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Malaysia is without any doubt one of the prominent locations for conducting business. It has gained a prestigious position among other Southeast Asian investing nations. Foreign investment in Malaysia has recently grown to an exponential rate. Such rush in foreign investment sectors once made a short-term collapse in local business in Malaysia, and thus government issued restrictions on foreign equity investments at that time. Eventually, that is not the case anymore. Foreign equity ownership restrictions in Malaysia has been lifted in most instances.
For the past several years, foreign equity ownership restrictions made a great diverse impact in the Malaysian economy. It also deprived foreign investors for quite a long period of time. However, in recent years the national authority has decided to lift most of those equity restrictions, which therefore re-opened the trading path here in Malaysia. In summery liberalizing the foreign investments and giving emphasis on 100% foreign equity participation in various sectors such as telecommunications, education and healthcare gave foreign investors a huge optimism to rethink about establishing and promoting their venture here in this nation.
However, not every business has such liberalization policies, Governmental bodies have strong control over several other business sectors conducted by foreign investors in Malaysia. All the so-called liberalization has been deliberately restricted in sectors such as manufacturing, export-import trading, oil and gas. An investor in these fields needs approvals and license from appropriate local authorities and state ministries of the nation to carry out mentioned trade niches.
So, here in this article, we will try to elaborately learn about foreign equity ownership restrictions in Malaysia. Additionally, we will also try to understand who typically manages those restraints and the business sectors that felt under such investment restrictions:
The main purpose of foreign investment liberalization is that the government is seeing great potential in its business perspective that can greatly accelerate the Malaysian economy. It was their strategic vision to attract new investors to this nation.
However, Equity shareholding in all businesses, especially manufacturing businesses were highly liberalized that was initiated from 2003 onward. Through this liberalisation process, foreign investors got an opportunity of 100% of the equity in all corporate ventures.
It must be noted that, when we are talking about 100% liberalization policy, there is some layers of conditions that must be understood. According to Malaysian corporate act held by FIC in 2004, an allocation of up to 70% of the equity of a Malaysian company has been determined for the foreign investors only. The remaining 30% has to be allocated to indigenous Malaysian origins.
However, there are some businesses in Malaysia that require sufficient paperwork and approvals to comply with equity conditions in order to operate in this nation. Typically, distributive, logistic trades and industrial training sectors follow such an approach to carry out the business operations.
If a foreign businessman intends to set up a business in the trading sector in Malaysia, he, she also has to follow a separate set of guidelines as a foreign investor. There are some approvals that need to be issued at the prior duration. For instance, the Ministry of Domestic Trade, Co-operatives, and Consumerism or MDTCC primarily issue a set of approval for foreign investors to carry out the trade services Malaysia. Once that is done, the next stage will be the approval of DTG. Here DTG regulates, oversees and re-verify the primary approvals and officially works on the final level regarding the distributive business for foreign investors that have been initially approved by MDTCC.
In addition, with the two-level verification and approval processes carried out by both MDTCC and DTF, MDTCC can also impose several conditions when anyone from outside of Malaysia wants to start any company that is specifically focused on trade and manufacturing business. According to the DTG’s imposed regulation, a business that needs to be handled by the foreign investor must acquire a local company incorporation certificate under the 2016 Corporate Act.
They have also limited the minimum level of capital that has to be invested for starting a company and finally conditioned to appoint Bumiputera directors in the company. Although the DTG does not have sufficiently enacted by Parliament, failure to comply with the DTG may result in administrative consequences against the trading company which may hinder the trading company from seeking licenses and approvals from other regulatory bodies.
Apart from the restrained imposed by DTG and MDTCC, there is good news that comes in the shareholding sector of the business. Equity in shareholding all manufacturing projects were liberalized. It was finalized and effected from the middle of 2003. This allowed interested business owners to hold 100% of the equity for all relevant businesses they are planning to start. This ultimately encouraged foreign trade involvements here in Malaysia and influenced investors all around the world to try and set up their new relevant businesses in Malaysia.
Distribution, logistics or even manufacturing businesses come at the prior consideration when foreign investment in Malaysia is concerned. Under the industrial corporate Act of 1975, these sectors demanded recommended application submission for business approvals from MIDA. Then again, there are some exceptions. Some manufacturing businesses might have comparatively lower revenue income than others. If that revenue is lower than 2 million RM than in that case, there are some relaxation for that particular business for acquiring compulsory licenses.
In case foreign investment involves trade and logistics businesses that focus completely on the different niche of products, such as pharmaceuticals, and medicinal components and raw materials, DTG can not barge in and interfere. This is exclusively monitored and maintained by the Drugs and Cosmetics Regulations department under the regulation 1984 in Malaysia.
Finally, when focusing on restrains and restrictions only foreign trade investment policy in Malaysia comes up with several regulations imposed by DTG. Although, it must be admitted that vast liberalization in foreign investment came up gradually from the nation’s Government department.
However, when the market grows to an exponential rate and reaches a certain level where it can be referred to as a large company, the equity needs to be distributed and again 30% equity needs to be handed over to a local company or Bumiputera. Bumiputera also gets 50% of the voting rights in the company, as per foreign investment equity rules of Malaysia.