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FAQ on Registration of Malaysian Sdn Bhd Company by Foreigners

After your business objective is well defined with confirmation for eligibility to operate, plus ability to get all necessary approvals for trade licenses and visa, you will now move ahead with the registration of the company, here is some important FAQ for your better understanding on registration of Malaysian Sdn Bhd company by foreigners:

What type of business entity foreigner can register in Malaysia?

Under the Company Commission of Malaysia (CCM), all foreigners only be allowed to register a private limited by shares (Sendirian Berhad- “Sdn Bhd”) company in Malaysia. Foreigners are not allowed to register sole proprietor, enterprise or LLP companies in Malaysia, these entities are meant for Malaysian only.

Can foreigners start a Malaysia Sdn Bhd Company in Malaysia?

Yes, and it can be 100% foreign owned by you, with a minimum RM500,000 paid-up capital depends on nature of business.  For retail, wholesale and distributive business natures, the 100% foreign ownership Sdn Bhd Company will be subjected to Ministry of Consumerism and Trade and only “unique” (businesses that local Malaysians do not have the knowledge or skills) business will be granted, this is to protected Malaysians opportunities and competitions. For some business nature, the paid capital would higher to meet the necessary requirement of the relevant authorities to issue the trade license or work permit for your business.

How fast is the incorporation of Malaysian Sdn Bhd Company?

3 to 5 days.

Do I need to be in Malaysia to incorporate the company?

Not necessary, we can provide the incorporation while you are in your home country.

How can I be sure that the incorporation Sdn Bhd Company to meet my objectives?

In order to ensure all necessary approvals able to obtain in place from the beginning of registration of company, licenses and work permit, we will perform back ground check and due diligence process every steps of the way based on your profile and objectives.
I decided to go ahead to register Malaysia Sdn Bhd company, what are the next steps?
  1. We will define on your business nature and activities to match your objective in Malaysia including profiling ready for licenses and visa application
  2. Decide your shareholding structure with minimum one Shareholder 
  3. Decide the key positions of Directors with minimum one Director
  4. Propose 3 names for your company to perform a search name
  5. Passport copy of all Directors and Shareholders
  6. Fill in our Incorporation Form, sign our Client Service Agreement and make payment

How much initial paid up capital of the new Sdn Bhd company for registration?
When should I inject the capital into the company?

Initial capital will be defined by you can start as long as any amount for each shareholder. Paid-up capital is to be injected into the new company bank account by the shareholders gradually from time to time, as when required for business operations or to meet the capital amount required by the governments bodies for the business licensing and permits applications depends on nature of your business.

What is the requirements being a Director and Shareholder of the Malaysia Sdn Bhd company?

  1. Minimum aged of 18 and above
  2. Fit and proper person
  3. He or she is not a bankrupt and has not been convicted and imprisoned.

FAQ on Registration of Malaysian Company by Foreigners

When can bank account be opened? We will arrange meeting with bankers, after incorporation of the company successfully done with complete documents

FAQ on Registration of Malaysian Company by Foreigners guide is to assist all foreigners have a better knowledge on how to incorporate a Malaysian Company Sdn Bhd and what are the major problems faced by foreigners before a decision is made. Please do consider carefully before registration of Company to avoid wasting time and money.

Other main things to consider before you decide to start a business in Malaysia as follows:
  • Is your business permissible by Malaysia Authorities for 100% foreign owned?
  • Is there an opportunity for your kind of business in Malaysia?
  • What should be the paid up capital for the company?
  • What kind of trade licenses I need for my business nature?
  • How can have the best tax rate for my company and personal?

Corporate taxation:

Residence – A corporation is resident in Malaysia if its management and control are exercised in Malaysia.

Basis – Corporations are taxed on income derived from Malaysia. Foreign-source income is exempt unless the corporation is carrying on a business in the banking, insurance, air transport or shipping sectors.

Taxable income – Taxable income comprises all earnings derived from Malaysia, including gains or profits from a trade or business, dividends, interest, rents, royalties, premiums or other earnings.

Taxation of dividends – All corporations in Malaysia are required to adopt the single-tier system (STS). Dividends paid by companies under the STS are not taxable.

Capital gains – Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the sale of shares in a real property company. The rate is 30% for such disposals of property made within three years after the date of acquisition. The rates are 20% and 15% for disposals in the fourth and fifth years after acquisition, respectively, and 5% for disposals in the sixth year after acquisition and thereafter.

Losses – Losses may be carried forward indefinitely (except where there is a substantial change in corporate ownership of a dormant company). The carryback of losses is not permitted.

