Supply Chains: Malaysia
Since the Asian financial crisis in 1997–1998, Malaysia’s economy has experienced a trajectory of upward growth and is expected to become a high-income economy by 2024. Although Malaysia has historically welcomed foreign direct investment (FDI) and has a relatively conducive investment climate, FDI levels have decreased in recent years. Compared with other ASEAN economies, domestic demand is increasingly becoming the key source of economic growth for Malaysia rather than FDI. In 2020, it received US$3.5 billion of inbound FDI versus US$10.1 billion five years earlier, a decrease of 65 percent. Due to the COVID-19 pandemic and economic fallout, real GDP growth in 2020 decreased by 5.6 percent.
Malaysia is an attractive destination for investors due to a growing consumer base, its strategic location with respect to key North Asian markets, developed infrastructure, and low manufacturing costs. However, challenges remain, including a burdensome regulatory regime, limited access to skilled labor, market vulnerability due to its heavy reliance on trade with China, and already high levels of investment that make it difficult to absorb additional investment. Malaysia currently ranks 26 out of 146 in economic complexity.
In recent years, the Malaysian government has been targeting FDI in high-technology industries, such as automation, telecommunications infrastructure, smart cities, electric vehicles, and aerospace. The government has also introduced measures to streamline the approval and entry process for foreign investment, including the “China Special Channel” for companies looking to relocate their supply chains from China. In recent years, Malaysia’s top foreign sources of investment have been Singapore, Japan, and Hong Kong.
Recent Investment/Supply Chain Policies
On January 18, 2021, the government unveiled its fifth stimulus package, the Perlindungan Ekonomi dan Rakyat Malaysia (PERMAI) assistance package. PERMAI includes a provision that allows foreign-owned companies operating in Malaysia to receive financing through the Danajamin Guarantee Scheme. According to Prime Minister Muhyiddin Yassin, the "Government hopes [PERMAI] will help promote growth of the private sector and retain Malaysia’s position as an investment destination of choice."
On November 6, 2020, the government released its 2021 Annual Budget, which the parliament passed on December 15, 2020. Many measures proposed in the Annual Budget relate to the extension of incentives provided in previous stimulus packages, including the 2020 Economic Stimulus Package, PRIHATIN, PRIHATIN for SMEs, and PENJANA. In the 2021 Annual Budget, the government will extend the application for and scope of "special tax rates to selected manufacturing companies which relocate their businesses to Malaysia and bring in new investments.”
On June 5, 2020, the government unveiled its fourth stimulus package, known as PENJANA. The economic package offers a 15-year tax exemption for manufacturers who newly invest between MYR300 million and MYR500 million (US$72 and US$119 million) into the country.
On October 11, 2019, the government released its 2020 Annual Budget, which provides MYR1 billion (US$237 million) annually over five years to “attract targeted Fortune 500 companies and global unicorns in high technology, manufacturing, creative and new economic sectors.” To qualify, a company must invest at least MYR5 billion (US$1.2 billion) and create 150,000 “high quality” jobs over the course of five years.
- On October 11, 2019, the government released its 2020 Annual Budget, which allocates another MYR1 billion (US$237 million) to fund “customized packaged investment incentives” to “transform Malaysia’s best and most promising businesses into the most competitive enterprises in global export markets.”
SPECIAL ECONOMIC ZONES
- On November 6, 2020, the government released its 2021 Annual Budget, which includes measures extending "existing tax incentives for the East Coast Economic Region Development Corridor, Iskandar Malaysia and Sabah Development Corridor."
- On April 6, 2021, the government announced that it would “relax” conditions for obtaining investment incentives for certain companies, as part of its efforts to “[facilitate] investments and [restore] investors’ confidence.” Companies are eligible if they have previously been “approved with incentives under the purview of the Malaysian Investment Development Authority.”
- On April 21, 2021, the Cabinet approved the National Investment Aspirations (NIA), a “forward-looking growth framework that will form the basis for comprehensive reforms of Malaysia’s investment policies.” The NIA focuses on improving: (1) economic diversity and complexity; (2) high skill jobs; (3) domestic linkages; (4) high productivity clusters; and (5) socio-economic inclusivity.
Information and Communication Technology
On October 11, 2019, the government released its 2020 Annual Budget, which provides tax incentives to “further promote high-value added activities in the Electrical and Electronics (E&E) industry to transition into 5G digital economy and Industry 4.0.” For example, E&E companies investing in “qualifying knowledge-based services” can claim income tax exemption for up to ten years.
On April 23, 2021, the National Council of Digital Economy and Fourth Industrial Revolution established the Digital Investment Office (DIO). According to a government press release, the DIO is a “fully-digital collaborative platform” that “coordinates and facilitates all digital investments.”
On November 6, 2020, the government released its 2021 Annual Budget, which includes measures to "encourage manufacturers of pharmaceutical products, including vaccines, to invest in Malaysia" by offering a preferential tax rate of 0 percent to 10 percent for 10 years.
- On November 6, 2020, the government released its 2021 Annual Budget, which aims to make Malaysia a "destination for high-value service activities" and includes specific measures to "enhance and simplify tax incentives for trading activities," such as the implementation of a new Global Trading Center (GTC) tax incentive and the extension of the Principal Hub (PH) Incentive, which was originally set to expire on December 31, 2020. Trading companies wishing to use Malaysia as a procurement or distribution hub may apply for either of these incentives and be subject to income tax rates of 0 percent to 10 percent, depending on their presence in Malaysia.
LABOR REFORM/ADMINISTRATIVE BARRIERS
- On March 23, 2021, the Malaysian Investment Development Authority (MIDA) announced the launch of a Business Travellers Centre (BTC) at the Kuala Lumpur International Airport (KLIA), which "functions to facilitate the entry of foreign business travelers into Malaysia." The BTC is a part of the Malaysian Government’s One Stop Centre (OSC) Initiative, which was launched on October 2, 2020, to "ease the movement of business travelers by expediting the approval of their entry to do business in Malaysia."
- On October 11, 2019, the government released its 2020 Annual Budget, which includes a provision lowering the threshold on high rise property prices in urban areas for foreign ownership from MYR1 million (US$235,000) to MYR600,000 (US$142,000).