Business

A Comprehensive Guide Exploring The Benefits of Doing Business in Malaysia

Malaysia is a successful nation in Southeast Asia which holds the 4^th position in the race of competitive emerging market (according to the Agility Emerging Markets Logistics Index of 2022) and ranked in the 2^nd position for being the most competitive country in ASEAN (according to the World Competitiveness Yearbook of 2002, IMD). Malaysia is also considered to have the largest economy among the ASEAN countries, wherein a simplified procedure is attracted to expand the business in the nation. Malaysia has a liberal and effective business-friendly policy providing flexible offers for incentives and strong protective laws ensuring the rights of the owners of the business units, which promotes the ease of doing business in Malaysia. Not only this, but Malaysia also offers the incorporation of a hybrid business structure, including both global and regional, that benefits the MNCs who are hunting for a strategic hub in the Asia Pacific region. The peaceful business environment of Malaysia facilitates international businesses like IBM, Intel, Google, etc., to operate in the nation.

Reason/ benefits of doing business in Malaysia

During the pandemic, i.e., in the year 2020, the World Bank ranked the Southeast Asian nation in the 12^th position in terms of ease of doing business in Malaysia, making it an ideal place with loads of foreign investors eagerly setting up and doing business in Malaysia. There exist certain advantages or reasons justifying why Malaysia is ranked in such a position in terms of ease of doing business, from production and assembly to technological experience in the business sector.

The evergreen-growing economy of Malaysia

It is one of the most crucial reasons for young entrepreneurs (whether residing or not residing in Malaysia) to attract them to carry out business operations and start doing business in Malaysia. The successful economy of Malaysia is growing day by day, with the capacity to stand in the 3^rd position for holding the biggest economy in the economic bloc. It also has an annual rate of 4.3% for the economic growth captured in 2019.

A Strategic Location

Malaysia, being a member of the ASEAN community, also enjoys a smooth trade relation with countries including Cambodia, Indonesia, Laos, Myanmar, Singapore, Philippines, Thailand, Brunei, Vietnam, Hong Kong, Tokyo, Shanghai, and Seoul. Malaysia is considered to establish a gateway for approx. 667.3 million population to freely trade in the nation.

Also, Malaysia is a country having a strategic location with quick access to the ASIAN markets for ensuring regional development, and several seaports, namely Port Klang, Port of Tanjung Pelepas, West Port, and Kuantan Port, to ensure a smooth flow of maritime trade.

Easy access to the workforce

Malaysia holds a well-established workforce structure that provides a productive, cheap, well-educated, and trained workforce to ensure the ease of doing business in Malaysia. Easy access to the workforce is ensured through diverse projects of the government of Malaysia providing provision for free education and skill development, placing the training centres (like specialized educational institutions, institutes of technology, industrial training centres, and skill enhancement institutes) in entire Malaysia, having strong command over the English language in the entire nation, lowering the cost of appointing unskilled labourers, etc. Malaysia holds the largest labour market in Asia, which would lastly attract domestic and foreign investors to invest and start doing business in Malaysia. 

Development in various sectors

Diverse growing sectors like manufacturing, finance, electronics, construction, pharmaceuticals, agriculture, aeronautics, etc., are found in Malaysia, and these ultimately add to the company or business formation in Malaysia. The ease of doing business in Malaysia is observed due to the growth in the major sectors, which provide skilled labour, cheap raw materials and commodities, and wide options for natural resources like tin, palm, oil, rubber, etc. The Malaysian tourism industry has observed significant opportunities for the growth of international entrepreneurs doing business in Malaysia. Malaysia holds the status of a destination full of unrealized potential for its abundance of natural resources, as described by the World Travel and Tourism Council. A high rise with approx. 83% of the population is present on E-commerce platforms, and approx. 61% of traffic is observed on shopping applications (reported in the year 2020), which aims to expand diverse opportunities as observed in the digital marketing platform and other associated platforms for doing business in Malaysia.

Well-developed Infrastructure Facilities

Well-developed infrastructure facilities are an advantage for entrepreneurs in setting up and doing business in Malaysia, which provides for well-developed medical and health facilities, education facilities, investment facilities, and other relevant industries like roads, railways, ports, telecommunication, water, and electricity. The growth and development of the infrastructure facilities of independent Malaysia are targeted by two motives: providing for the recognition and expansion of the infrastructure facilities important for the economic development of the nation and providing for the development of the infrastructure facilities to serve the socio-economic ends. The Malaysian government has invested a total of USD 63627 million over the last 30 years in developing the infrastructure facilities and carrying the ease of doing business in Malaysia. The high-speed rail project, which provides 7 stops, fills the gap and links Singapore and Kuala Lumpur. It is an ongoing example of the infrastructure development of Malaysia, ensuring ease of doing business in Malaysia.