Rate – The standard corporate tax rate is 24%, while the rate for resident small and medium-sized companies (i.e. companies incorporated in Malaysia with paid-up capital of MYR 2.5 million or less and that are not part of a group containing a company exceeding this capitalization threshold) is 18% on the first MYR 500,000, with the balance being taxed at the 24% rate. For year of assessment (YA) 2017 and YA 2018, companies are eligible for a reduction of between 1% and 4% on the standard tax rate for a portion of their income if there is an increase of 5% or more in the company’s chargeable income from a business, compared to the immediately preceding YA. The reduction in the tax rate will apply to the portion of chargeable income representing the increase.

Surtax – No

Alternative minimum tax – A Labuan company carrying on a Labuan business activity may elect to pay a fixed amount of MYR 20,000, or to be taxed at 3% of the audited accounting profit.

Foreign tax credit – Foreign tax paid may be credited against Malaysian tax on the same profits (limited to 50% of foreign tax in the absence of a tax treaty), but the credit is limited to the amount of Malaysian tax payable on the foreign income.

Participation exemption – No, but foreign-source income is not taxable and domestic dividends are tax- exempt.

Holding company regime – An investment holding company (IHC) is a company whose activities consist mainly of the holding of investments and that derives no less than 80% of its gross income (other than gross income from a source consisting of a business of holding of an investment) from such investments. Generally, only expenses falling within the definition of “permitted expenses” in the tax legislation qualify for a tax deduction in respect of an IHC.

Incentives – A wide range of incentives are available for certain industries, such as manufacturing, hotels, healthcare services, information technology services, biotechnology, Islamic finance, venture capital, tourism, energy conservation and environmental protection.

Incentives include tax holidays of up to 10 years (pioneer status); investment tax allowances (i.e. a 60% to 100% allowance on capital investments made up to 10 years); accelerated capital allowances; double deductions; and reinvestment allowances (i.e. a 60% allowance on capital investments made in connection with qualifying projects). A new incentive has been proposed in the form of accelerated capital allowances and automation equipment allowances, to encourage the transformation to “Industry 4.0,” which involves the adoption of technology drivers such as “big data” analytics, autonomous robots, industrial internet of things, etc., by the manufacturing sector and its related services.

Withholding tax:

Dividends – Malaysia does not levy withholding tax on dividends.

Interest – A withholding tax of 15% applies to interest paid to a nonresident, unless the rate is reduced under a tax treaty. However, interest paid to a nonresident by a bank operating in Malaysia is exempt from tax, except for interest accruing to the nonresident’s place of business in Malaysia and interest paid on funds required to maintain “net working funds,” as prescribed by the central bank. Certain other interest paid to a nonresident also may be exempt.

Royalties – A withholding tax of 10% applies to royalties paid to a nonresident, unless the rate is reduced under a tax treaty.

Technical service fees – A 10% withholding tax applies to technical service fees paid to a nonresident, unless the rate is reduced under a tax treaty.

Branch remittance tax – No

Other – A 10% withholding tax applies to the rental of movable property, installation fees and certain one-time income paid to nonresidents, unless the rate is reduced under a tax treaty.

Other taxes on corporations:

Capital duty – No capital duty is payable, but a local company is subject to an incorporation fee of MYR 1,000 and a foreign company is subject to an incorporation fee ranging from MYR 5,000 to MYR 70,000.

Payroll tax – Tax on employment income is withheld by the employer under a pay-as-you-earn (PAYE) scheme and remitted to the tax authorities.

Real property tax – Individual states in Malaysia levy “quit” rent and assessments at varying rates.

Social security – Both the employer and the employee are required to make contributions to the Social Security Organization (SOCSO). The employer generally contributes 1.75% for each employee registered with the SOCSO. The employer and the employee also contribute to the Employees Provident Fund (EPF) at a rate of 12%/13% and 11% of the employee’s remuneration, respectively. From 2018 onward, both the employee and the employer will contribute 0.2% of the employee’s remuneration (capped at MYR 4,000 a month) to the Employment Insurance System (EIS).

Stamp duty – Stamp duty is levied at rates between 1% and 3% of the value of property transfers, and at 0.3% on share transaction documents.

Transfer tax – No, except for stamp duty

Other – Equity requirements have been substantially relaxed.

Anti-avoidance rules:

Transfer pricing – Transfer pricing rules apply. Taxpayers can request an advance pricing agreement.

Thin capitalization – Earnings stripping rules (ESR) are proposed to be introduced as from 1 January 2019, to replace the thin capitalization rules that were incorporated in the Income Tax Act but that never entered into force because their application was deferred. The provision for the thin capitalization rules has been abolished as from 1 January 2018. The ESR would be in line with the OECD recommendations under BEPS action 4 to address tax leakages due to excessive interest deductions on loans between related companies. Under the rules, interest deductions on loans between companies in the same group would be limited based on a ratio that is yet to be determined.

