Malaysia: Market Profile
04 June 2018
Malaysia is one of the most open economies in the world, with a trade to GDP ratio averaging over 140% since 2010. Malaysia’s well-diversified and open economy that has successfully weathered the impact of external shocks. This is bolstered by strong macroeconomic management, with low and stable inflation and on-track fiscal consolidation.
Source: World Bank
2. Major Economic/Political Events and Upcoming Elections
Lower house of parliament passes controversial anti-terrorism bill that allows suspects to be held indefinitely without trial, and toughens penalties for sedition.
Sultan Muhammad V is sworn in as the new king, succeeding Sultan Abdul Halim Mu'adzam Shah.
An alliance of opposition parties led by Mahathir Mohamad wins the general election, Mahathir becomes prime minister.
Source: BBC country profile – Timeline, BMI Political Risk Analysis
3. Major Economic Indicators
Note: (f) forecast, (e) estimate
Source: IMF, World Bank
4. External Trade
4.1 Merchandise Trade
Source: WTO, World Bank WITS database
4.2 Trade in Services
5. Trade Policies
- Malaysia has been a member of WTO since 1 January 1995.
Malaysia is a member of the Association of South East Asian Nations (ASEAN), alongisde Indonesia, the Philippines, Singapore and Thailand, Brunei, Cambodia, Laos, Myanmar and Vietnam.
Malaysia's average applied most favoured nation (MFN) tariff increased from 5.6% in 2013 to 7.5% in 2017.
Almost all rates (99% of tariff lines) are ad valorem, while duty-free lines accounted for 56.2% of all tariff lines. The number of different tariff rates increased from 19 in 2013 to 25 in 2017.
Ad valorem tariff rates range from zero to 60% for industrial products and zero to 90% for agricultural products. Among different product groups, average tariffs are highest for transport equipment (the simple average tariff rate was 21.5% in 2017).
Import duty exemptions are applied to local and foreign manufacturing companies on raw materials and components used in the manufacture of goods for export, and for machinery and equipment not available in Malaysia but used directly in the manufacturing process.
Export duties range from 5%-30% and apply to 217 tariff lines (mainly crude oil, palm oil, and wood).
Source: WTO – Trade Policy Review
6. Trade Agreement
6.1 Trade Updates
- In April 2018, Malaysia and members of the 11-nation Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) stated they would oppose any renegotiations to accommodate the United States should the country decide to participate in the trade deal.
In April 2018, the Nigeria-Malaysia Business Council in collaboration with the Nigeria Export Promotion Council (NEPC) and the Malaysia Department of Trade set up a special trade corridor that aims to enable Malaysian businesses and Nigerian farmers and exporters to collaborate with a view to adding quality to goods exported from Nigeria to Malaysia. The special focus of this trade corridor will be on crops such as cocoa, palm produce, rubber and solid minerals that are mostly exported in their raw form to Malaysia and other markets.
6.2 Multinational Trade Agreements
- Malaysia is a member of WTO (Effective date: 1 January 1995).
ASEAN Free Trade Agreement (Effective date: January 1993) reduces tariff and non-tariff barriers between member states. The 10 members of the ASEAN Free Trade Agreement are: Brunei, Indonesia, Malaysia, Philippines, Singapore, Vietnam, Laos, Myanmar, Indonesia and Cambodia.
ASEAN-China (Effective date: January 2005 for goods and July 2007 for services) is a comprehensive economic cooperation between ASEAN member states and China. The goal of the agreement is not just eleminating tariffs, but it also seeks to address behind-the-border barriers that impede the flow of goods and services.
ASEAN-Republic of Korea Comprehensive Economic Cooperation Agreement (Effective date:July 2007) allows 90% of the products being traded between ASEAN and South Korea to enjoy duty-free treatment.
ASEAN-India Comprehensive Economic Cooperation Agreement (Effective date: January 2010) involves the liberalisation of tariffs on over 90% of products traded between the two regions, including the so-called “special products,” such as palm oil (crude and refined), coffee, black tea and pepper.
ASEAN-Australia and New Zealand Free Trade Agreement (Effective date: January 2010) aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020.
Malaysia-Chile Free Trade Agreement (Effective date: 18 April 2012) aims to progressively reduce or eliminate tariffs on their respective industrial and agricultural products. As part of the agreement, Malaysia undertook to fully eliminate import duties on 9,311 tariff lines upon date of entry into force. Chile undertook to fully eliminate import duties for 6,960 tariff lines from the date of entry into force for products that include video recording apparatus and data processing machines (electrical and electronic items), vulcanized rubber thread and cord, surgical gloves, vegetable fats, cocoa butter, fats and oil and parts of aircraft.
