An Introduction to Doing Business in Malaysia
Malaysia is strategically located in the heart of Southeast Asia and offers investors a dynamic and vibrant business environment with ideal conditions for growth and profits. Malaysia is a constitutional monarchy and a federation comprising of thirteen states and three federal territories in both Peninsular Malaysia and East Malaysia. Kuala Lumpur is the Federal Capital of Malaysia, whereas Putrajaya is the administrative capital where the seat of government is situated.
Geography
With its land area totalling 330,534 sq. km, Malaysia consists of Peninsular Malaysia and East Malaysia (the states of Sabah and Sarawak), which are separated by the South China Sea. Peninsular Malaysia borders Thailand to the north and Singapore to the south, while East Malaysia is located on the island of Borneo (the world’s third largest island) and shares its border with Brunei and the Indonesian territory of Kalimantan. The country enjoys hot and humid weather all year round due to its tropical climate, though annual southwest and northeast monsoons also occur from May to September and November to March respectively.
Demographics
As of 2024, Malaysia has a population of approximately 34.1 million consisting of various ethnic groups with the dominant racial group being the Malays, Chinese, and Indians. Ethnic Malays comprise some 52% of the population; Chinese constitute around 20%; Indians constitute approximately 6%; while Eurasians and indigenous peoples make up the rest of the population. In terms of geographical distribution, 28 million inhabit Peninsular Malaysia where the population is mostly concentrated on the west coast. East Malaysia, on the other hand is home to 6 million people.
Language
The official language of Malaysia is Bahasa Malaysia, but English is widely used and is the preferred language when doing business. Many other languages are also widely spoken in Malaysia, such as Cantonese, Mandarin, Tamil and other indigenous languages.
Currency
Malaysian Ringgit (MYR or RM).
Government
Federal Parliamentary democracy with a constitutional monarchy.
Economic Profile
Malaysia is considered one of the most developed economies in South East Asia, with its GDP per capita at the national level rising to RM54,612 in 2023. Five states surpassed the national level, led by W.P. Kuala Lumpur (RM131,038), followed by W.P. Labuan (RM83,596), Pulau Pinang (RM72,586), Sarawak (RM72,411), and Selangor (RM62,492). The growth in these states was primarily driven by the services, manufacturing and construction sectors. Malaysia as an economy has progressed from being dependent on agriculture and primary commodities to being manufacturing based, and now is transforming into a diversified service and knowledge driven economy.
All of Malaysia’s development plans are prepared by the Economic Planning Unit, and development planning in Malaysia canvases short to long term plans, all of which aim to set a comprehensive strategy to achieve the targets under the national development agenda, which has pivoted from achieving high income status by the year 2020 (Vision 2020) to economic restructuring and more equitable distribution of wealth through the MADANI Economy Framework.
This policy shift comes hot on the heels of the closely watched and highly-anticipated 15th General Election on 19 November 2022 (“GE15”), which led to the formation of the present Unity Government. As part of the MADANI Economy Framework, the Unity Government has since announced and implemented a series of policies, including the National Energy Transition Roadmap, the New Industrial Masterplan 2030, and the Mid-Term Review of the 12th Malaysia Plan.
High-impact socioeconomic development projects, such as the Johor-Singapore Rapid Transit System Link, Klang Valley MRT3, and the Penang LRT, have also been continued under the Unity Government to elevate the wellbeing of the Malaysian population, particularly those residing outside the Klang Valley. Further, the existing development gaps between states will be narrowed by giving greater emphasis to less developed states, particularly Sabah, Sarawak, Kelantan, Terengganu, Kedah and Perlis, to ensure more balanced regional growth. More measures will also be undertaken to raise the income and purchasing power of the local population, especially the bottom 40% of the household income group (B40).
Economic Activities
In terms of magnitude of the various economic activities, the service sector is the largest contributor to the GDP of Malaysia. Major subsectors within services include finance and insurance, real estate, and business services; wholesale and retail trade; transport and communication. The government plans to develop the services sector through the Services Sector Blueprint as well as efforts in promoting Digital Free Trade Zone and productivity improvements under the Malaysia Productivity Blueprint. Additionally, there has also been greater emphasis on establishing economic zones/corridors, such as the Johor-Singapore Special Economic Zone.
