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Guidelines on Foreign Investment
Equity Policy in
the Manufacturing Sector
Equity Policy Applicable to New Investment, Expansion or
Diversification
Equity Policy Applicable to Existing Companies
Relaxation of Export Conditions for Existing Manufacturers
Protection of
Foreign Investment
Equity Ownership
Investment Guarantee Agreements
Convention on the Settlement of Investment Disputes
Regional Center for Arbitration
Equity Policy in the Manufacturing
Sector
The Malaysian Government welcomes foreign investment in the manufacturing
sector. In keeping with the objective of increasing Malaysian participation in
manufacturing activities, it is the policy of the Government to encourage
projects to be undertaken on a joint-venture basis between Malaysian and foreign
entrepreneurs.
Equity Policy Applicable to New Investment, Expansion or
Diversification
Foreign equity participation in manufacturing projects has been governed by
the level of exports. Effective from 31 July 1998, the Malaysian government
has liberalized the equity policy for the manufacturing sector in respect of
new investment, expansion or diversification as follows:-
(a) Foreign investors can now hold 100% equity irrespective of the level of
exports.
(b) This relaxation is applicable for all applications received from 31
July 1998 until 31 December 2000 to set up manufacturing projects with the
exception of specific activities and products where Malaysian small and medium
scale companies have the capabilities and expertise. These activities and
products are paper packaging; plastic packaging (bottles, films, sheets and
bags); plastic injection molded components; metal stamping, metal fabrication
and electroplating; wire harness; printing and steel service centers. For
these activities and products, the prevailing specific equity guidelines are
applicable.
(c) All projects approved under this policy will not be required to
restructure their equity after the period.
(d) This policy will be reviewed after 31 December 2000.
Equity Policy Applicable to Existing Companies
(a) Companies which have been licensed before 31 July 1998 have to comply
with the equity condition as stated in the license. However, for existing
companies undertaking expansion or diversification, the equity policy as in
1.1 applies to the expansion and diversification projects.
The equity policy as in 1.1 also applies to the following companies:
(b) Companies previously exempted from the Manufacturing
License but whose
shareholders' funds have now reached RM2.5 million or have engaged 75 or more
full-time employees; and
(c) Existing licensed companies exempted from the equity condition which
are required to inform MITI when their shareholders' funds reach RM2.5
million.
Relaxation of Export Conditions for Existing Manufacturers
To encourage greater levels of industrial linkages and domestic sales, the
government has relaxed the export conditions imposed on manufacturing
companies effective from 1 January 1998 to 31 December 2000. With this
relaxation, all existing companies with export conditions can now apply to
MITI for an approval to sell up to 50% of their output in the domestic market.
The products which are eligible to be considered for increased domestic
sales are as follows:-
- All products with nil duty.
- All products with import duty which are not available locally or in
inadequate local supply.
The above temporary relaxation of export conditions will not affect the
current equity structures and incentives of existing companies.
The relaxation is also extended to new companies approved before 31 July
1998 once they commence operation.
Protection of Foreign Investment
Equity Ownership
A company that has been approved with a certain equity participation will
not be required to restructure its equity at any time, provided that the
company continues to comply with the original conditions of approval and
retains the original features of the project.
Investment Guarantee Agreements
Malaysia’s readiness to conclude Investment Guarantee Agreements
(IGAs) is
a testimony of the Government’s desire to increase the confidence of foreign
investors in Malaysia.
An IGA will provide the foreign investor with the following:
- Protection against nationalization and expropriation.
- Prompt and adequate compensation in the event of
nationalization or
expropriation.
- Free transfer of profits, capital and other fees.
- Settlement of investment disputes under the Convention on the Settlement
of Investment Disputes of which Malaysia has been a member since 1966.
Malaysia has concluded Investment Guarantee Agreements with the following
countries/groupings (in alphabetical order):
Groupings:
Countries:
Albania
Argentina
Austria
Bahrain
Bangladesh
Belgo-Luxembourg
Bosnia Herzegovina
Botswana
Burkina Faso
Cambodia
Canada
Chile
China, People's Republic Croatia
Cuba
Czech Republic
Denmark
Djibouti, Republic of Egypt
Ethiopia
Finland
France
Germany
Ghana
Guinea, Republic of Hungary |
India
Indonesia
Italy
Jordan
Kazakhstan
Korea, Republic of
Kuwait Kyrgyz Republic
Laos People's
Democratic Republic
Lebanon
Macedonia
Mongolia
Malawi
Namibia
Netherlands
North Korea
Norway
Pakistan
Papua New Guinea
Peru
Poland
Romania
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Senegal
Spain
Sri
Lanka
Sudan, Republic of
Sweden
Switzerland
Taiwan
Turkey
Turkmenistan
United Arab
Emirates
United Kingdom
United States of
America
Uruguay
Uzbekistan
Vietnam, Socialist
Republic of Yemen
Zimbabwe |
Convention on the Settlement of Investment Disputes
In line with the national policy of promoting and protecting foreign
investment, the Malaysian Government in 1966 ratified the provisions of the
Convention on the Settlement of Investment Disputes established under the
auspices of the International Bank for Reconstruction and Development (IBRD).
Facilities for international conciliation or arbitration are established by
the Convention through the International Centre for Settlement of Investment
Disputes which is located at the principal office of the IBRD in Washington.
Regional Center for Arbitration
The Kuala Lumpur Regional Center for Arbitration was established in 1978
under the auspices of the Asian-African Legal Consultative Committee (AALCC) -
an inter-governmental organization in cooperation with and with the assistance
of the Government of Malaysia.
The Center serves the Asian and Pacific region. It is a non-profit
organization and has been established with the objective of providing a system
for the settlement of disputes for the benefit of parties engaged in trade and
commerce and investments with and within the region.
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