Controlled foreign companies – No

Disclosure requirements – Transactions with related companies within or outside of Malaysia must be disclosed on the annual income tax return, including purchases, loans, other expenses and other income.

Other – Malaysia has a general anti-avoidance rule that allows tax schemes that are entered into with a primary or dominant purpose of obtaining a tax benefit to be disregarded. There also are several specific anti- avoidance rules.

Compliance for corporations:



Tax year – Fiscal year (generally the accounting year)

Consolidated returns – Consolidation is not permitted; each company is required to file a separate tax return. However, subject to certain conditions, 70% of a company’s adjusted loss may be used to offset profits of a related entity.

Filing requirements – Malaysia operates a self- assessment regime. Advance corporate tax is payable in 12 monthly installments. A tax return must be filed within seven months of the company’s year end.

Penalties – Penalties apply for failure to comply with the tax law.

Rulings – Taxpayers may request an advance ruling on the tax treatment of a specific transaction. Public rulings also are issued by the authorities from time to time.

Personal taxation:

Basis – Individuals are taxed on income derived from Malaysia. Foreign-source income is exempt in Malaysia.

Residence – An individual is considered a tax resident if he/she is in Malaysia for 182 days or more in a calendar year. Alternatively, residence may be established by physical presence in Malaysia for a mere day if it can be linked to a period of residence of at least 182 consecutive days in an adjoining year.

Filing status – A married couple living together may opt to file a joint or separate assessment.

Taxable income – Taxable income comprises all earnings derived from Malaysia, including gains or profits from a trade or business, employment, dividends, interest, rents, royalties, premiums or other earnings. Employment income includes most employment benefits, whether in cash or in kind.

Capital gains – Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the sale of shares in a real property company. The rate is 30% for such disposals of property made within three years after the date of acquisition. The rates are 20% and 15% for disposals in the fourth and fifth years after acquisition, respectively, and an exemption applies for disposals after five years. For disposals by an individual who is not a citizen and not a permanent resident, the rates are 30% and 5% for disposals within and after five years after acquisition, respectively.

Deductions and allowances – Various allowances and personal deductions are available.

Rates – Income tax is imposed at progressive rates up to 28% for resident individuals. Individuals who do not meet the residence requirements are taxed at a flat rate of 28%.

Other taxes on individuals:

Capital duty – No

Stamp duty – Stamp duty is levied at rates between 1% and 3% of the value of property transfers, and at 0.3% on share transaction documents.

Capital acquisitions tax – No

Real property tax – Individual states in Malaysia levy “quit” rent and assessments at varying rates.

Inheritance/estate tax – No

Net wealth/net worth tax – No

Social security – Both the employee and the employer are required to make contributions to the EPF at a rate of 11% and 12%/13% of remuneration, respectively, as well as to the SOCSO. From 2018 onward, both the employee and the employer will contribute 0.2% of the employee’s remuneration (capped at MYR 4,000 a month) to the EIS.

Compliance for individuals:

Tax year – Calendar year

Filing and payment – Tax on employment income is withheld by the employer under a PAYE scheme and remitted to the tax authorities. Malaysia imposes a self- assessment regime. An individual deriving employment income or business income must file a tax return and settle any balance owed by 30 April or 30 June, respectively, in the following calendar year.

Penalties – Penalties apply for failure to comply with the tax law.

Goods and services tax:

Taxable transactions – Malaysia levies goods and services tax (GST) on certain goods and services.

Rates – The GST rate is 6%.

Registration – The threshold for GST registration is MYR 500,000.

Filing and payment – GST is to be paid to the authorities within one month of the end of the taxable period (which is one month if taxable supplies total MYR 5 million or more, or three months if taxable supplies are less than MYR 5 million). A bimonthly filing and payment option has been announced for certain registrants that currently have a monthly taxable period.


An Expatriate Guide to Working as a Consultant in Malaysia

Malaysia is a very popular expatriate destination for Oil and Gas consultants due to its culture, lifestyle and world-renowned national oil company, Petronas. Malaysia comes with its own set of rules and regulations that can be tricky to understand; let alone the mountains of paperwork relating to tax, banking and work permits.

Leap29 have extensive experience placing permanent employees and consultants’ in Malaysia. In our latest series, Global Operations Manager, Ben Harden and his team have come together to provide an overview of what to expect when starting a new contract.

Work Permit Requirements in Malaysia

As an expat, before you can work in Malaysia you will be required to secure a work permit, also known as an employment pass. Any work permits need to have a local company in Malaysia to sponsor them.

