Invest Asia Group in Malaysia
Last Update: 27th September 2020
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Kuala Lumpur City Center, Malaysia
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Malaysia is a unique country in South East Asia separated by the South China Sea with Peninsula Malaysia home to the capital city of Kuala Lumpur and the island of Borneo home to East Malaysia. The political system adopts a federal parliamentary constitutional elective monarchy and Malaysia is one of the most ethnically diverse countries throughout the world. The population comprises a majority of Malays with minorities of Indians, Chinese and indigenous people, with Islam being the main religion. However, the Malaysian constitution grants freedom of religion for all citizens. With a government based on the Westminster System and common law, Malaysia is an intriguing and stable country for investors.
Malaysia: Overview
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Malaysia is a very diverse country, both geographically and culturally with stark differences in living standards between regions. Traditionally, the Malaysian economy has been reliant on it's natural resources with tin, rubber and palm oil being some of its biggest resources. However, in recent years the economy has also diversified away from extractive industries, allowing the economy to experience substantial economic growth.
Whilst Kuala Lumpur, as the capital city, is the most developed city within the country with the best talent pool of employees, costs are consequently higher compared to other regions. Depending upon your investment purposes, the Invest Asia Group advises prospective investors to undertake a full analysis of the country to determine the best option(s). |
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Malaysia States
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Within Malaysia, the federation consists of 13 x states (Negeri) and 3 x federal territories (Wilayah Persekutuan), which are the administrative divisions. Details of both are outlined below.
Malaysia States
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Malaysia Territories
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Malaysia Cities
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Malaysia has a number of different cities located on both the Peninsula Malaysia side and East Malaysia (Borneo). Details of the top 10 cities in Malaysia (by population) are outlined below as follows:
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Business Operations in Malaysia
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Operating a business in Malaysia presents various opportunities & challenges for investors. Aside from the business associated risks, understanding and working within a foreign system presents multiple other difficulties.
However, with a relevant & focused strategy, professional advice and a local team, these risks can be mitigated. Whilst details are quite complex, we’ve summarized business operations within Malaysia so readers can gain an insight into the different options and processes involved in operating a business in Malaysia. |
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Forming a Company in Malaysia
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Forming a company in Malaysia is fairly straightforward and streamlined with it's ranking on the world 'ease of doing business' reaching number 12 in the world for 2020. Malaysia encourages investment from foreign investors and within Asia, an easy place to conduct business.
Depending upon the investors' goals, there are different options available to incorporate within Malaysia from a tax perspective. However, ultimately, there are 5 x main types of companies within Malaysia, of which details are outlined below:
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In terms of recommendations for foreign investors looking to incorporate a company within Malaysia, normally, we would recommend the Private Limited Company structure. Depending upon the specific industry, there might be some restrictions whereby local ownership is needed via a joint venture or partial ownership but where restrictions don't apply, this structure is the most commonly used.
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Malaysian Sdn Bhd vs Labuan Company
Within Malaysia, the federal territory of Labuan is an island located off the coast of Borneo/Sabah in East Malaysia and is a lesser known tax haven within Asia. Aside from the various tax benefits of incorporating in Labuan compared to in Malaysia (as a Sdn Bhd company), there are also a number of other benefits pertaining to industry restrictions.
For the latest details and to find out mor about incorporating a Labuan company as well as the specific benefits to your proposed company, please contact the Invest Asia Group team directly. |
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Company Formation Procedure
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For the purposes of this article, we've detailed the process and procedures involved in incorporating a SDN BHD company in Malaysia. However, for other specific processes relating to a Labuan company or other type of Malaysian company, please contact our team. General incorporation procedure details are as follows:
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Aside from the above standard procedures to form a company, there might be additional requirements, depending upon specific industry and sector. Other company structures have different company formation processes and the above is a guideline only.