Aside from services, the manufacturing sector is the second largest contributor to the GDP of Malaysia, and other major contributors include construction, mining and quarrying.
Malaysia's HDP Growth by Sector
| Share in 2024 of GDP by Economic Activity at Constant 2015 Prices (%) | 2022 | 2023 | 2024 |
Change (%) | ||||
Services | 59.4 | 11.0 | 5.1 | 5.3 |
Manufacturing | 23.1 | 8.1 | 0.7 | 4.2 |
Mining | 6.0 | 3.5 | 0.5 | 0.9 |
Agriculture | 6.3 | 1.3 | 0.7 | 3.1 |
Construction | 4.0 | 5.1 | 6.1 | 17.5 |
GDP | 100.0 | 8.9 | 3.6 | 5.1 |
*Source: Department of Statistics, Malaysia and Bank Negara Malaysia.
In 2025, the services sector grew 5% (vs 5.5% 4Q 2024) led by higher growth in Government services and retail segment against a drop in motor vehicle sales. Overall, the services sector is projected to grow by 5.5% overall in 2025 and retain its position as the main pillar of growth in Malaysia’s economy.
The manufacturing sector increased 4.1% (vs 4.2% in 4Q 2024) and is expected to grow 4.5%overall in 2025 off the back of export-oriented industries, in particular the electrical and electronics sub-sector.
International Trade
Free Trade Agreements
Malaysia’s trade policy is strongly in favour of free trade, with some protection for selected industries. The Unity Government has continued seeking the progressive removal of many existing trade barriers, which amongst others, involves taking part in the ASEAN Free Trade Area (“AFTA“) and signing free trade agreements (“FTAs“)
ASEAN Free Trade Area
In 2003, the AFTA integrated ASEAN into a single market and, with its a population of around 605 million and a combined GDP of more than USD 2.18 trillion, created a market that rivals regional markets in China. Since the establishment of the AFTA, ASEAN has abolished tariffs on nearly 99% of all tariff items, leading to inter-ASEAN trade soaring to 21.5% of all trade by ASEAN members. As a result, Malaysia is an attractive investment location as well as a strategic gateway to the ASEAN market. The formation of the ASEAN Community in 2015 is also seen as a move towards a three-pillared community to strengthen regional integration comprising an ASEAN Political and Security Community; an ASEAN Economic Community; and an ASEAN Socio-Cultural Community. With the recent conclusion of the ASEAN Trade in Goods Agreement (ATIGA) and launch of the ASEAN Economic Community Strategic Plan 2026-2030, the ASEAN Free Trade Area will only serve to provide even greater catalyst for growth.
Trans-Pacific Partnership Agreement / Comprehensive and Progressive Agreement for Trans-Pacific Partnership
Aside from the AFTA, Malaysia has also signed 15 other regional and bilateral FTAs, with several more are still at the negotiation stage, including an agreement with the Gulf Cooperation Council countries in conjunction with the ASEAN-GCC Summit in 2025. FTAs serve mainly to reduce tariff rates payable in respect of goods originating from countries which have an FTA with Malaysia. Conversely, export goods manufactured in Malaysia can also benefit from lower tariff rates in the country of import which has an FTA with Malaysia. In October 2015, negotiations for the Trans-Pacific Partnership Agreement (“TPPA”) which is a multilateral free trade agreement with 12 countries including United States, Canada, Chile, Mexico, Peru, Australia, New Zealand, Vietnam, Singapore, Brunei and Japan were concluded.
Following the exit of the United States of America from the TPPA negotiations, the remaining nations, including Malaysia, proceeded with the negotiations and rebranded the TPPA as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (“CPTPP”). The CPTPP essentially incorporates the original provisions of TPPA. Malaysia and the remaining nations have since signed the CPTPP on 8 March 2018, and on 30 September 2022 it was ratified by Malaysia. Then, on 29 November 2022, the CPTPP entered into force in Malaysia.