Work permits generally last between six months and five years, depending on the duration of the work contract and the type of visa. Applications form are mostly in Bahasa Malaysia.

The Malaysian Government issue three different types of work permits
  • Professional Visa Pass
    A Professional Visa Pass is issued to foreigners employed by an overseas company but working with a company in Malaysia. This pass is normally appropriate for technical experts and trainees. The Professional Pass is normally valid for short periods of around six months to a year.
     
  • Temporary Employment Pass
    A Temporary Employment Pass is for unskilled of semi-skilled workers in the manufacturing, agriculture, construction and services fields. The length of this pass is dependents on the length of contract and car vary from three months to two years. Before the work permit can be issued, quota approval needs to be granted from the Local Centre of Approval, Ministry of Foreign Affairs.
     
  • Employment Pass
    An Employment Pass applies to those wanting to work in Malaysia and who have specific skills, generally in technical or managerial positions. It is issued for a minimum period of two years. Before the Employment Pass can be issued, the employment of the foreign worker must be approved by the Expatriate Committee or the relevant regulatory agency.

Documents Required for Work Permit Application

Generally, the following documents are required when applying for a work permit in Malaysia:
  • Employment Contract/Letter of Appointment
  • Original receipts of payment of application
  • Copy of employee’s passport (all pages, including cover)
  • Passport photographs on a blue background
  • Employee’s CV
  • Copy of Education Certificates and Qualifications
  • Medical report from the employee’s country of origin approved by the Malaysian Ministry of Health (dependent on industry)
If supporting documents are not in English or Malay, they may need to be attested.

Taking into account the collecting of relevant documents, the application process and liaising with the relevant government agencies in Malaysia, the process of application to approval can take between one and two months. Furthermore, if your work requires you to travel within Malaysia, you may need to apply for more than one work permit. There are four main work permit regions in Malaysia, these being Peninsular/West Malaysia (i.e. Kuala Lumpur), Labuan, Sabah and Sarawak. The four different regions have different processing times and different documentation may be required.


Political Environment

U.S. – MALAYSIARELATIONS

The United States established diplomatic relations with Malaysia in 1957, following its independence from the United Kingdom, but as had a consular or commercial presence in the area comprising modern day Malaysia since the 1800’s. President Obama and Prime Minister Najib elevated the relationship to a Comprehensive Partnership in April 2014.

Today, Malaysia is a significant regional and global partner for the United States, and the two countries share a diverse and expanding partnership in trade, investment, security, environmental cooperation, and educational and cultural relations. Economic ties are robust, and there is a long history of people to-people exchanges. Malaysia has a diverse democracy and is an important partner in U.S. engagement with Southeast Asia. The two countries cooperate closely on security matters, including counter-terrorism, maritime domain awareness, and regional stability and participate frequently in bilateral and multilateral training, exercises, and visits.

U.S. ASSISTANCE TO MALAYSIA

U.S. assistance to Malaysia focuses on education, exchanges, cultural heritage preservation, counterterrorism, nonproliferation, and security cooperation. The U.S. Fulbright English Teaching Assistant program in Malaysia is among the largest in the world, helping improve the English language skills of thousands of Malaysian secondary school students. Exchange programs promote engagement with secondary school and undergraduatestudents, Fulbright Scholars, agricultural fellows, and participant of sports and cultural programs.

In 2014, The United States announced additional exchange programs, grants opportunities and fellowship for youth ages 18 – 35 under the Young Southeast Asian Young Leaders Initiative (YSEALI). There are over 6,000 alumni of Department of State-sponsored exchange programs in Malaysia. Since 2001, the Ambassador Fund for Cultural Preservation (AFCP) has supported 10 project to support the preservation of cultural heritage in Malaysia. The United States support Malaysia’s counterterrorism efforts through information sharing, capacity building programs for law enforcement and judicial authorities, and assistance to improve immigration security and border control. The United States also work with the Malaysian government and civil society actors on programs to counter violent extremism. Non-proliferation assistance aims at enhancing Malaysia’s ability to enforce its laws on shipments and trans-shipments of controlled munitions, dual-use commodities, and weapons of mass destructions and related commodities. Security cooperation and training builds capabilities among Malaysia’s armed forces and coast guard, allowing it to take on an expanded international role, including peacekeeping operations.

BILATERAL ECONOMIC RELATIONS

The United States and Malaysia meet frequently to discuss bilateral trade and investment issues and to coordinate approaches on APEC, ASEAN, and the WTO. In 2015, U.S.-Malaysia bilateral trade in goods and services approached $50 billion. In 2015, Malaysia was the United States’ 18th largest trading partner and the second-largest trading partner among the 10 ASEAN members in Southeast Asia. In 2016, the United States was Malaysia’s third largest trading partner. U.S. exports to Malaysia include electrical machinery, machinery, aircraft, optic and medical instruments, and plastic. U.S. imported from Malaysia include electrical machinery, machinery, optic and medical instrument and rubber.