Political and Economic Stability

The fact that Malaysia is a politically and economically stable and peaceful nation is yet another reason or benefit of doing business in Malaysia. According to the Global Peace Index Report of 2014, Malaysia was the safest country in Southeast Asia and 3^rd safest in Asia. On its 60^th anniversary of freedom, Malaysia continued to enjoy the political climate along with the parliamentary democracy, which follows the liberal democracy pattern.

The next reason that maintains the political stability of the nation is the lower corruption rates than other ASEAN countries, ensuring ease of doing business in Malaysia.

Strong Connectivity

2^nd highest connectivity is found in Southeast Asia after Singapore through a well-established communication facility providing for interesting growth observed in digital marketing, offline market, rapid transit system, online and social media.

Also, rapid expansion in the transport facilities was observed after 1996 targeting the growth and development of the railways, roadways, sea routes, airports, and port facilities affording easy connectivity to the legal entities established and doing business in Malaysia.

No language barrier (English widely spoken)

Malaysia is considered to hold the status of a multilingual country with Bahasa Malaysia or Malay as the official business language and English, Tamil, and Mandarin as other common languages widely followed and spoken in the nation. There is no language barrier in Malaysia as more than 70% of the population carries the culture of speaking in the English language, which simplifies the interaction among and with the local workers, manufacturers, and clients.

Liberal laws governing business taxes and incentives

The corporate tax rate of Malaysia is the lowest among all the Southeast ASEAN nations. The legal entities doing business in Malaysia enjoy the benefit of various business incentives offered by the government. Business entities investing in the priority sectors of the Northern Corridor Economic Region (NCER) and the Subah Development Corridor (SDC), namely the manufacturing sector, agriculture sector, tourism, logistics, and medical science, enjoy certain benefits as provided below:

1. The business tax incentives provide income tax exemption for at least 15 years to the business units creating employment and revenue in the rural areas;
2. A 50% reduction in stamp duty is witnessed on the instruments of transfer or lease of land for the sectors in the NCER;
3. The business incentives for investment tax allowance are offered to the small-scale manufacturers of high technology and promotional products;
4. The firms with pioneer status doing business in Malaysia are partially exempted from income tax for at least 5 years;
5. The business entities carrying out the activities associated with the tourism industry enjoy the pioneer status and investment tax allowance;
6. Incentives providing for 70% income tax exemption for at least 5 years apply to the business units carrying out agricultural activities, including aquaculture, plantation of crops for energy generation, etc.;
7. A tax incentive of 20% on the total export revenue and a maximum of 70% income tax exemption for at least 5 years is provided to the international trading companies doing business in Malaysia;
8. An investment allowance of 60% is given to the business entities engaged in the oil, gas, and petrochemicals activities;
9. Green incentives are given to entities and firms conducting green energy research and development of modern technology for clean energy;
10. Other business incentive schemes include reinvestment allowance, incentives for relocating to Malaysia, Export incentives, etc.;
11. And other business incentives are given for carrying out education and ICT activities.

There also exist certain other incentive programs benefiting the entities and firms engaged in shipbuilding and repairing, Mines Wellness City, automation, etc. doing business in Malaysia. 

Newly established Laws governing ease of doing business in Malaysia

According to the World Bank Report of 2014, the business environment of Malaysia stands in the 6^th position for being the friendliest nation and providing a favourable situation for new legal business entities to grow and continue doing business in Malaysia. A list describing the congenial business environment of Malaysia is discussed below:

1. Friendly and hospitable nature of the Malaysian population;
2. Malaysia attracts lots of tourists and investors as it is the top 10^th tourist destination in the entire world;
3. Malaysia is free from natural disasters;
4. Relatively low living cost;
5. Low cost of labour;
6. Malaysian customers prefer to explore new brands and products;
7. Holds corporate-friendly policies and other government initiatives;
8. Efficient and convenient structure for transportation;
9. Simplified regulatory framework in the nation;
10. Lesser paperwork required;
11. Friendly and welcoming business culture, etc.