Preferential Tariff Arrangement-Group of Eight Developing Countries (Effective date: August 2011) involves countries that are members of the D-8 Organisation for Economic Cooperation, namely Indonesia, Malaysia, Bangladesh, Pakistan, Iran, Egypt, Turkey and Nigeria. Objectives of the member countries are to reach a preferential trade agreement to enhance intra-trade and to reach an agreement on administrative assistance in customs matters.
Malaysia-India Comprehensive Economic Cooperation Agreement (Effective date: July 2011) is a comprehensive agreement that covers trade in goods, trade in services, investments and movement of natural persons. The items on which India has obtained market access from Malaysia include basmati rice, mangoes, eggs, trucks, motorcycles and cotton garments, which are all items of considerable export interest to India. At the same time, adequate protection has been provided by the Indian side for sensitive sectors such as agriculture, fisheries, textiles, chemicals, autos.
Malaysia-Australia Free Trade Agreement (Effective date: January 2013) is a comprehensive agreement comprising 21 chapters encompassing trade in goods, services and investment as well as economic cooperation. It also covers intellectual property rights, e-commerce and competition policy.
Malaysia-New Zealand Free Trade Agreement (Effective date: August 2010) is a comprehensive agreement which covers liberalisation of trade in goods, trade in services, investment and economic cooperation. As part of the agreement, Malaysia and New Zealand will progressively reduce or eliminate tariffs on respective industrial and agricultural products. Malaysian exporters will enjoy free duty on cocoa products, carpet, tyres, margarine, steel wire, iron products and wood furniture. Imports from New Zealand into Malaysia will enjoy zero or lower duties for paper, plastics, automotive components, veneer and chemical products.
- Malaysia-Turkey Free Trade Agreement (Effective date: August 2015) eliminates and binds duties on 70% of the tariff lines. Malaysia and Turkey will progressively reduce or eliminate tariffs on a substantial number of products traded between both countries with expected duty free imports by 2022.
Japan-Malaysia Economic Partnership Agreement (Effective date: July 2006) covers trade in industrial and agricultural goods, trade in services, investment, rules of origin, customs procedures, standards and conformance, intellectual property, competition policy, enhancement of business environment, safeguard measures and dispute settlement. The agreement will result in tariff elimination of about 97% of trade in goods between the two countries on a trade volume basis, which will considerably promote trade in agricultural, forestry and fishery products as well as industrial products between the two countries.
Malaysia-Pakistan Closer Economic Partnership Agreement (Effective date: January 2008) encompasses liberalisation in trade in goods and services, investment, as well as bilateral technical cooperation and capacity building in areas such as sanitary and phytosanitary measures, intellectual property protection, construction, tourism, healthcare and telecommunications.
- Malaysia and the United States are negotiating a free trade agreement. Areas of particular interest to U.S. exporters include a reduction of Malaysian trade barriers to automobiles and certain agricultural products, provisions for the enforcement of intellectual property rights, and broader access to Malaysia’s service sectors such as financial services, telecommunications, and professional services.
Malaysia and the EU are negotiating a free trade agreement. The EU is Malaysia’s biggest palm oil market, importing MYR10bn worth of palm products in 2016. Bilateral trade between the EU and Malaysia is dominated by industrial products. The EU mainly imports machinery and appliances and mainly exports electrical equipment and machinery (both ways industrial products account for more than 90% of trade). Other sectors of relevance in terms of EU imports from Malaysia are plastics and rubber and animal and vegetable fats and oils and in terms of exports, mechanical products.
Malaysia and the European Free Trade Association (consisting of Iceland, Liechtenstein, Norway and Switzerland) are negotiating a free trade agreement. Exports from EFTA States consist mainly of precious stones, machinery and pharmaceutical products. Imports from Malaysia consist mainly of cellular phones and electrical equipment.
ASEAN member states and Hong Kong are negotiating a free trade agreement. The deal aims to cover all aspects of trade in goods, such as tariffs; rules of origin; non-tariff measures; customs procedures and trade facilitation; trade remedies; technical barriers to trade; and sanitary and phytosanitary measures.
Regional Comprehensive Economic Partnership (RCEP) is a proposed free trade agreement (FTA) between the ten member states of the Association of Southeast Asian Nations (ASEAN) (Brunei, Cambodia, Indonesia, Laos, Malaysia, Myanmar, the Philippines, Singapore, Thailand, Vietnam) and the six states with which ASEAN has existing free trade agreements (Australia, China, India, Japan, South Korea and New Zealand). RCEP will cover trade in goods, trade in services, investment, economic and technical co-operation, intellectual property, competition, dispute settlement and other issues.
