What is Investment Regulations and Policy Framework of Malaysia ?

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 Investment Regulations and Policy Framework of Malaysia

            Despite of the fact that the NEP goal of 30 per cent foreign ownership was not reached in 1990. The Malaysian government encourages FDI in most industrial areas. This is particularly true when opportunities for Bumiputras are enhanced. Moreover, export enhancing FDI has been denoted as the engine to growth in the private sector (Jayasankaran 1995: 44).

   Major Investment Incentives

              Malaysian FDI incentives are in close coherence with the economic policy framework and can be considered competitive in comparison to other nations. The liberalization processes in foreign exchange controls and in trade together with stable political and economic conditions, served as major incentives to FDI. In addition, there are major tax incentives through the Pioneer Status and Investment Tax Allowance. The Pioneer Status, gives a foreign investor 100 per cent tax relief on Malaysian income tax over the first 5 years and the possibility to get it extended an additional 5 years, if certain industry specific conditions are met (US Department of Commerce 1993: 12). In order to get Pioneer Status, such an investor must show the potential for increasing Malaysian Exports employing new technologically advanced processes in production. Thus, in the agricultural sector, Pioneer Status can only be granted to the processing portion of investment. Investment Tax Allowance is similar to the Pioneer Status, but the tax-free rate on income is negotiated on a case by case basis, as a percentage of capital expenditure over the first 5 years (US Department of Commerce 1993: 12).

            Furthermore, tariff protection can be enforced for competing overseas products and exemptions from custom duties on machineries, equipments and raw materials are available to most industry and agricultural sectors. The nine FTZs together with double taxation deductions on insurance premiums for exports also provide an incentive for exported oriented FDI. Also, the Malaysian government has progressively reduced the corporate income tax rate in order to improve the investment climate (Budget 1995: 19). In addition, FDI Incentives benefitting the development of human knowledge and education in Malaysia include 100 per cent tax allowances on technical or vocahonal training for up to ten years (Budget 1995: 16).

Investment Regulations

         Regulations of TDI tend to be concentrated in the financial service rather than in the manufacturing sectors. However, equity formulation, licensing and local capital accumulation are regulated. In particular, FDI in the financial service sector has been discouraged up to now Foreign ownership is limited to 30 per cent of any financial institution, and foreign banks are not allowed full access to electronic fund transfer channels. Also, all FDIs have been asked to restructure their equity formulation in compliance with the NEP objectives of increasing the capital share of Bumiputras. Licensing regulations are being liberalized, but investments are still regulated to a high degree. Any manufacturing company, local and foreign, needs a license specifying the nature of the business, production quantities, and performance expectations. Certain equity restriction are also imposed upon FDI. Foreign investors have the opportunity to hold 100 per cent of equity. However, when the investor does not, the Malaysian equity will be distributed accordingly to the NEP distribution policy. The first 30 per cent of equity not held by the foreign investor will be reserved for Bumiputras, and the rest to other Malaysians (US Department of Commerce 1993: 14).

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