Foreign investors might also be subject to additional questions and requirements, including: Invest Asia Group strongly advises investors to engage either an experienced local consulting company or an international law firm to navigate these processes. |
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International Investors
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Whilst there are certain restrictions for various industries in Malaysia, equally a number of 'encouraged industries' are prevalent for international investors seeking to invest in Malaysia. Some of the current encouraged industries the Malaysian government is seeking foreign investors in include the following industries:
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Corporate Taxes
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There are a number of different corporate taxes within Malaysia as outlined below. Please note, these taxes are relevant to a Malaysian company - for details about Labuan company taxes and how to benefit from this company structure, please contact our team directly:
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Where to establish in Malaysia
This depends upon your business type and goals for doing business in Malaysia. Tier 1 cities (outlined above) offer the best labor force but with much higher competition, resulting in higher costs. Please advise your business type and specific goals for Malaysia when contacting our team.
Tax-Friendly Policies
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Yes – a number of tax-friendly investment policies exist to encourage investment within specific sectors and industries. Typically, these incentives apply to companies that are small & medium enterprises (SMEs), manufacturing companies or 'encouraged industries' companies. Some benefits include the following:
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Financial Markets in Malaysia
Malaysia's financial markets are developed, dating back to the 1930s before the Malayan Stock Exchange was established in 1960. In the 1970s, the Kuala Lumpur Stock Exchange took over operating as the sole exchange in Malaysia before being renamed the Bursa Malaysia in 2004. The Malaysian Financial System is developed consisting of financial institutions and financial markets. This is detailed below as follows:
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Financial Institutions
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Financial Markets
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Bursa Malaysia (Malaysia Stock Exchange)
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The Bursa Malaysia is the only Stock Exchange in Malaysia and one of the largest exchanges throughout the ASEAN region. Located in the capital city of Kuala Lumpur, the Bursa has a market capitalization of approximately USD $7 billion and offers investors a range of products available to trade.
With a variety of different products and services available for domestic as well as international investors, the Bursa Malaysia operates as a fully integrated exchange. By offering a large range of exchange related services including listing, trading, clearing and settlement, the Bursa Malaysia is a world class exchange providing opportunities for investors within the Asean region. |
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Bursa Malaysia Products
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As listed on the Bursa Malaysia (BURSA), there are a number of different markets and products available including:
Markets
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Other ways to get exposure to Malaysian Stocks
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Aside from the previously listed ways to gain exposure to Malaysia economically and Malaysian companies, investors also have options to invest in Index Funds and Malaysian stocks listing in US & international markets. There are a number of different Malaysia related Exchange Traded Funds (ETFs) and some of the larger individual Malaysian stocks listing on American stock exchanges include Genting, Malayan Banking and Tenaga Nasional.
Most brokers will offer access to Malaysia exposure ETFs and individual stocks listed on the US markets. Malaysia offers investors a stable jurisdiction with upside of potential economic growth throughout the ASEAN region. |
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Foreign Exchange
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In 1967, the Malaysian Dollar replaced the Malaya and British Borneo dollar at parity whilst through until 1993, the Malaysian dollar was the national currency of Malaysia. However, in 1993, the currency changed with the implementation of the ringgit (Malaysian ringgit). Throughout the 1990s, the Malaysian Ringgit was very volatile, experiencing substantial strengthening and devaluation during the Asian Financial Crisis. It lost approximately 50% of its value in USD terms between 1997 - 1998, which resulted in it being 'pegged' against the USD but remaining floating against other currencies.
Capital flight was also largely stopped through designation of the Malaysian Ringgit as 'non-tradeable' outside of Malaysia. The USD peg ended in 2005 and since then, the Ringgit has remained as a floating currency, albeit still with volatility. Capital controls have also been removed, providing incentive for foreign investment into Malaysia. |
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Commodities
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Malaysia has experienced substantial economic growth due to industrialization and a focus on exports, making it one of the top export economies within Asia. As a commodity producing country, Malaysia is located within a strategic location of South East Asia - straddling the Malacca Strait and South China Sea.
Details of the top commodities Malaysia exports include:
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This is in addition to other, non-commodity exports that consist of integrated circuits, computers, telephones, rubber apparel and Oscilloscopes. Exports are destined for the major economies of China and the USA in addition to neighboring Singapore and Thailand as well as Japan. Future gas production in LNG is forecast to drive economic demand growth over the coming decade.
