International investors who incorporate a company in Malaysia have limited options available to raise corporate finance as Malaysia is not a renowned financial hub like Singapore or Hong Kong. The following is an overview of funding options available to entrepreneurs who start a company in Malaysia:

Although the Kuala Lumpur Stock Exchange is one of the largest exchanges in South East Asia, with a market capitalisation of US$190 billion, in practice few foreign investors who incorporate a company in Malaysia seek financing through it. This is primarily because any company seeking listing must reserve at least 30% of its initial public offering (IPO) for purchase by bumiputra (ethnic Malays).

However, the Malaysian government attracts inward investment by offering incentives through: a) the Malaysian Industrial Development Authority (MIDA), and b) the Multimedia Super Corridor (MSC). Examples of government incentives for international entrepreneurs include:

i) Tax exemptions for qualifying companies – Investors whom incorporate a company in Malaysia can apply for Pioneer Status, under which they can enjoy tax exemptions on 70% of income for the first five years of operation. The remaining 30% of income is taxed at the standard corporate tax rate of 25%. In some sectors, for example biotechnology or information communications technology (ICT), 100% income tax exemption is available for up to 5 years. Applications for Pioneer Status are lodged with MIDA or the MSC, depending on the business activity of the investment and its location. For example, the MIDA typically handles foreign investment applications for manufacturing sectors, while the MSC handles investments in the Multimedia Super Corridor, an area of land south of the capital city Kuala Lumpur.

ii) Investment Tax Allowance (ITA) – Investors whom incorporate a company in Malaysia can apply for an ITA, available for the first five years after ITA approval. Against its taxable profits, a Malaysia company can set off a percentage of capital expenditure incurred from factory and machinery costs. For example, a company which engages in a promoted activity (e.g. an emerging technology) is eligible for an ITA of 60% on capital expenditure. A company providing research and development (R&D) services within Malaysia is eligible for an ITA of 100% on capital expenditure, incurred within 10 years of approval. A company enjoying pioneer status (see above) is not eligible to apply for ITA. Applications for ITA are also lodged through the MIDA or the MSC.

Opportunities for raising finance in Malaysia is limited by the small number of finance institutions licensed to providing financing. Of the 11 development finance institutions, the majority cater to companies operating in strategic sectors of national importance, such as manufacturing and agriculture.

Malaysia enjoys an investment-grade credit rating of A3 from Moody's Investors Service, a reflection of its low credit risk. According to Moody's it maintained this credit rating during the 2008-2009 global economic crisis. Consequently, despite the many restrictions on foreign investment, Malaysia is considered a stable country in which to invest and obtain corporate finance.

Companies setting up in the MSC enjoy: a) tax exemption of up to 10 years or a 100% ITA; b) 100% exemption from duties on the import of technical equipment for multimedia companies; c) 100% foreign ownership; and d) no limits on the recruitment of skilled expatriate workers.

Malaysia aims to cultivate and attract investment in innovative industries such as information and communications technology (ICT), electronics and multimedia. As evidence of this, the MSC hosts more than 1,100 multinational, foreign-owned and local ICT companies.

For more detailed information on the corporate finance and incentives available to investors whom incorporate a company in Malaysia, purchase our Asia Business Setup book.

For more information to incorporate a company in Malaysia, contact email@healyconsultants.com or call us in Singapore at (+65) 6735 0120.

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