Glynn Cooper, John Ling, Wong Jen Ru and Raja Irfan

While Malaysia’s economic growth is anticipated to remain moderately slow for the remainder of 2020, the mix of tax incentives provided by the Malaysian government, modest valuations of targets, low cost of funds and the lower Ringgit will provide value for companies looking to make investments into the Malaysian market. Financial services, telecommunication and energy are likely to be particularly active sectors during the remainder of the year.

Recent macroeconomic trends in Malaysia

2020 has so far been a tumultuous year for the global economy, and Malaysia is no exception. The Covid-19 pandemic and the global plunge in crude oil prices has had a significant impact. Malaysia’s economy comprises a significant oil and gas sector, so the tumbling oil and gas prices, coupled with global oversupply concerns, has had an impact on Malaysia’s economy as a whole.

Bank Negara Malaysia (“BNM”), Malaysia’s central bank, projected that Malaysia’s GDP growth would fall to between -2% to 0.5% in 2020, down from 4.3% in 2019. The Malaysian Ringgit has declined by roughly 4.2% against the US Dollar since January 2020.

Malaysian government introduces stimulus packages

Against this backdrop, the Malaysian government has introduced a series of stimulus packages worth up to USD68 billion to stimulate the Malaysian economy. These measures include targeted tax reliefs to industries most affected by Covid-19, wage subsidies and upskilling programs for the unemployed, among others.

Of specific relevance in relation to investments, the Malaysian government will provide a tax holiday for either 10 or 15 years (depending on the size of the investment) for foreign investments into the manufacturing  industry. Stamp duty exemptions are also available for certain investments completed between 1 July 2020 and 30 June 2021.

BNM has also reduced interest rates to 2%, being the lowest level since the 2008-2009 global financial crisis.

Key sector specific developments for investors

Financial services: riding the digital banking wave

Following in the footsteps of Singapore amongst other jurisdictions, BNM has in December 2019 released a consultation paper on the proposed licensing framework for digital banks, and announced that up to five digital bank licences will be issued. Under the proposed licensing framework, applications will be open even to non-bank players.

BNM is finalising the policy document at the moment, having received feedback from the public consultation. We expect that BNM is likely to open licence applications sometime between Q3 and Q4 of this year.

Telecommunications: steps towards implementation of 5G

The Malaysian government had, at the end of 2018, established a national 5G Task Force to study and recommend a holistic strategy for 5G implementation in Malaysia.

In January 2020, the Malaysian Communications and Multimedia Commission (“MCMC”) announced that 700MHz and 3.5GHz bands will be assigned to a single entity in the form of a consortium formed by multiple licensees, instead of individual telco operators. MCMC is expected to hold a public tender process in the near future.

Energy: introduction of third party access regimes

As part of the Malaysian government’s intention to liberalise its gas market, it has recently introduced a third party access regime for third parties to utilise gas facilities available in Malaysia. These facilities include regasification terminals, transmission pipelines and distribution pipelines. This regime is envisaged to create healthy competition in the gas market, and the regime had its first trial LNG shipment completed last year.

Focus on Malaysia’s FDI regime

Malaysia has been taking active steps to liberalise foreign direct investment (“FDI”) restrictions. Several business sectors, such as manufacturing and certain service sectors, now permit 100% foreign ownership.

Notwithstanding such liberalisation policies, FDI restrictions remain in place for certain sectors. These FDI restrictions generally take the form of policy requirements which must be satisfied in order to obtain a sector-specific licence or approval to operate a regulated business.

FDI restrictions are usually imposed through a cap on foreign shareholding, namely a minimum level of Malaysian or Bumiputera (native or indigenous) shareholding, or both. In certain sectors, there may be also a minimum number of Malaysian or Bumiputera directors prescribed.

FDI: banking

Foreign shareholdings of up to 70% for investment banks and 30% for commercial banks are permitted. From time-to-time, a higher percentage of foreign shareholdings are permitted, subject to a case-by-case assessment by the Minister of Finance.

Some banks have in the past been granted banking licences where 100% foreign ownership was permitted.


The Malaysian government has liberalised several services sector, to allow up to 100% foreign equity participation in telecommunication services in phases, though foreign shareholding and Bumiputera equity restrictions may still be imposed as part of telecommunication licences on a case-by-case basis.

Upstream oil and gas

Minimum Bumiputera requirements for equity ownership, board of directors, management and employees of a company proposing to provide goods and services to the upstream sector in the oil and gas industry in Malaysia range from 100%, to 51% to 30%, depending on the type of services to be provided.


The general policy is that foreign equity shareholdings in the power sector are restricted to a maximum of 49%, with certain exceptions (typically on a case-by-case basis).

Occasionally, foreign equity restriction will be included in tender guidelines issued by the Energy Commission (“EC”). For example, the request for proposal issued by the EC in respect of the third round of large scale solar projects included a foreign equity limit of 49%.

In general, regulators in Malaysia maintain a broad discretion on deciding on or exempting applicable foreign equity restrictions, and are happy to hold discussions with applicants and potential applicants in advance of any formal application. Applications where positive contribution to Malaysia’s economy will generally be viewed favourably.

Given the recent macroeconomic and political trends, it remains to be seen whether Malaysia’s FDI restrictions will continue to be liberalised to attract further inbound investments.


Herbert Smith Freehills LLP is licensed to operate as a Qualified Foreign Law Firm in Malaysia. Where advice on Malaysian law is required, we will refer the matter to and work with licensed Malaysian law practices where necessary.

Glynn Cooper
Glynn Cooper
Partner, Kuala Lumpur
+60 3-2777 5102
John Ling
John Ling
Associate, Kuala Lumpur
+60 3-2777 5107
Jen Ru Wong
Jen Ru Wong
Associate, Kuala Lumpur
+60 3-2777 5120
Raja Irfan Badrol
Raja Irfan Badrol
Associate, Kuala Lumpur
+60 3 2777 5133