In 2015, Malaysia was ranked as the fourth fastest-growing source of foreign direct investment (FDI) in the United States. Malaysian FDI in the United States is led by the financial services, metal, hotels &tourism, semiconductors, rubber and electronic component. Malaysia’s Ministry of International Trade and Industry reported that the United State was the fifth largest source of foreign direct of investment (stock) in 2016.

MALAYSIA’S MEMBERSHIP IN INTERNATIONAL ORGANIZATIONS

Malaysia and the United States belong to a number of same international organization, including the United Nations, Asia-Pacific Economic Cooperation forum, ASEAN Regional Forum, International Monetary Fund, World Bank, and World Trade Organization. Malaysia and the United States participate in the East Asia Summit. Malaysia is currently a non-permanent member of the Security Council (2015-2016).

BILATERAL REPRESENTATION

THE U.S. Ambassador to Malaysia is Kamala Shirin Lakhdhir. Malaysia maintains an embassy in the United States.

Embassy of Malaysia

3516 International Court NW

Washington, DC 20008

Tel. (202)572-9700.


The demographics of Malaysia are represented by the multiple ethnic groups that exist in this country. Malaysia's population, according to the 2010 census, is 28,334,000 including non-citizens, which makes it the 41st most populated country in the world.[1] Of these, 5.72 million live in East Malaysia and 22.5 million live in Peninsular Malaysia. The population distribution is uneven, with some 79% of its citizens concentrated in Peninsular Malaysia, which has an area of 131,598 square kilometres (50,810.27 sq mi) constituting under 40% of the total area of Malaysia.

The Malaysian population is growing at a rate of 1.94% per annum as of 2017. According to latest projection of the 2010 census, among the three largest Malaysian groups Malays and Bumiputera fertility rates are at 2.4 children per woman, Chinese 1.4 children per woman, and Indians 1.8 children per woman. Malay fertility rates are 40% higher than Malaysian Indians and 56% higher than Malaysian Chinese. Population projections in 2017 show that the Malays and Bumiputeras comprised a total of 68.8%, Chinese 23.2%, and the Indians 7.0% of the total population. The Chinese population has shrunk from the figures of 1957 when it was about 40% of Malaya, although in absolute numbers they have multiplied around threefold by 2017 in Malaysia (2.4 million in 1957 to 6.6 million in 2017, the later figure include East Malaysia), but dwarfed by the fivefold increase of Malays (from around 3.1 million in 1957 to 15.5 million in 2017).


Science policy in Malaysia is regulated by the Ministry of Science, Technology, and Innovation. The ministry focuses on five areas: biotechnology, ICT policy, industry, sea to space and core science and technology. Other ministries, such as the Ministry of Agriculture and the Ministry of Health also have science departments. Training in scientific areas was promoted during the 1970s and 1980s. From 1987-1997 research and development used 0.24% of GNP, and in 1998 high-tech exports made up 54% of Malaysia's manufactured exports.

Malaysia is one of the world's largest exporters of semiconductor devices, electrical goods, information and communication technology products. Innovation in Malaysia is dominated by large foreign multinational companies.

History

In an effort to create a self-reliant defensive ability and support national development, Malaysia privatised some of its military facilities in the 1970s. This has created a defence industry, which was brought under the Malaysia Defence Industry Council in 1999. The government continues to promote and market this sector and its competitiveness. The first satellite operated by Malaysia was during 1996 when a private company, MEASAT Satellite Systems Sdn. Bhd (formerly known as Binariang Satellite Systems Sdn. Bhd) bought 2 communications satellites from Boeing Satellite Systems named them MEASAT-1 and MEASAT-2. MEASAT-3 and MEASAT-3A was launched on 2006 and 2009 respectively. Malaysia successfully designed and built its first remote sensing satellite named TiungSAT-1 through collaboration between Astronautic Technology Sdn Bhd in Malaysia and Surrey Satellite Technology Ltd. in the United Kingdom. The satellite was launched into low Earth orbit on 26 September 2000 at Baikonur Cosmodrome, Kazakhstan. Malaysia's second remote sensing satellite, RazakSAT was launched on 14 July 2009 and RazakSAT-2 was planned to be launched in 2015. In 2002 the Malaysian National Space Agency (Angkasa) was formed to deal with all of Malaysia's activities in space, and to promote space education and space experiments. It is focused on developing the "RazakSAT" satellite, which is a remote sensing satellite with charge-coupled device cameras. In early 2006, Sheikh Muszaphar Shukor and three other finalists were selected for the Angkasawan spaceflight programme. This programme came about when Russia agreed to transport one Malaysian to the International Space Station as part of a multibillion-dollar purchase of 18 Russian Sukhoi Su-30MKM fighter jets by the Royal Malaysian Air Force.

