Foreign Direct Investments (FDI): Investing in Malaysia

Foreign Direct Investment in Malaysia. A strong economy, a welcoming administration, a well-educated workforce, and a well-developed infrastructure have quietly converted Malaysia into a desirable investment destination for international investors. Many have invested in Malaysia by setting up companies in the country.

Reasons to enter the Malaysian markets

There are several reasons why a foreign investor might choose to invest in Malaysia.

• In Malaysia, a foreign investor will benefit from a Skilled Workforce system; most of those in the workforce can speak and converse in English
• According to the latest statistics compiled by the World Bank, Malaysia ranks 12th in the world as a foreign investment-friendly country.
• The foreign investment and foreign exchange policies of Malaysia are relatively lenient because they allow for foreign direct investment in most industries. Furthermore, there are no limits to foreign ownership of share capital in Malaysian companies.
• Malaysia is one of the primary recipients of Foreign Direct Investment (FDI) in the region. In 2019, the majority of the foreign direct investment in Malaysia originated from China, Singapore, Japan, and the United States.

The government of Malaysia has sought to position Malaysia as a gateway to the Association of Southeast Asian Nations (ASEAN) market by offering various incentives and tax reductions to foreign investors.

The government of Malaysia has also put in place an economic program that aims to create millions of jobs in Malaysia which in turn will attract foreign investment, especially in strategic sectors such as Agriculture, Tourism, biotechnology, information and communications technology, and multimedia.

As such, with a Strategic Location, Great Investment Infrastructure and a Supportive Government, Malaysia makes a great destination for foreign direct investments.

Four Primary Investment Types in Malaysia for Foreign Investors

There are four primary investment types from which an investor in Malaysia may choose. An investor ought to select the type of investment to be made by analysing the characteristics, risks, and benefits associated with each type, and then selecting an investment type which best suits the current circumstances. As usual, all forms of investments carry risks, and investors should take note of them (such as liquidity risks, and forex slippage) before making foreign direct investments in Malaysia. The types of investments which one may choose are:

• Cash Investments,
• Growth Investments,
• Defensive Investments, and
• Fixed Assets.

How to get started in Investing in Malaysia as a Foreigner?

Any foreign investor in Malaysia must have a well-crafted plan for the investments to be made. Investors should plan well on how much need to spend, in what areas the money should be invested, and the risks which can be involved. Taxation, Legal Matters, Licensing, Investment Sectors, and Investment Plans are among the most important points that should be considered by any foreign investor.

1. Set your personal financial goals. Considering the following questions before entering the Malaysian market:
   • Are you a risk taker or a risk-adverse individual?
   • Is your current capital sufficient to meet your goals?
   • What is the planned duration of your investment?
2. Open a brokerage Account
3. Choose your investment type (shown above)

Some factors to take into account:

• The corporate tax rate of Malaysia is 24%. Malaysia imposes a form of value-added tax known as the Sales and Services Tax (SST) This is imposed on all taxable products and services. This is similar to Singapore’s Goods and Services Tax (GST).
• All companies or individuals intending to make any investment in Malaysia must register with the Companies Commission of Malaysia (SSM) which oversees every company established in Malaysia.

An objective view: Cons of Investing in Malaysia

So far, we have talked about the upsides of investing in Malaysia. We will now take an objective view regarding the cons of foreign direct investment in Malaysia, weighing certain drawbacks that you may face in your investment journey.

• Bureaucratic and regulatory burdens
• Steady rise in labour costs – there is a motion passed in February 2020 that saw a rise in the minimum wage in Malaysia, from a monthly 1,100 ringgits to 1,200 ringgits.
• the country’s increasing reliance on the economic might of China, Malaysia’s leading trade partner

Furthermore, the country’s regional, racial, and religious disparities as well as political and electoral issues have also put the country’s fiscal stability at risk.

Thus, both socio-political and monetary policy risks are associated with investing in Malaysia.

Suitable Investment Areas in Malaysia

One of the areas in which a foreign investor may choose to invest in Malaysia is the stock market. Most foreigners in Malaysia do so through the use of exchange-traded funds (ETFs). ETFs provide diversification because it is easy to buy and sell them on international stock exchanges.

Real estate is also a very lucrative investment area in Malaysia. The real estate market in Malaysia has been going through a period of much growth. This has in turn made real estate investment a common form of investment for foreign investors. However, foreign investors in this area must be wary of several risks. The Malaysian government’s attempts to reduce the cost of housing in Malaysia have sometimes led to a property glut. There are also relatively few publicly traded real estate trusts from which investors may select.

Malaysia’s abundant natural resources such as wood, natural gas, palm oil, and rubber have also created investment opportunities. This is with regards to having close to 60% of Malaysia’s land being covered by forest.

However, some areas have fewer opportunities for foreigners who plan to invest because the government restricts investment in branches of production which it considers to be necessary for national development, such as the automobile industry. Foreigners also have limited access to investment in industries such as professional services and financial services.

As an investor yourself, do take into account the above considerations before making your move.

Protection of Foreign Investment in Malaysia

There are several methods by which foreign direct investment in Malaysia can protect. Among these are the 71 bilateral investment conventions signed by Malaysia, the assistance of the International Centre for Settlement of Investment Disputes (ICSID), Malaysia’s membership of the Multilateral Investment Guarantee Agency, and the services provided by the Kuala Lumpur Regional Centre for Arbitration (KLRCA).

These organisations and entities do much to ensure that all foreign direct investment in Malaysia will conduct legally while also being adequately to protect by the law.