Regional Comprehensive Economic Partnership (RCEP)
Malaysia is also party to the Regional Comprehensive Economic Partnership Agreement (RCEP), which consists of: Australia, Brunei, Cambodia, China, Indonesia, Japan, Laos, Malaysia, Myanmar, New Zealand, the Philippines, Singapore, South Korea, Thailand, and Vietnam. The RCEP aims to foster inclusive development, promote innovation, drive sustainable growth and support job generation among the RCEP Members.
As the world’s largest free trade agreement by member’s GDP, the RCEP will cover various aspects of the economy such as trade in goods, trade in services, investment, economic and technical cooperation, intellectual property, competition, dispute settlement, e-commerce and SMEs. Recognising theimportance of being inclusive, the RCEP will lower trade barriers and enhance trade and investments among RCEP Members. By broadening and deepening ASEAN’s economic engagements with its FTA partners, RCEP also introduced free and fair policies that mutually benefit the RCEP’s Members.
Having entered into force for Malaysia on 18 March 2022, the liberalisation of investment regime among RCEP Members will no doubt continue to support Malaysia’s economic growth and promote trading relationships.
One Belt One Road
In addition, as the recipient of more than USD$ 200 billion worth of Chinese infrastructure and real estate investments, Malaysia is fast becoming the principal ASEAN partner in China’s One Belt One Road (“OBOR”) initiative. OBOR allows transportation and movement of goods to be cheaper and more efficient. This enables local entrepreneurs and investors to penetrate a larger market. Furthermore, this also allows Malaysia to boost its development of various sectors and industries, hence generating bigger growth via better infrastructure as the catalyst. In 2017, Malaysia launched the world’s first digital free trade zone, to facilitate seamless cross border trade and enable local businesses to export their goods with a priority for eCommerce.
Digital Economy
On 22 March 2017, Malaysia launched the world’s first Digital Free Trade Zone (“DFTZ”) to facilitate SMEs capitalising on the convergence of exponential growth of the digital economy and cross-border e-commerce activities via physical and virtual zones.
At that point, the DFTZ aimed to support companies which trade goods, provide services, and drive innovation in the digital economy and the e-commerce industry by facilitating end-to-end support, networking and knowledge sharing.
However, although a record RM163.6 billion in digital investments have been recorded in 2024 since the launch of the DFTZ, following the introduction of AI technologies, Malaysia has also attracted over RM80 billion in data centre FDI and established 77 data centres across the nation, and growth in this sector will only compound.
Building on this success and leveraging on the further potential unlocked by the Free Trade Agreements described above, Malaysia has committed to spurring the digital economy to greater heights. In particular, the National E-Commerce Strategic Roadmap (NESR) has been relaunched following its pioneering in 2016 and will support the Government’s plans to achieve RM1.65 trillion in e-commerce revenue by 2025.
The Unity Government
Since the historic 14th General Elections held on 9th May 2018 (“GE14”), where Malaysia saw its first change in government since independence as the Barisan National coalition was ousted from power by the opposition coalition party, Pakatan Harapan, it has only gone on to experience an ever-increasing number of firsts, with GE15 delivering the country’s first-ever hung Parliament. Nevertheless, following an intense series of negotiations, a grand coalition of the country’s most influential political blocs led to the formation of the Unity Government that has governed with enviable stability ever since. With the Unity Government’s focus on economic growth and stability, it is clear that Malaysia’s economy continues to offer much to investors and businesses.
