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By overhauling many of its market mechanisms to include extensive liberalization policies, the country is attracting foreign investment inflow in to a number of industries and sectors, including financial services, logistics, and ICT. Additionally, Malaysia has become a strategic center for Islamic banking, which helps to further solidify itself as a leader in a niche market.

INDUSTRY FRAMEWORK

Malaysia defines its industry into three broad categories: indigenous small businesses, large Malaysian corporations, and local operations of multinational corporations. According to a 2014 PwC report, indigenous small businesses were once concentrated in light industry, wholesale and retail distribution, and trading, though have now moved toward small- and medium-scale industries (SMIs) via recent government initiatives. Large Malaysian corporations are primarily listed on Bursa Malaysia and count government trust agencies as majority shareholders.

FOREIGN INVESTMENT

Malaysia recognizes the importance of foreign investment and actively works to foster an environment to facilitate such inflows. PwC suggests that the limit on foreign equity of ownership of Islamic and investment banks, insurance companies and takaful operations had risen from 49% in 2009 to 70% as of 2014. Moreover, the government’s decision to allow 100% foreign ownership for fund management companies and 7% foreign ownership for unit trust management companies and stockbrokers in June 2009 has also increased interest. In June 2014, Malaysia allowed for 100% foreign equity ownership for unit trust management companies, as well as opening the market for new foreign unit trust management companies. Additionally, under the repeal of the Guidelines for the Acquisition of Interest, Mergers and Takeovers by Local and Foreign Interest that was in effect as of June 30th, 2009, the Foreign Investment Committee (FIC) no longer imposes the 3% Bumiputra equity threshold in an acquired Malaysian company.

Malaysia has signed investment guarantee agreements (IGAs) with many countries, which aim to protect against nationalization and expropriation, ensure prompt and adequate compensation in the event of nationalization or expropriation, provide free transfer of profits, capital, and other fees, and ensures the settlement of investment disputes.

REGULATORY FRAMEWORK

The 1998 Malaysian Code on Take-Overs and Mergers regulates all mergers and acquisitions, with the legal framework enacted by the Securities Commission (Amendment) Act of 1995, according to PwC. After implementing a new Code in 2010 that sought to update the 1998 Code, several significant changes have helped to change the way in which M&As occur. These include increased coverage for foreign incorporated companies and real estate investment trusts (REITs) listed on the Malaysian stock exchange, which is a shift from the previous law that only explicitly covered public companies. The code also stipulates that the settlement period after accepting a takeover offer has been reduced in order to ensure that it returns to business as usual as quickly as possible given the disruptive nature mergers have on all parties involved. Finally, the Code outlines a clear mechanism of “arrangement, compromise, amalgamation, and selection capital reductions will have the same effects as takeover offers governed by the SC to ensure there will be no gray areas or loopholes.”

ACCOUNTING

Any foreign company wishing to establish or conduct business in Malaysia is required by the Companies Act 1965 to register with the Registrar of Companies. This requires all accounting records of any foreign company’s operations within Malaysia to be kept solely in the country so as to provide sufficient explanation for any transactions and financial decisions, according to the PwC report. Foreign companies are required to register a statement with the Registrar of Companies that show the size of any assets it maintains and liabilities associated.

TAXATION

Principal taxes in Malaysia are income and petroleum income tax, while taxes on transactions include a customs and goods and services tax. Malaysia does not have a capital gains tax except for real property gains tax (RPGT), which, according to PwC, is a tax on gains arising from the disposal of real property or shares in real property companies (RPC). Income tax is imposed on any income earned from Malaysia with the exception of resident companies conducting air/sea transport, banking, or insurance business, which are then subject to taxes on a world income scope.