Source: WTO Regional Trade Agreements database
7. Investment Policy
7.1 Foreign Direct Investment
7.2 Foreign Direct Investment Policy
- Foreign Investment Committee (FIC) primary role is to review investments related to distributive trade (e.g., retail distributors) as a means of ensuring 30% of the equity in this economic segment is held by the bumiputera (ethnic Malays and other indigenous ethnicities in Malaysia).
Foreign investments in services, whether in sectors with no foreign equity limits or controlled sub-sectors, remain subject to review and approval by ministries and agencies with jurisdiction over the relevant sectors. A key function of this review and approval process is to determine whether proposed investments meet the government's qualifications for the various incentives in place to promote economic development goals.
The Malaysian government allows 100% foreign ownership across the following sectors: healthcare, retail, education as well as professional, environmental, and courier services. Export-dependent Malaysia is keen to attract FDI and promote high-value manufacturing. Investment incentives including corporate income tax exemption and tax allowance are provided in such industries as advanced electronics, medical devices, bio-technologies and green technologies.
Restrictions on foreign investment remain in fisheries, energy, telecommunications, finance, and transport services, and foreign participation in public-private-partnership projects is limited to a ceiling of 25% of share capital.
In the oil and gas sector, foreign participation tends to take the form of production sharing contracts (PSCs). Petroleum Nasional Berhad (PETRONAS) regularly requires its PSC partners to work with Malaysian firms for many tenders. Non-Malaysian firms are permitted to participate in oil services in partnership with local firms and are restricted to a 49% equity stake if the foreign party is the principal shareholder. PETRONAS sets the terms of upstream projects with foreign participation on a case-by-case basis.
There is no foreign equity restriction in the capital market except for a 70% cap on investment banks.
In the telecommunications industry, there is a 70% cap on foreign capital for investments in network facilities providers and network service providers. Non-Malaysians are limited to 70% equity in shipping and logistics companies. These regulatory restrictions on FDI are at odds with the government's otherwise welcoming attitude to foreign investors.
The central bank, Bank Negara Malaysia (BNM), allows a greater foreign ownership stake if the investment is determined to facilitate the consolidation of the financial industry. BNM currently allows foreign banks to open up to four new branches throughout Malaysia, subject to restrictions, which include designating where the branches can be set up (ie in market centres, semi-urban areas and non-urban areas). The policies do not allow foreign banks to set up new branches within 1.5km of an existing local bank. BNM also has conditioned foreign banks' ability to offer certain services on commitments to undertake certain back office activities in Malaysia.
7.3 Free Trade Zones and Investment Incentives
|Free Trade Zone/Incentive Programme||Main Incentives Available|
|Peninsular and East Malaysia, including: Iskandar Malaysia in Southern Johor; Northern Corridor Economic Region; East Coast Economic Region; Sabah Development Corridor; and Sarawak Corridor of Renewable Energy||The Iskandar Malaysia zone in Johor is focused on attracting creative industries, educational sector groups, financial advisers and consultancies. In addition, healthcare services, tourism and logistics services are also offered inducements. These include 10-year exemptions from corporate tax, a royalty withholding tax exemption, freedom to source capital internationally, unrestricted foreign worker quotas and flexible foreign exchange rules. The Iskandar zone is ideally located for foreign investors looking to expand into other ASEAN countries, including Brunei, Myanmar, Indonesia, Laos, Singapore, Thailand and Vietnam.|
|Multimedia Super Corridor (MSC)||Special zone between Kuala Lumpur City and the Kuala Lumpur International Airport, which is focused on promoting Malaysia's IT and multimedia sectors. Companies with MSC status receive world-class infrastructure, unrestricted quotas of foreign IT workers, unrestricted ownership of MSC companies, free capital and financial mobility, a 100% income tax exemption for profits from MSC activities, international-standard intellectual property protection, freedom from internet censorship, one stop processing of regulatory approvals and protection under a series of well-developed cyber laws.|
8. Taxation – 2017
- Goods and services tax: 6%
- Corporate income tax: 24%
Source: PwC Tax Booklet
8.1 Important Updates to Taxation Information
- Malaysians with taxable income within the MYR20,000 to MYR70,000 band will see their personal income tax rate reduced by two percentage points.The rate will be reduced from 5.0% to 3.0% for those earning annual taxable income between MYR20,001 and MYR35,000.As for taxable income between MYR35,001 and MYR50,000, the rate will be lowered from 10% to 8.0%, while those taking in between MYR50,001 and MYR70,000 annually will see the rate lowered from 16% to 14%.
