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Foreign Investment Opportunities In Malaysia 



Shaped by policies to liberalise foreign equity shareholding in various sectors, Malaysia is considered one of the most attractive countries in Southeast Asia for foreign investors. According to the Malaysian Investment Development Authority (“MIDA”), Malaysia recorded foreign direct investments of RM54.7 billion in 2017 in the manufacturing, services, agriculture, mining, plantation and commodities sectors.  Notwithstanding such liberalisation policies, restrictions on foreign equity ownership remain in place for certain sectors. These restrictions (which may be imposed through the approval of, or issuance of licence by, the relevant ministries or regulatory bodies) may have a bearing on foreign investors planning to invest in Malaysia. Some of the affected sectors are the trading, manufacturing, insurance and oil and gas sectors which will be discussed in the ensuing paragraphs.  



Foreign investors looking to set up business in the trading sector need to be aware of the Guidelines on Foreign Participation in the Distributive Trade Services Malaysia (“DTG”)  previously issued by the Ministry of Domestic Trade, Co-operatives and Consumerism (“MDTCC”). The DTG regulates the distributive trade sector in general and requires proposals for foreign involvement in distributive trade to be approved by MDTCC. Such proposals encompass, amongst others, acquisitions of interest, mergers and/or takeovers of a distributive trade business by foreign participants with the exception of certain businesses, products and services which are governed by other specific legislation. For example, medicinal products do not fall within the ambit of the DTG as the manufacture, sale and supply of medicinal products are regulated by the Control of Drugs and Cosmetics Regulations 1984.


Coming back to trading companies which are regulated by the DTG, whilst the Malaysian government has gradually liberalised equity ownership in trading companies, those conducted on a larger scale such as hypermarkets must still have at least 30% equity participation by Bumiputera. Bumiputera means a Malay individual or aborigine, and in the context of a company, means a local company where more than 50% of the voting rights in the company are held by Bumiputera. The DTG also protects smaller Malaysian entrepreneurs as it prohibits foreign involvement in certain distributive trade such as mini markets and convenience stores.


The MDTCC may also impose conditions on a trading company when approving a proposal for foreign participation. One of the key requirements under the DTG is that the business must be carried out by a local company incorporated under the Companies Act 2016. Other requirements include the appointment of Bumiputera directors and a minimum level of capital investment.


Whilst the DTG does not have equal force as a legislation 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 other licences and approvals from other regulatory bodies.  




Under the Industrial Co-ordination Act 1975, companies intending to carry out manufacturing activities are required to submit an application to MIDA for a licence.  However, a manufacturing company with shareholders’ funds of less than RM2.5 million and less than 75 full-time paid employees is exempted from the licensing requirement.  


Equity shareholding in all manufacturing projects were liberalised effective from 17 June 2003, allowing foreign investors to hold 100% of the equity in all investments in new projects, as well as investments in expansion or diversification projects by existing companies irrespective of the level of exports and without excluding any product or activity.  This is a boon to foreign investors intending to set up new manufacturing facilities in Malaysia. However, foreign investors seeking a stake in manufacturing companies which were granted with manufacturing licences prior to the liberalisation measure in 2003 will have to be wary that these manufacturing licences may still have equity conditions attached to them. Therefore, their investments may be affected unless the manufacturing company applies and is granted a waiver of the equity conditions that were imposed prior to 17 June 2003. A foreign investor can find out if there are equity conditions (or other important conditions such as conditions relating to the level of exports) attached to a manufacturing licence by doing a due diligence on the manufacturing company prior to completing the acquisition of the manufacturing company.  


Whilst foreign investors are allowed to wholly own new manufacturing facilities in Malaysia, there is still room for the regulator to impose other conditions which may affect a foreign investor’s investment plan in Malaysia. In deciding whether to grant a manufacturing licence, the licensing officer will consider whether the issue of the manufacturing licence is consistent with national economic and social objectives and would promote the orderly development of manufacturing activities in Malaysia.  In furtherance of these objectives, conditions may be imposed together with the issue of the manufacturing licence.  


Oil and Gas


Upstream sector


The Petroleum Development Act 1974 (“PDA”) and the Petroleum Regulations 1974 are the main legislation governing petroleum activities and operations in Malaysia. Any person wishing to participate in the upstream sector of the oil and gas industry in Malaysia must obtain a licence from Petroliam Nasional Berhad (“PETRONAS”)  which has been vested with the ownership and control of petroleum resources in Malaysia.  Foreign companies wanting to participate in exploration operations are required to enter into production sharing contracts with PETRONAS which will contain the requirements imposed by PETRONAS.


