Generally, restrictions on foreign investment in Malaysia are applicable depending on which sector the investment is in. As a general rule, foreign investors can hold up to 100% equity depending on the sector. However, certain sectors have restrictions on foreign investment (please see our response to "What sectors are subject to foreign Investment Restrictions screening?" below for examples) requiring a minimum of ownership by Malaysians or minimum ownership by Bumiputeras (Malays and other indigenous ethnic groups in Malaysia). These restrictions can sometimes extend to the board composition of directors and employees. These restrictions are imposed by the industry regulators when the relevant company applies for the relevant licenses, approvals and permits (“Licenses”) to carry out its business in the specific sector. In order to be eligible for such Licenses, the company will need to meet the equity conditions applicable to such Licences. Additionally, such Licenses may contain terms and conditions requiring approval of or notification to the regulator for any change of shareholding.

It is a combination of both. While foreign investment restrictions in certain sectors (such as security and financial services sectors) are aimed at protecting national security, some foreign investment restrictions are aimed at economic protectionism, as well as ensuring Bumiputera and Malaysian participation in the specific industries (such as restrictions in the oil and gas sectors, distributive trade and professional services).

Foreign investors generally include investments from an individual with non-Malaysian citizenship and companies that are majority-owned by foreigners or foreign-owned companies.

Nonetheless, there is a general trade embargo in place against Israel. The Central Bank of Malaysia has also issued a directive placing a general prohibition on any resident or non-resident in Malaysia from:

• Engaging in any dealing or transaction with Israel, its residents, and any entity directly or indirectly owned or controlled by Israel or its residents.
• Engaging in any dealing or transaction involving or using Israeli currency.

In addition, under the Strategic Trade Act 2010, export controls are in place on strategic and technological items relating to arms and materials for the design, development, production and delivery of weapons of mass destruction ("WMD"). At present, the list of prohibited or restricted user countries (with different levels of restrictions) in this category include:

• The Democratic People’s Republic of Korea.
• The Islamic Republic of Iran (including the Iranian Revolutionary Guard Corps).
• The Democratic Republic of Congo.
• Ivory Coast.
• Lebanon.
• Sudan.
• Libya.
• Afghanistan.
• Iraq.
• Liberia.
• Rwanda.
• Somalia.
• Eritrea.

A non-exhaustive list of principal industries that are subject to restrictions on foreign investment include:

• Financial services
• Capital markets
• The insurance and Islamic insurance (takaful) industries
• The petroleum industry
• Communications and multimedia
• Wholesale and distributive trade (in relation to hypermarkets and food and restaurant businesses)
• Education
• Freight forwarding and shipping
• Water
• Energy supply
• Professional services
• Security and employment agencies

The threshold of equity ownership of foreign investors and/or minimum requirements of Bumiputera or Malaysian ownership differ from industry to industry and the relevant Licenses held. It usually ranges from 30% to 100% Bumiputera or Malaysian ownership requirements.

The notification requirements are regulated at the sector-specific level and depend on the terms and conditions of the specific Licenses held by the entity.

The approval requirements are regulated at the sector-specific level and depend on the terms and conditions of the Licenses held by the entity.

Specific to real estate investments, investors may be required to obtain prior written approval from the Economic Planning Unit ("EPU") of the Prime Minister’s Office if they are acquiring property (whether directly or indirectly) that meets the following criteria set out by the EPU: -

1. direct acquisition of property valued at RM20 million and above and such acquisition will result in the dilution of Bumiputera and/or government agency interest; and
2. indirect acquisition of property by other than Bumiputera interest through the acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or government agency, having property more than 50% of its total assets, and the said property is valued more than RM20 million.

As a result of COVID-19, a number of stimulus packages and policies were announced by the Malaysian Government that are expected to have a positive impact on foreign investment activities. These include inter alia, tax incentives for companies relocating to Malaysia, investment funds established to match institutional private capital investment with selected venture capital and early-stage tech fund managers, tax rebates granted to small and medium-sized enterprises which are established between 1 July 2020 to 31 December 2021 and the relaxation of conditions imposed on manufacturing and services companies that have been approved with incentives by the Malaysian Investment Development Authority.

Some tax incentives under these stimulus packages have now been extended in recent legislation. For example, under the 2022 National Budget, tax rebates for the first three years of assessment (YA) were extended for another year to apply to small and medium-sized enterprises that were established by 31 December 2022 and carry out business activity through online platforms.

As foreign equity restrictions are overseen by the relevant regulatory authority within the specific sector, such processes vary from each regulatory authority. As such information is not made public, we are not able to comment on how active they are in reviewing, delaying, modifying or blocking applications for foreign investment.

It depends on the discretion of the regulators and the current policies in place. As such information is not made public, we are not able to comment on how active they are in approving or rejecting applications for foreign investment. For example, in deciding on the approval or rejection of an application for a manufacturing license, Section 4(3) of the Industrial Co-Ordination Act 1975 provides that the licensing officer shall consider whether the issuance of the license is consistent with national economic and social objectives and would promote the orderly development of manufacturing activities in Malaysia. However, in deciding on any activity or product which is of national and strategic importance to Malaysia to be deemed as a promoted activity or promoted product, the Promotion of Investments Act 1986 states that the relevant minister has the authority to consider on a case-by-case basis.

Yes, we expect more regulatory developments over the next 6 months as more economic initiatives are being introduced as part of the Malaysian Government’s proactive steps in restructuring the economy to accelerate growth and stimulate business investment (both foreign and domestic) in Malaysia.

The establishment of a merger control regime is anticipated to take place in 2024 following the issuance of a Consultation Paper on the Proposed Amendments to the Competition Act 2010 by the Malaysia Competition Commission ("MyCC") on 25 April 2022. Despite the timeline being uncertain as of date, a practice standard and merger-related guidelines are also slated to be issued by the MyCC before the proposed amendments are tabled in Parliament for the merger control regime to take effect. 

The Companies Amendment Bill 2023 which was tabled in the Malaysian Parliament on 10 October 2023 is set to introduce provisions to regulate beneficial ownership reporting for foreign companies registered with the Companies Commission of Malaysia ("CCM") in order to carry on business activities in Malaysia.

The 2024 national budget also introduces new measures regulating foreign investment. These include, inter alia, global minimum tax on companies with global revenue meeting the set threshold (to take effect in 2025) and a flat rate of 4% stamp duty imposed on Memorandum of Transfer ("MOT") by non-citizens and foreign-owned companies acting as purchasers. Tax incentives include, inter alia, outcome-based tax incentives for global services companies that carry out qualifying services, special income tax rates for companies in the entertainment sector, extension of tax incentives for angel investors of technology startups, income tax exemption for Labuan entities that carry out Islamic financial-related trading activities under Labuan International Business and Financial Centre ("IBFC"), and special tax deductions for companies that contribute to activities related to environmental preservation and educational programs.