Alternatively, Malaysia also imports both commodities and non-commodities on a large scale, with some of the top commodities imported including:
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In regards to oil, Malaysia has substantial oil reserves with the majority located in offshore fields from three basins - the Sabah Basin, Sarawak Basin and Malay basin. However, despite these reserves, Malaysia is a net importer of oil and whilst it exports its premium 'Tapis crude', it imports low-grade and refines in its downstream facilities.
A number of complexes and parks have been developed to ensure Malaysia moves up the value chain and ultimately, becomes a net oil exporter. Moreover, in regards to Palm Oil, Malaysia and Indonesia combined account for approximately 90% of the world's palm oil production. In addition, Malaysia also specializes in LNG, rubber, electronic components, automotive and other products as a primary producer. |
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Within Malaysia, the Bursa Malaysia Derivatives Berhad (BMD) offers a number of different derivatives including Commodity, Equity and Financial Derivatives. Some of the commodity derivatives available include:
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Cryptocurrency in Malaysia
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Within Malaysia, cryptocurrency is not classified as 'legal tender' but asset exchanges are regulated by the Securities Commission of Malaysia. Therefore, mining, buying and trading cryptocurrency including bitcoin isn't illegal and actively permitted.
Unlike the Eastern Asian countries of Japan and South Korea, cryptocurrency isn't as widely used within Malaysia. It's widely perceived within the country as a speculative investment for prospective investors. However, with the approval of a cryptocurrency exchange in 2020 and the likely fiat devaluations ahead following the COVID-19 crisis, Malaysia offers opportunities in the cryptocurrency space, especially considering the government's position. The Malaysian government has previously issued support for cryptocurrencies for their innovative and development purposes. To find out more about cryptocurrency options in Malaysia, please contact the Invest Asia Group team directly. |
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Property in Malaysia
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Similar to a number of countries within Asia, the Malaysian property market has surged in value during the 21st century, becoming too expensive for a large proportion of the local populace. From 2009 to 2015, Malaysian property overall increased on average by over 70%, resulting in a very hot property market, attracting developers and investors. The subsequent supply of property increased, outpacing population growth and a two speed property market. However, opportunities still exist, especially post-COVID crisis for investors searching for medium to long term investments.
Due to the size of Malaysia and differences in development across areas, the property market differs between cities and provinces. Therefore, the team at Invest Asia Group recommends to analyse the property market on a local level as opposed to just Kuala Lumpur/a country-wide analysis. |
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International Investors & Malaysian Property
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Foreign investors can own property within Malasyia and overall, Malaysia is one of the most liberal countries within Asia regarding foreign property ownership. Combined with the MM2H Program, foreign investors have been attracted to living in Malaysia with an excellent standard of living within Asia.
Nonetheless, there are still some restrictions on the types of property that foreign investors can own. These restrictions are as follows:
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Property Taxes
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The property market in Malaysia has experienced a multi-year bull market followed by (in 2020) what will likely be an extended bear market as excess property supply remains unsold and developers continue to complete projects. The pricing between regions varies substantially with a central Kuala Lumpur property significantly more than Malaysia's cheapest housing markets of Melaka and Kelantan.
However, regardless of the underlying market, overall, the purchasing costs within Malaysia are quite low compared to neighboring countries and Asia as a whole. An overview of the fees associated with purchasing property are as follows:
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Best Locations to Purchase Property
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Ultimately, each investors' definition of the 'best location' to purchase property in Malaysia varies, according to investment goals and objectives. Moreover, a number of Invest Asia Group clients who have pursued the MM2H program, have specific interest to live in Malaysia as opposed to being attracted to capital growth, yields or other reasoning from property investing within the country.
From our Invest Asia Groups' previous choices and our team's research, the following locations are generally the most popular across all investors looking to purchase property within Malaysia:
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Venture Capital/Private Equity in Malaysia
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The country of Malaysia is a booming startup hub within South East Asia, offering a supportive government with attractive location. With a strategic location near Singapore, offshore tax options, lower associated living costs and an English speaking populace, Malaysia is well positioned to attract and nurture burgeoning startups. Whilst as at September 2020, Malaysia still hasn't produced a unicorn company but will in the future.
Currently, some of the most successful companies originating in Malaysia are the following:
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