Supply Chains: Malaysia
Investment Climate
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 2021, Malaysia received US$11.6 billion of inbound FDI versus US$11.3 billion five years earlier, an increase of 3 percent, and real GDP grew by 3.1 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, China, Austria, and the Netherlands.
Recent Investment/Supply Chain Policies
Economy-Wide Policies
TAX INCENTIVES
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On July 16, 2021, the Economic Planning Unit of the Government of Malaysia released the Twelfth Malaysia Plan, which lays out the socioeconomic development plans of the economy for 2021-2025. The plan aims to promote “new investment,” “attract global players to base their operations in the country,” and revise existing tax incentives to attract more research-based organizations and increase foreign direct investment (FDI) flows to Malaysia.
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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."
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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.”
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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$119 million) into the country.
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On October 31, 2018, the Ministry of International Trade and Industry (MITI) launched the National Policy on Industry 4.0 (Industry4WRD). The policy aims to develop Malaysia into a top manufacturing destination for international companies and attract more high-tech investments between 2018 and 2025. Industry4WRD enables the Malaysian government to utilize incentives and regulatory frameworks to stimulate international investment by private entities, such as a RM 27,000 (US$ 6,490.39) tax-break to fund Industry 4.0 readiness assessments for small and medium enterprises (SMEs).
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."
ADMINISTRATIVE BARRIERS
- On July 7, 2021, the Ministry of International Trade and Industry (MITI) implemented a decision to allow any company involved in global supply chains of electronics, aerospace, machinery equipment, or healthcare industries to resume production and bypass restrictions of the “Enhanced Movement Control Order,” a set of lockdown and quarantine measures in place since March 2020. In its press release, MITI stated that it “wishes to affirm that this decision demonstrates the importance and significance of these sectors in supporting the production of goods in the global supply chain.”
- 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.”
OTHER POLICIES
- On August 17, 2021, the Malaysian Investment Development Authority (MIDA) and HSBC Malaysia renewed its memorandum of understanding (MOU), which aims to increase FDI into Malaysia, especially in the electronics, machinery, and medical devices manufacturing sectors, through a public-private partnership that will allow for HSBC to provide FDI advisory support to companies looking to enter Malaysia.
- 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
ADMINISTRATIVE BARRIERS
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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.”
Medical
TAX INCENTIVES
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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.
Financial Services
TAX INCENTIVES
- 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."
Automotive
SUBSIDIES
- On April 27, 2021, the Malaysian Investment and Development Authority announced the extension and enhancement of the Automotive Industry Incentive. The main objective of this extension is to provide incentive packages to promote investments in energy efficient vehicles. Intended beneficiaries encompass a range of high-tech and high-value products including electric vehicles and related components as well as core and critical components such as engines, powertrains, and advanced driver-assistance systems.