In March 2018, Malaysia's tax agency announced that businesses can newly challenge late-payment penalties in respect of goods and services tax (GST) via the tax agency's online portal.
The GST is reduced from 6% to 0% with effect from 1 June 2018.
8.2 Business Taxes
|Type of Tax||Tax Rate and Base|
|Corporate income tax||The main rate of corporate tax is 24%. The rates for resident companies incorporated|
in Malaysia that have paid-up capital with respect to ordinary shares of MYR2.5mn or less at the beginning of the tax-basis period and that satisfy other specified conditions (small and medium enterprises [SMEs]) are 19% on the first MYR500,000 of chargeable income and 24% on the remaining chargeable income. The above rates do not apply to companies carrying on upstream oil and gas activities under a production-sharing contract, which are taxed at a rate of 38%.
|Branch tax rate||25% on profits.|
|Real property gains tax||30% on gains derived from disposals of real property or shares in real property companies.|
|Social security contributions for labour||12% of employee income if the employee's monthly wages are above MYR5,000 per month or 13% if the employee's monthly wages are below MYR5,000 per month- all payable by the employer. The employees' contribution rate is temporarily reduced to 8% for 22 months (from March 2016 to December 2017), but an employee can opt to maintain his or her contribution at the rate of 11% of monthly wages.|
9. Foreign Worker Requirements
9.1 Localisation Requirements
The employment of foreign nationals is not encouraged in Malaysia with the 11th Malaysia Plan (2016-2020) aiming to limit the ratio of foreign labour at not more than 15% of total labour. Registered local job seekers are given priority over foreigners in filling job vacancies in the country. Companies are granted a preapproved quota for the number of workers to be imported to Malaysia under the outsourcing licence. The price could range from MYR800 to MYR1,800 per year, on top of the levy, insurance, medical examination and cost of a banker's guarantee which significantly add to high overheads, particularly for small businesses. Employers seeking to employ foreign workers must notify the Department of Labour of vacancies by registering at Jobs Malaysia to ensure registered local job seekers are given priority. Foreign workers are employed for a period of 10 years in five permissible sectors (manufacturing, agriculture, plantation, construction and services) and, depending on the categorisation of their employment pass, they may or may not marry or bring their family members, dependents and foreign aides into Malaysia.
9.2 Obtaining Foreign Worker Permits for Skilled Workers
The entry of foreign nationals in Malaysia is governed by the Immigration Act 1963 which also determines the types of employment passes that can be applied for by those aspiring to work in that country. Three types of permits are generally issued by Malaysian authorities which depend on duration of contract of employment, position to be filled and minimum/maximum salary. They include: the employment pass, the temporary employment pass and the professional visit pass permits. Foreign workers who wish to be employed by a company within Malaysia will have to have their application reviewed by the relevant government agencies, such as the Ministry of Manpower. The application for foreign workers by employers is however made easier in that it can be done at a One-Stop Approval Centre at the Foreign Workers Management Division of the Ministry of Home Affairs where various government agencies (departments and ministries) process the application for recruitment of foreign workers under one roof.
9.3 Visa/Travel Restrictions
Following the diplomatic tensions resulting from the death of Kim Jong-nam, visa free access for citizens of North Korea was scrapped on 6 March 2017. Nationals of other countries are allowed to enter Malaysia for maximum stay not exceeding a specified period of days, weeks or months (depending on country of origin). Generally, no visa is required for the Commonwealth block member countries.
9.4 Religious/Cultural Barriers
Malaysia is a multi-religion nation with almost the entire world's religions followed in the country, including Islam, Buddhism, Christianity, Hinduism, Confucianism, Taoism and other traditional Chinese religions. Islam is recognised as the official state religion of Malaysia and is practiced by over 60% of residents. While Islam is the dominant religion, the constitution guarantees freedom of religion to its general population.
The State regularly enforces restrictions on freedom of expression by media and social activities, citing the need to uphold Islam, national security, public order and friendly relations with other countries. Such restrictions are not present in Western societies and can therefore make life challenging for expatriates from developed countries. Consequently, businesses will likely have to offer higher remuneration packages in order to entice skilled expatriates to work in Malaysia.