Ministries, Regulatory Bodies and Agencies
Acronym | Name | Website |
AIAC | Asian International Arbitration Centre | https://www.aiac.world/ |
APAD (formerly known as SPAD) | Land Public Transport Agency/Agensi Pengangkutan Awam Darat | https://www.apad.gov.my/en/ |
BNM | Bank Negara Malaysia/Central Bank of Malaysia | http://www.bnm.gov.my/ |
Bursa Malaysia | Bursa Malaysia Berhad | http://www.bursamalaysia.com/market/ |
CCM/SSM | Companies Commission of Malaysia/Suruhanjaya Syarikat Malaysia | http://www.ssm.com.my/ |
Customs | Royal Malaysian Customs/Jabatan Kastam Diraja Malaysia | http://www.customs.gov.my/ |
DOE | Department of Environment/Jabatan Alam Sekitar | http://www.doe.gov.my/portalv1/en |
DCA | Drug Control Authority | https://www.npra.gov.my/index.php/en/about/drug-control-authority-dca/about-the-dca |
DOSH | Department of Occupational Safety and Health | http://www.dosh.gov.my/index.php/en/ |
ECM | Energy Commission of Malaysia | https://www.st.gov.my/ |
ECERDC | East Coast Economic Region Development Council | http://www.ecerdc.com.my/ |
EPU | Economic Planning Unit | https://ekonomi.gov.my/en/ministry-profile/organisation/divisions-and-units |
FELCRA | Federal Land Consolidation and Rehabilitation Authority | http://www.felcra.com.my/ |
FELDA | Federal Land Development Authority | https://www.felda.gov.my/ |
IRB | Inland Revenue Board/Lembaga Hasil Dalam Negeri | http://www.hasil.gov.my/ |
IRDA | Iskandar Regional Development Authority | http://www.irda.com.my |
K-KOMM | Ministry of Communication/Kementerian Komunikasi | https://www.komunikasi.gov.my/ |
MCMC | Malaysian Communications and Multimedia Commission | https://www.mcmc.gov.my/ms/home |
MDeC | Multimedia Development Corporation | http://www.mdec.my/ |
KPDN | Ministry of Domestic Trade and Cost of Living/Kementerian Perdagangan Dalam Negeri dan Kos Sara Hidup | https://www.kpdn.gov.my/ms/ |
MOSTI | Ministry of Science, Technology and Innovation | https://www.mosti.gov.my/en/ |
MHA/LLM | Ministry of Highway Authority/Lembaga Lebuhraya Malaysia | http://www.llm.gov.my/background_EN.aspx |
MIDA | Malaysian Investment Development Authority | http://www.mida.gov.my/ |
MITI | Ministry of International Trade and Industry | http://www.miti.gov.my/cms/index.jsp |
MOF | Ministry of Finance | http://www.treasury.gov.my/index.php?lang=ms |
MOH | Ministry of Health | http://www.moh.gov.my/english.php |
MOHA | Ministry of Home Affairs | http://www.moha.gov.my/index.php/en/ |
MOE | Ministry of Education | https://www.moe.gov.my/index.php/en/ |
MOT | Ministry of Transport | http://www.mot.gov.my/en |
MOW | Ministry of Works/Kementerian Kerja Raya | http://www.kkr.gov.my/ |
MyCC | Malaysia Competition Commission | http://www.mycc.gov.my/ |
MQA | Malaysian Qualifications Agency | http://www.mqa.gov.my/ |
MyIPO | Intellectual Property Corporation of Malaysia | http://www.myipo.gov.my/ |
NCIA | Northern Corridor Implementation Authority | https://www.ncer.com.my/about-us/about-ncia |
PSD | Public Service Department | http://www.jpa.gov.my/?lang=en |
PWD/JKR | Public Works Department/Jabatan Kerja Raya | http://www.jkr.gov.my/ |
RECODA | Regional Corridor Development Authority | https://recoda.gov.my/ |
RMP | Royal Malaysia Police | http://www.rmp.gov.my/ |
SC | Securities Commission | http://www.sc.com.my/ |
SEDA | Sustainable Energy Development Authority | http://www.seda.gov.my |
SEDIA | Sabah Economic Development and Investment Authority | http://www.sedia.com.my |
TNB | Tenaga Nasional Berhad | https://www.tnb.com.my/ |
UKAS | Public Private Partnership Unit/Unit Kerjasama Awam Swasta | http://www.ukas.gov.my/ |
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Notice
The contents of this Guide are owned by CLO and subject to copyright protection under the laws of Malaysia and, through international treaties, in other countries. No part of this Guide may be reproduced, licensed, sold, published, transmitted, modified, adapted, publicly displayed, broadcast (including storage in any medium by electronic means whether or not transiently for any purpose) without the prior written permission of CLO.
Please note also that whilst the information in this Guide is correct to the best of our knowledge and belief at the time of writing, it is only intended to provide a general guide to the subject matter and should not be treated as a substitute for specific professional advice for any particular course of action as such information may not suit your specific business or operational requirements. It is to your advantage to seek legal advice for your specific situation.
Disclaimer
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