In an effort to create a self-reliant defensive ability and support national development Malaysia privatised some of its military facilities in the 1970s.[3] This has created a defence industry, which in 1999 was brought under the Malaysia Defence Industry Council. The government continues to try and promote this sector and its competitiveness, actively marketing the defence industry.[3] One way it does this is through the Langkawi International Maritime and Aerospace Exhibition, one of the largest defence and civil showcases in the Asia Pacific, regularly attended by over 500 companies.[3] The Malaysian Armed Forces relies heavily on local military technology and high-tech weapons systems designed and manufactured by foreign countries.

The Malaysian Antarctic Research Programmer began in 1997 following an invitation from New Zealand to use Scott Base and Malaysian cabinet approval. A task force created by the Academy of Sciences Malaysia sent their first expedition in 1999. On 5 August 2002 the University of Malaya established the National Antarctic Research Centre. The Antarctic Research Programmer's area of interest was extended to the arctic in 2006.[7] On 31 October 2011 Malaysia became a party to the Antarctic Treaty.[8]

In July 2011, a group of Malaysian scientists founded the Scientific Malaysian network, a non-profit initiative to connect Malaysian scientists across the globe.[9]


DOING BUSINESS IN MALAYSIA

Malaysia, A country of Southeast Asia lies just north of the Equator and is composed of two noncontiguous regions: peninsular Malaysia and East Malaysia (which is one of the island of Borneo). Kuala Lumpur, Malaysia’s capital and Putrajaya, the administrative and government center are located in the western part of peninsular Malaysia. The state of Sabah and Sarawak occupy roughly the northern fourth of the island of Borneo and share land boundaries with Indonesia and Brunei.

MARKET OVERVIEW

For centuries, Malaysia has profited from its location at a crossroad of trade between the East and West, a tradition that carries into the 21st century. Geographically blessed, peninsular Malaysia stretches the length of the Strait of Malacca, one of the most economically and politically importantshipping lanes in the world. Capitalizing on its location, Malaysia has been able to transform its economy from an agriculture and mining base in the early 1970s to a relatively high-tech, competitive nation, when services and manufacturing now account for 74 percent of GDP (52 percent in services and 22 percent in manufacturing in 2016).

Malaysia’s 2017 GDP growth is expected to be between 4.3-4.8 percent, while its 2016 GDP growth was 4.2. Prior to this, Malaysia’s GDP growth in 2015 was about five percent, six percent in 2014, and 4.7 percent in 2013. Malaysia is an oil and gas producing country and has been facing economic headwinds from declining oil and gas prices.

Malaysia’s currency, the Ringgit has experienced downward pressure over the past few years. In 2013, the average exchange rate for the Malaysian Ringgit against US Dollar was US$1=RM3.12. In 2014, US$1=RM3.30. In 2015, it was US$1=RM3.90. for 2016, it averaged around RM4.12. The exchange rate for the month of May 2017 hovered around RM4.30 to US$1. The lower exchange rate has impacted Malaysia’s economyand the government has been taking financial policy steps to strengthen its currency. The weaker ringgit and slower growth have dampened consumer sentiment and spending throughout 2016 and into early 2017. In Q2 2017, the Malaysian Ringgit strengthened slightly against the US dollar.

Despite the factthe Malaysian economy is facing turbulence; it is worthwhile to note that according to the International Monetary Fund World Economic Outlook Projection (Oct 2016), Malaysia’s per capita income was US$9546 (world ranking 66/189 economies) and its Purchasing Power Parity (PPP) was US$27,234,080 (world ranking 48). Its purchasing power per capita is among the third highest in ASEAN, after Singapore and Brunei. Malaysia’s level of economic development drive both consumer and business demand for products and services. Its consumer, trough price sensitive, are accustomed to several decades of strong growth. Thus, they are attracted to and are familiar with international branded products, better education, quality healthcare products and services as well as ecological lifestyle offerings.

By December 2016, Malaysia reported it population size to be 31.7 million. According to Bank Negara Malaysia (Malaysia’s Central Bank), Malaysia’s 2016 GDP is RM1,230,121 million (US$298,573 million); while in 2015 it was valued at RM1,062,805 million (US$272.5 million); whereas its 2014 GDP was RM1,012,506 million (US$306,820 million). The World Bank classified Malaysia as an upper-middle income nation. The average foreign exchange rate for 2014 was US$1=RM3.3; 2015 was US$1= RM3.90. For 2016, foreign exchange was RM4.12.