10.1 Sovereign Credit Ratings
|Rating (Outlook)||Rating Date|
|Standard & Poor's||A- (stable)||15/05/2008|
Source: Moody's, Standard & Poor's, Fitch Ratings
10.2 Competitiveness and Efficiency Indicators
|Ease of Doing Business Index ||22/189||23/190||24/190|
|Ease of Paying Taxes Index||115/189||104/190||73/190|
|Logistics Performance Index ||32/160||N/A||N/A|
|Corruption Perception Index||55/176||62/180||N/A|
|IMD World Competitiveness||19/61||24/63||N/A|
Source: World Bank, IMD, Transparency International
10.3 BMI Risk Indices
|Economic Risk Index Rank||22/202|
|Short-Term Economic Risk Score||74.6||74.2||72.5|
|Long-Term Economic Risk Score||71.2||73.8||73.9|
|Political Risk Index Rank||76/202|
|Short-Term Political Risk Score||76.875||75.6||75.6|
|Long-Term Political Risk Score||66.7||69.5||69.2|
|Operational Risk Index Rank||31/201|
|Operational Risk Score||68||67.2||68.3|
Source: BMI Research
10.4 BMI Political and Economic Risk Indices
BMI Risk Summary - Q2 2018
Even as the opposition continues to challenge the ruling Barisan Nasional coalition - general political stability will be maintained going forward. However, the long-term sustainability of a peaceful political environment will depend heavily on the government's ability to foster closer unity in a nation with diverse ethnic and religious backgrounds.
Fiscal concerns remain the biggest risk factor to Malaysia's generally positive economic outlook in the next decade. It remains to be seen if the country will be able to attract sufficient private sector interest to bear most of the development costs of the Economic Transformation Programme.
Malaysia boasts one of the most efficient, developed and well-connected logistics networks in the world, which is a result of the country's integral role in regional and global supply chains. The large, young, healthy and urbanised nature of the Malaysian labour force means that there is a wide pool of available workers from which businesses in the country can recruit. A key threat stemming from the activities of Islamist militant groups in neighbouring countries, have the potential to spill across the border. Indeed, some attacks in eastern Malaysia have already put foreigners and businesses in danger.
10.5 BMI Operational Risk Index
|Operational Risk||Labour Market Risk||Trade and Investment Risk||Logistics Risk||Crime and Security Risk|
|East and Southeast Asia Average||55.3||56.5||55.7||54.4||54.7|
|East and Southeast Asia Position (out of 18)||5||7||4||4||7|
|Asia Position (out of 35)||5||7||4||4||7|
|Global Position (out of 201)||31||29||19||20||54|
100 = Lowest risk; 0 = Highest risk
Source: BMI Operational Risk Index
|Country||Operational Risk Index||Labour Market Risk Index||Logistics Risk Index||Trade and Investment Risk Index||Crime and Secruity Risk Index|
|Global Markets Averages||46.8||48||45.8||45.5||46.1|
|Global Markets Averages||49.8||49.8||49.3||50||49.9|
Note: Higher score = Lower risk
Source: BMI Operational Risk Index
11. Hong Kong Connection
11.1 Hong Kong’s Trade with Malaysia
|Number of Malaysia residents visiting Hong Kong||516,701||-3.5%|
|Number of Malaysians residents in Hong Kong||15,511||N/A|
Source: Hong Kong Tourism Board, Hong Kong Immigration Department
|Number of East Asia and South Asia residents visiting Hong Kong||N/A||N/A|
|Number of East Asia and South Asians residing in Hong Kong||2,784,870||N/A|
11.2 Commercial Presence in Hong Kong
|Number of Malaysian companies in Hong Kong||80||N/A|
|- Regional headquarters||6|
|- Regional offices||22|
|- Local offices||52|
Source: Hong Kong Census & Statistics Department
11.3 Treaties and agreements between Hong Kong and Malaysia
- Double Taxation Avoidance Agreements (DTAs)
- Air Services Agreements and Air Services Transit Agreements
- Mutual Legal Assistance Agreements
- Surrender of Fugitive Offenders Agreements
Source: Hong Kong Department of Justice
11.4 Chamber of Commerce (or Related Organisations) in Hong Kong
Malaysia Consulate in Hong Kong
Address: 24th Floor, Malaysia Building, 50 Gloucester Road, Wan Chai, Hong Kong
Hours of Business: Monday to Friday, 8:30 a.m. - 5:00 p.m.
Consul General: Tengku Sirajuzzaman bin Tengku Mohamed Ariffin
Tel: (852) 2821 0800
Fax: (852) 2865 1628
Source: Hong Kong Protocol Division of Government Secretariat
11.5 Visa Requirements for Hong Kong Residents
- Visa upon arrival valid for 1 month
Source: Visa on Demand
- Southeast Asia