic Region (ECER)• Iskandar Regional Development Authority (IRDA) for Iskandar Malaysia in Southern Johor• Northern Corridor Implementation Authority (NCIA) for the North Corridor Economic Region

(NCER)• Sabah Development Corridor• Sarawak Corridor of Renewable Energy

There are no restrictions on repatriation of profits and capital from Malaysia.

Yes

FOREIGN OWNERSHIP RESTRICTIONS

DIRECTORS

SHAREHOLDERS

SHAREHOLDERS’ MEETINGS

FINANCIAL AUDITS

SPECIAL ECONOMIC ZONES

REPATRIATION OF PROFIT AND CAPITAL

MEMBER OF NEW YORK CONVENTION

11INVESTING IN MALAYSIA 2020

Setting Up a Manufacturing Plant (Factory) in Malaysia

1 Incorporation of company

2Identify location of factory and execution of lease documents / land ownership documents

3

Application for licences / approvals / permits- Check if a manufacturing licence is required from the

Malaysian Investment Development Authority (MIDA) under the Industrial Co-ordination Act 1975

- Applications to Department of Occupational Health and Safety (DOSH) for permits and approvals on operations of the factory, installation of machinery etc under Factories and Machinery Act 1967 and its regulations;

- Applications to the Department of Environment Malaysia (DOE) for permits and approvals under the Environmental Quality Act 1974 and its regulations, including scheduled wastes

- Depending on the industry, other possible permits /approvals include licences, permits, approvals required under the Poisons Act 1952, the Sale of Drugs Act 1952 and the Control of Drugs and Cosmetics Regulations 1984, to name a few.

- Import / export licences- Business premise licences- Explore available tax incentives

4Work permits and labour requirements (please refer to page 12)

12INVESTING IN MALAYSIA 2020

05Employment

Scope of the Employment Act 1955 (“EA”)The EA governs employees who earn a monthly salary of not more than RM2,000.00 OR who perform or supervise manual labour regardless of the salary that the employees earn. The EA stipulates the provision of certain minimum benefits to employees falling within its ambit. The terms and benefits afforded to employees falling outside the ambit of the EA are not statutorily regulated and may be decided mutually between the parties.

Overriding Provisions of the EAThe EA affords the following benefits to all employees regardless of their monthly pay:(a) Maternity leave (All female employees will be eligible for 60 consecutive days (including

Public Holidays, Saturdays and Sundays) of unpaid maternity leave in respect of each confinement. The employee must fulfill certain conditions for this entitlement.)

(b) Inquiry into complaints of sexual harassment(c) Requirement to keep and maintain registers containing information regarding each

employee for not less than 6 years

Work Permits

Type Type of employee Highlighted requirements

Visit Pass (Temporary Employment)

Foreign Worker aged 18-45 years

For the following sectors and depends on nationality of the foreign worker:1. Manufacturing2. Plantation3. Agriculture4. Construction5. Services

Employment pass

Expatriate Applied by the Malaysian company intending to hire the expatriate. Such Malaysian companies need to fulfill the minimum paid-up capital requirements as follows:• 100% local owned company: RM250,000• Joint venture company: RM350,000• 100% foreign owned company: RM500,000• Foreign owned companies (51% and above)

operating in the wholesale, retail and trade sectors: RM1,000,000

Terms of termination of work permits

Expiration of permit

Termination of employment contract

Breach of conditions of the work permit

Withdrawal of permit by regulatory authority

Change of employer for employment pass requires the filing of a new application

13INVESTING IN MALAYSIA 2020

06Taxes

Malaysia’s Major Taxes

• Company with paid up capital not more than RM2.5 million- 17% on first RM600,000- 24% on subsequent balance

• Company with paid up capital of more than RM2.5 million- 24%

Goods manufactured locally by a registered manufacturer and on taxable imported goods- 5% to 10%

Taxable services provided inMalaysia by a registered person- 6%

• Interest - 15%• Royalties - 10%• Dividends - nil

(Note exemptions given by the Malaysian government during the COVID-19 pandemic)

• Disposal by a company within 3 years - 30%

• During the 4th year - 20%• During the 5th year - 15% • 6th year onwards - 10%

For resident individuals - 1% to 30% depending on income brackets

Available Reliefs include life insurance premiums, EPF contributions, private retirement scheme contributions and deferred annuity scheme premium, insurance premiums on education or medical benefits, expenses on medical treatment, special needs, or carer expenses for parents, education fees, lifestyle relief, and others.