Malaysia’s total trade for 2016 was $358 billion. This is a 4.5 percent decrease in value compared to 2015. Malaysia’s top trading partners:

China16.2 percent
Singapore 12,6 percent
United States9.2 percent
Japan8.1 percent
Thailand5.8 percent
Taiwan 4.3 percent
South Korea4 percent
Indonesia 3.8 percent
Hong Kong3.4 percent
India3.3 percent
                         

According to the Bureau of Economic Analysis, there was a 154 percent increase in Malaysia’s Foreign Direct Investment (FDI) into the United States between 2010 and2015. In 2015, Malaysia’s the cumulative FDI into the United States was US$1,613 million.

In 2014 (latest available data), U.S. affiliates of Malaysian-owned firm employed 2,700 U.S. workers. In 2014, U.S. affiliates of majority Asian and Pacific-owned firm spent US$10.5 billion on research and development (R&D), and contributed US$116.9 million to U.S. goods exports expansion. The top six industry sector of the Malaysian FDI are from financial services, metals, hotels & tourism, semiconductors, and electronic components.

TOP REASONS WHY U.S. COMPANIES SHOULD CONSIDER EXPORTING TO MALAYSIA

There are numerous reasons why U.S. companies should consider exporting to Malaysia. These include the widespread use of English, the ability to repatriate capital and profits, a well-established legal framework, excellent infrastructure, and an affinity for United States products. In addition, a high rate (approximately 96 percent) of U.S. visa approvals and a 10-years maximum validity visa make it easy for your business partners to travel to the United States.

TRADE AGREEMENTS

The U.S. has formally withdrawn from the Trans-pacific Partnership Agreement (TPP). There are indication that the remaining eleven signatories of TPP plan to move forward with the TPP without the United States. The remaining eleven signatories of the TPP are: Australia, Brunei, Canada, Chile, Malaysia, Mexico, New Zealand, Peru, Singapore, Vietnam and Japan.

The United States in favor of bilateral trade agreements over multilateral and it will continue to engage with the Asia-Pacific Economic Cooperation (APEC) countries.

Malaysia is negotiating a Regional Comprehensive Economic Partnership (RCEP), which is a free trade agreement (FTA) between the ten ASEAN members and six countries where ASEAN have existing FTAs. The goal of the RCEP is more comprehensive regional economic integration among its members. The RECP also aims to simplify and harmonized the RCEP member countries’ respective bilateral FTAs.

The RCEP members are; Australia, Brunei, Cambodia, China, India, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand and Vietnam.

Malaysia’s trade to the RCEP parties represents 62 percent (US$221.7 billion) of the nation’s global trade in 2016. The RCEP agreement negotiation is expected to finalized by the end of 2017. If the RCEP is accepted, it will be Malaysia’s largest multilateral agreement.

MARKET CHALLENGES

In the World Bank’s global Doing Business 2017 report, Malaysia had an overall downgrade of one rank to the 23rd position among the 190 economies covered in the survey. This report states that it is now more difficult to start business in Malaysia and the difficulty level is a significant drop warranting a downgrade from the 59th position in 2016 to 112th position in 2017. The ease of “Getting Credit” has increased nine positions to 20th ranking.

IMPORT PERMITS

Duty rates and systems of import permit in protected industries, such as automobiles and motorcycles, combined with excessive excise taxes, continue to block open trade in these sectors.

RESTRICTIONS ON FOREIGN INVOLVEMENT

Government restrictions hamper foreign involvement in several areas, including: government procurement contract; financial, business and professional services; and telecommunications. In many cases it is imperative to have a local partner, usually a Malay-owned Bumiputera company to effectively compete in the market.

ITELECTUAL PROPERTY RIGHTS (IPR)

Malaysia continues to express a commitment to protecting and enforcing intellectual property rights (IPR), and has made important progress in the past few years, with its notable removal from the USTR special 301 watch list in 2012. Malaysia reinforced IPR protection commitment while negotiating for TPP. The member countries have agreed to the common goal of trade and investment framework integration across these countries, including strong and balanced standards for the protection and enforcement of IPR.

While challenges remain, Malaysian official have augmented their resources to combat online piracy and have sustained their effort to deny access to piracy website, taking down infringing content on domestic site, and conducting raids and arrest of Malaysians either operating or posting links to sites with pirated content. The ministry of Domestic Trade, Cooperatives and Consumerism (MDTCC), responsible for IPR enforcement, remained largely dependent upon complaints from companies before taking action. Royal Malaysian Custom continued to express willingness to expand cooperation with the U.S. government to combat transshipments of pirated goods.