The Companies Act of 2016 provides a provision attracting cheap and easy methods for registering and doing business in Malaysia. Some of the benefits of ensuring and simplifying the ease of doing business in Malaysia are provided below:

1. Allows for the incorporation of a company with a single shareholder and director;
2. The dormant, zero-revenue, and qualified companies are exempted from filing the annual audit;
3. The private companies are not mandatorily required to conduct the annual general meeting, i.e., AGM;
4. The private companies can easily pass the written resolutions, etc.

Free Trade and Investment Guarantee agreements

The government of Malaysia aims to provide various free trade and investment guarantee agreements to ensure the ease of doing business in Malaysia. The Malaysian Industrial Development Authority (MIDA- a one-stop shop for doing business in Malaysia) is a statutory body incorporated in 1967 to harmonize the government’s promotional efforts, resources, intellectual property (IP) protection laws, and a well-established dynamic and sustainable structure or agency for attracting investment opportunities in the nation. A detailed structure of the trade agreements and the investment guarantee agreements are explained below:

Malaysia-Australia Free Trade Agreement (MAFTA), 2012

MAFTA, which was signed in 2012-2013 regulating trade relations of two different governments, Malaysia and Australia, is a bilateral agreement that guarantees tariff-free entry for 97.6% (which was expected to rise by 2017) of the current exports to Malaysia and vice versa also applies to the duty-free exports from Malaysia to Australia. The Australian entities or firms doing business in Malaysia enjoy access to Malaysia’s high-middle income, export-oriented economy, and other favourable business environments. The benefits of the MAFTA that are enjoyed by the entities doing business in Malaysia are discussed below:

1. Major imports of manufactures of metal, metalliferous ores, metal scrap, processed  food, and other agricultures from Australia in the year 2016;
2. Established a free-trade area to ensure the ease of doing business in Malaysia and Australia;
3. The commitment of both countries to the liberalization of the trade in goods covers easy access to the markets of both nations, easy movement of natural resources, and telecommunication industry.

12^th Malaysian Plan, 2021-2025

The 12^th Malaysian Plan, 20121-2025, contributes towards the goal of attaining sustainable development by 2030, wherein economic empowerment, environment sustainability, and other social re-engineering are harmonized with the vision of Shared prosperity in Malaysia. Simply put, the Plan aims to secure socio-economic development, which will ultimately aim to secure the ease of doing business in Malaysia. The 1^st dimension of economic empowerment aims at the Industrial Revolution 4.0, the growth of the digital economy, the aerospace industry, and other integrated regional developments. The 2^nd dimension of environmental sustainability aims at sustaining the blue economy, green technology, and other renewable resources. Lastly, the 3^rd dimension of social re-engineering focuses on improving and strengthening the quality of life, cost of living, universal basic income, purchasing power of the people, and social security networks.

The government of Malaysia also signed several other bilateral free trade agreements for regulating the business environment of Malaysia, which are provided below:

1. Malaysia-Pakistan Closer Economic Partnership Agreement (MPCEPA);
2. Malaysia-India Comprehensive Economic Cooperation Agreement (MICECA);
3. Malaysia-Japan Economic Partnership Agreement (MJEPA);
4. Malaysia-Chile Free Trade Agreement (MCFTA);
5. ASEAN-Hong Kong, China Free Trade Agreement (AHKFTA);
6. ASEAN-India Free Trade Area (AIFTA);
7. Promotion and Protection of Investment Agreement (PPIA);
8. ASEAN Free Trade Agreement (AFTA).

The ease of doing business in Malaysia is also regulated by the benefits of the regional and bilateral free trade agreements. Some of the benefits include lower or zero tariffs on imports and exports under Free-Trade Agreements, easy entry of investors, less complicated custom procedures, and expanded market access for different services.

Other Benefits

A list of certain other benefits that attract domestic and foreign investors to invest and start doing business in Malaysia is provided below:

1. The rich amount of natural resources like timber and oil are present in the nation;
2. Strong position control in the production and refining of palm oil;
3. The nation is free from natural disasters;
4. Stands on the 10^th rank in terms of tourist destinations in the world;
5. Flexible structure of the banking system in Malaysia;
6. Higher afforded standard of living and the quality of life;
7. Easy process of incorporation of a business;
8. Easy to get a trade license;
9. Absence of sales and service tax;
10. Malaysia provides work visas to its investors, etc.

Conclusion

The ease of doing business in Malaysia is maintained because of the benefits like ease of transportation, trained and inexpensive labour, strategic location, political stability, and other tax benefits that the nation provides for the incorporation of a business. The ideal nation is a gateway for many individuals looking forward to doing business in Malaysia.

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