Corporate Taxes 1 2 3

4 5 6

Sales Tax Services Tax

Withholding Tax Real Property Gains Tax Personal Income Tax

Double Taxation Agreements (DTA)*

Tax IncentivesMalaysia has in place tax incentives for various types of industries, including incentives for hotel and tourism projects, green technology, research and development, healthcare travel, integrated logistics services, manufacturing, agriculture, aerospace, environmental management, training, information and communication technology, approved service projects and manufacturing related services. Companies may apply for a pioneer status and investment tax allowances under the Promotions of Investments Act 1986.

Effective DTAs

DTAs under negotiation

Gazetted DTAs (not yet in force)

75

25

6*As at 21 June 2019, Source: Inland Revenue Board Malaysia

14INVESTING IN MALAYSIA 2020

07Labuan International Business and Financial Centre

There is a distinct set of laws applicable to financial activities carried out in the Labuan International Business and Financial Centre (“Labuan IBFC”), in the Federal Territory of Labuan. All financial activities in Labuan IBFC are supervised and regulated by the LFSA, the sole authority in Labuan. The following are structures which can be established in Labuan:

Labuan

Labuan entities are considered non-residents under the Malaysian foreign exchange control regulations and under the National Land Code. Labuan entities are required to carry on business in, from, or through Labuan. Therefore, Labuan entities are mainly used as holding entities, such as investment holding companies, leasing companies, private funds and mutual funds, family offices. Other types of entities include financial services companies (insurers, reinsurers, banks, brokers, securities licensees with operations within the region).

Tax RateLabuan entities that carry on a Labuan trading activity and comply with the relevant economic *substance requirements shall be subject to tax at the rate of 3% on its chargeable profits.

A Labuan entity that does not carry on a Labuan business activity, or in carrying on a Labuan business activity, does not have the adequate number of full time employees in Labuan, or adequate amount of annual operating expenditure in Labuan, will be subject to tax under the Malaysian Income Tax Act 1967.

*Substance requirements: The Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018 (“2018 Regulations”) came into operation. The 2018 Regulations specify the (i) minimum number of full time employees required in Labuan and (ii) minimum amount of annual operating expenditure required in Labuan for each type of Labuan entity.

Labuan companies (limited by shares, limited by guarantee, unlimitedcompanies, protected cell companies)

Labuan limited partnerships and limited liability partnerships;

Labuan trusts (including purpose trusts and special trusts);

Labuan foundations;

Labuan mutual funds and private funds.

1

2

3

4

5

15INVESTING IN MALAYSIA 2020

As the apex business chamber, the Singapore Business Federation (SBF) champions the interests of the business community in Singapore in trade, investment and industrial relations. Nationally, SBF acts as the bridge between businesses and Singapore government to create a conducive business environment. Internationally, SBF represents the business community in bilateral, regional and multilateral fora for the purpose of trade expansion and business networking.

In 2020, SBF launched GlobalConnect@SBF to partner Singapore companies looking to expand overseas. With a focus on ASEAN, frontier and emerging markets, FTA education and outreach, and markets along the Belt and Road, GlobalConnect@SBF supports companies’ business expansion plans to new markets.

160 Robinson Road#06-01 SBF CenterSingapore 068914

6701 1133

GlobalConnect@sbf.org.sg

For more information about SBF, visit www.sbf.org.sg

For more information on GlobalConnect@SBF, visit https://globalconnect.sbf.org.sg

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