Downstream sector


The PDA provides that no person other than PETRONAS may carry out the business of processing or refining of petroleum or manufacturing of petro-chemical products from petroleum, or marketing or distributing petroleum or petro-chemical products unless the Prime Minister of Malaysia has given his permission.  There is also a requirement to obtain permission from the Ministry of International Trade and Industry in order to carry on processing, refining or manufacturing activities, while those intending to market or distribute petroleum or petro-chemical products must make an application to MDTCC for permission.  According to PETRONAS’ General Guidelines – Application for Petronas License and Registration  (“PETRONAS General Guidelines”), PETRONAS has a policy which requires an applicant to register with them before participating in activities in the downstream sector.


General requirements


The PETRONAS General Guidelines also provide that a foreign company must submit a licensing or registration application to PETRONAS through a local company appointed to act as its exclusive agent or through a joint venture company formed with a local company or individual. Such local company or joint venture company must comply with the minimum requirements imposed by PETRONAS which cover, amongst others, Bumiputera participation in equity, Board of Directors, management and employees, technical requirements and mode of operation. Such requirements depend on the Standardised Work and Equipment Categories (SWEC) for products and services issued by PETRONAS for both upstream and downstream sectors and they may vary from time to time. In addition, the company needs to have a minimum paid-up capital of RM100,000 for a licence application and RM10,000 for a registration application.




To recap, in 2009, Malaysia liberalised foreign ownership rules in the financial sector and foreign equity participation in insurance companies and takaful operators was increased to 70%. A higher foreign equity limit beyond 70% for insurance companies will be considered on a case-by-case basis by Bank Negara Malaysia (Central Bank of Malaysia) for players who can facilitate consolidation and rationalisation of the insurance industry.


Foreign insurance companies wanting to establish business presence in Malaysia are required to adhere to the permitted foreign equity limit. As for foreign insurers who have already been granted their licence to operate in Malaysia but have not complied with the permitted foreign equity limit, Bank Negara Malaysia has recently prompted these foreign insurers to comply with their commitment to reduce their shareholding in their local units to 70% before a 30th of June deadline this year.


Bank Negara Malaysia, in its statements published on 8 March 2018  and 26 March 2018 , stressed that foreign insurers were given licences to operate in Malaysia on the basis of specific commitments including maintaining a specified level of domestic shareholding within agreed timelines. Bank Negara Malaysia expects foreign insurers to honour these commitments. Amongst some of the insurance companies in Malaysia which are reported to be wholly foreign-owned are Great Eastern Life, Prudential Assurance and AIA.




The regulatory framework set out herein was implemented prior to Malaysia’s recent general election on 9 May 2018 (“GE14”). With the conclusion of GE14 and the formation of a new government in Malaysia, it will be interesting to see how, if at all, the Malaysian government will change the country’s economic and investment policies. Legislation, regulations, rules, policies and measures administered by regulatory bodies may change and even the Cabinet ministries may take on a new form. Foreign investors should nonetheless be well apprised of the legal and regulatory requirements attendant to the respective sectors before investing.

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Michelle Wong Min Er was admitted as an Advocate & Solicitor of the High Court of Malaya in 2006 and she is currently a Partner in Shearn Delamore & Co. in Malaysia. Michelle has represented multinational corporations, companies which are listed on the stock exchange, statutory bodies and private equity funds in mergers and acquisitions (both cross-border and domestic), joint ventures, foreign investments, equity capital markets, securities offerings such as IPOs, and corporate restructurings. She has been involved in projects that cut across different industries such as manufacturing, healthcare, tourism, banking, insurance, trading, construction, utilities, port and highway concessions, and other regulated and licensed sectors. Michelle also handles commercial agreements such as those relating to distribution, management, supply and other types of services.


Michelle Wong Min Er

Partner, Shearn Delamore & Co

About Shearn Delamore & Co

7th Floor, Wisma Hamzah-Kwong Hing
No.1, Leboh Ampang
50100 Kuala Lumpur, Malaysia

Shearn Delamore & Co. is dedicated to meeting our clients’ needs. Established in 1905, the firm is one of the oldest full-service law firms in Malaysia, and has evolved over the last 10 decades into one of the largest, providing a comprehensive range of services to clients ranging from private individuals to the largest multinationals.


With over 100 lawyers and 300 staff, the firm has the resources to run and manage the most complex projects, transactions and matters. This would include co-ordinating and managing cross-border transactions together with the foreign and international law firms with whom we continuously work. By combining our diverse experience and interdisciplinary collaborations, we are able to provide a complementary range of skills.


Shearn Delamore & Co. maintains extensive global network links with foreign law firms and multilateral agencies, including the World Law Group (WLG), the World Services Group (WSG) and the Employment Law Alliance (ELA).


If regional co-ordination is required for any transaction or project, we can draw upon the resources of and can work together with some of Southeast Asia’s best law firms.    

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