In contrast to generally favorable views of Malaysia’s record of IPR enforcement, the pharmaceutical industry has expressed concerns that weaknesses in the system of protecting drug-related data stood as a disincentive to the development of innovative medicines and could undermine public health objective to improve patient outcomes. As a result, the National Pharmaceutical Regulatory Agency (NPRA) has implemented the pharmaceutical data exclusivity clause. Pharmaceutical data exclusivity is calculated based on the date the product is first registered, or granted marketing authorization and granted data exclusivity in the country of origin or in any country recognized, and deemed appropriate by the NPRA director.

HALAL CERTIFICATION

Malaysian has developed a standard MS1500:2400 requirement for the production, preparation and handling of Halal food. This standard prescribes to the practical guidelines for food industry on the preparation and handling Halal food and serves as a basic requirement for food product and food trade or business in Malaysia. It used by JAKIM (the Department of Islamic Development Malaysia) as the basis for certification. JAKIM is Malaysia’s Halal certifying body. In actual practice, standards and testing have remained unclear in some instances, and foreign companies have had difficulties with the certification process.

MARKET OPPORTUNITIES

Due to recent global event, such as the rising world geopolitical tension in the Korean Peninsula and the recently strained U.S.-China relations, the Malaysia marketplace has become more cautionary. However,Malaysia’s 2017 Gross Domestic Product is expected to be between 4.3-4.8 which signals a solid economic climate. While the value of the Malaysian Ringgit has depreciated against the U.S. dollar over the past three years; since the beginning of 2017 the Ringgit has started to appreciate and consumer sentiments and concern are lessening.

Additional market opportunities exist in the proposed or under construction transportation infrastructure projects:

  • High Speed Rail between Malaysia and Singapore
  • Toll-free Pan Borneo Highway to be completed by 2021 with cost estimation of RM16.6 billion.
  • Proposed LRT service from Kuching-SamarahanSerian in Sarawak
  • Upgrade of Sarawak interior roads

The government is committed to nation building and has outlined the following projects as key to this goal:

  • Nine domestic projects in health, education, tourism, software and communication infrastructure with allocated budget of RM6.7 billion by KhazanahBhd (Malaysia’s sovereign wealth fund).
  • Increase Internet speed in rural areas from 5Mbps to 20Mbps with an allocation of RM1.2 billion by the Malaysian Communication and Multimedia Commission (MCMC).
  • Clean portable water treatment plant estimated budget of RM877 million earmarked.

Government of Malaysia’s affordable housing:

  • 175,000 units of PR1MA homes, to be sold at 20 percent below market price
  • 100,000 units of PPA1M houses to be built and completed by 2018, (priced between RM90,000-RM300,000).
  • 22,300 units of condominium
  • 9,800 units of terrace houses
  • National flood forecasting and warning program, develop National Earthquake and Tsunami Sub-Center in Sabah with an estimated cost of RM60 million.

Please see Leading Sector chapter for more specific information on market opportunities.

MARKET ENTRY STRATEGY

Most exporters find that using a local distributor or agent is the best first step for entering the Malaysian market. A local distributor is typically responsible for handling custom clearance, dealing with established wholesalers/retailers, marketing the product directly to major corporations or the government, and handling after-sales service. Exporter of services generally also benefit from using of local partner.

Sales to Government of Malaysia, Government Linked Companies (GLC), or for procurement in priority sectors favor local agents and/or a joint venture partners that are classified as a Bumiputra (Malay) company. The term Bumiputra refers to individuals who are ethnically Malay. A Bumiputra company is defined as a company that fulfills the following criteria:

  • Established under the companies act, 1965
  • Paid-up capital of at least RM25,000
  • Shareholders are 100 percentBumiputra
  • Board of Directors are at least 51 percent Bumiputra
  • Managerial and Professional staff are at least 51 percent Bumiputra
  • Supporting staff are at least 51 percent Bumiputra

The Malaysian government and GLCs make use of offsets and other measures to encourage technology transfer, particularly in the priority sector procurements. The Government of Malaysia and GLCs also look favorably on U.S. companies that have a long-term presence in the local market. Therefore for strategic or large-scale market entry, U.S. companies typically find they are treated more favorably when they are willing to establish a local office, hire Malaysians, engage in training, undertake some amount of local assembly or production, or at least plan a regular and frequent trips to maintain relationship and presence.

In Sectors that are not government dominated, companies, agents, or distributors should be selected based on competitive consideration (e.g. technical grounds or product knowledge). Since the Malaysian market is a very relationship oriented market, having a local presence or local agent can influence the final outcome.