Copyright (c) Mizuho Bank, Ltd. All Rights Reserved.

Investment Climate Statement - Malaysia

October 2018

Mizuho Bank, Ltd.

Global Strategic Advisory Department

1

Trade Overview (1): Exports

By product, electrical and electronic components account for a little less than 40 percent of the total as many electrical and electronics companies from the advanced nations of the world use Malaysia as a base for export production and are ramping up production.

By country, exports to Singapore, China, America and Japan account for just under half of the total.

Export trends (by commodity; Million USD)

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JCIF reports

Export trends (by country; %)

0

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014 2015 2016

Electrical / electronic components Machinery / electric appliancesOptical / scientific products Palm oil and related productsNatural rubber Liquified natural gasCrude oil Refined petroleum productsOther

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016

Singapore Thailand Indonesia Vietnam

Philippines China Japan EU

U.S. Hong Kong India Australia

South Korea Taiwan Other

2

Trade Overview (2): Imports

By product, electrical and electronic components account for some 30 percent of the total since, as with exports, many electrical and electronics companies from the advanced nations of the world use Malaysia as a base for export production and are ramping up production.

By country, Singapore, China, America and Japan account for just under 50 percent of total imports. China’s share of the market is on the increase while America and Japan are losing share.

Import trends (by commodity; Million USD)

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JCIF reports

Import trends (by country; %)

0

50,000

100,000

150,000

200,000

250,000

2010 2011 2012 2013 2014 2015 2016

Electrical / electronic components Machinery / electric appliancesOptical / scientific products Transportation equipmentSteel products CopperGold Crude oilRefined petroleum products Other

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

2010 2011 2012 2013 2014 2015 2016

Singapore Thailand Indonesia Vietnam

Philippines China EU Japan

U.S. Taiwan South Korea Australia

Hong Kong India Other

3

Direct Investment Trends : Inward Investment

In 2011, Tokuyama and Panasonic were among several Japanese corporations to make major investments in Malaysia, and inward direct investment hit a record high.

While 2012 brought a slight decrease in reaction, large-scale investments by Sumitomo Corporation and UACJ Foil Corporation in 2013 again brought record high-level inward direct investment.

2016 saw an increase in service industry investment, but inward direct investment decreased from 2015 as foreign currency regulations introduced by the central bank led to a decrease in manufacturing industry investment, and also as investment in themining industry decreased due to the slump in oil prices.

By country, Hong Kong, Singapore, Japan, China and America are the leading investors in Malaysia in this order.

Trends in inward direct investment (Million USD)

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JCIF reports

Inward direct investment (by country)

12,198

9,239

12,115

10,87711,121

9,926

0

2,000

4,000

6,000

8,000

10,000

12,000

14,000

2011 2012 2013 2014 2015 2016

Inward direct investment (by industry)

Mining 18.4%

Manufacturing

26.8%

Construction

4.8%Wholesale and

Retail 5.7%

Information and

Telecommunications 2.0%

Banking and

insurance 16.2%

Service, etc.

26.8%

Singapore 16.3%

Thailand 3.1%

The Netherlands

5.3%

U.K. 4.6%

Japan 9.5%

U.S. 9.5%South Korea

3.6%

Hong Kong

36.3%

China 9.2%

Others 3.1%

4

The Attractions and Pointers (Issues) for Investors

Malaysia boasts some of the most advanced infrastructure services in the ASEAN countries.

It is rated for its ability to deliver high-level logistics services and topped the “Manufacturing Risk Index 2017” as the most attractive location for manufacturing relocations (followed by Taiwan, China, America and South Korea).

With its strong language abilities, the availability of Halal certification from government agencies and its geographical advantages, Malaysia offers numerous positive attributes for companies looking to use Malaysia as a base for business expansion into a third nation.

By contrast, attention needs to be paid, for the time being, to the stability of Malaysia’s society and politics, which was the strength of the country, as there are issues such as the 1MDB scandal.

Attractions for foreign investors Pointers (issues) for foreign investors

Advanced

infrastructure

A stable power supply

Strong transport and port infrastructure

Strong language

skills

Many people can speak English, Malay, Chinese and

Tamil, making Malaysia a good base for business

expansion into a third nation.

A gateway to

Islamic markets

Malaysia is highly trusted by other countries as one

of the few countries in the world to offer

government-backed Halal certification.

Proactive with

FTA

Malaysia has signed FTAs with countries inside and outside

ASEAN on the basis of the ASEAN Framework Agreement and is

proactive towards bilateral FTA outside this framework.

Investment

incentives

Malaysia offers various tax benefits and a range

of government support for foreign investors.

Geographical

advantages

Malaysia is close to both Singapore, the business hub

of Asia, and Thailand, its manufacturing base.

Good legislationMalaysia’s laws are based on British law and the

investment climate is such that bribery is

unnecessary.

Labor market

pressures

The labor market is chronically tight and Malaysia is

heavily dependent on foreign workers.

Labor costs

Malaysia has some of the highest labor costs in

ASEAN and the number of overseas companies that

start to operate a business in Malaysia is decreasing

as they look to cut costs.

Market scaleWith a population of around 30 million, Malaysia’s

domestic market is not particularly large.

Government

trends

The 1MDB scandal, etc. have altered the comparatively

stable political landscape and is producing some confusion

(though there are signs that the scandal is beginning to die

down a little).

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JETRO materials and various public

information

5

Investment Promotion (1): List of Major Investment Incentives for Manufacturers

Sources: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JETRO materials, etc.

Incentive Duration Details

5 years

5 years

‐

Pioneer status

Investment Tax Allowance

(ITA)

Import duty and sales tax

exemption on raw materials

Companies involved in government-designated investment-promoted activity or the production of a

promoted product are eligible for a 70% income tax exemption on statutory income for five years from the

start of production.

Companies investing in promoted areas, the high-tech industry, or projects of national and/or strategic

importance are eligible for a 100% tax holiday on their statutory income for a five-year period.

Companies involved in a government-designated investment-promoted activity or the production of a

promoted product are eligible for a 60% deduction of qualifying capital expenditure from taxable income.

This allowance may be used to offset 70% of statutory income for each year of assessment. Unutilized

allowances may be carried forward to subsequent years until fully utilized.

Companies investing in promoted areas, high-tech industries (cutting-edge materials, medical equipment,

biotechnology, alternative energy production, etc.) or projects of national and/or strategic importance may be

permitted to offset this allowance against 100% of statutory income for a period of five years.

A business may apply for import duty and sales tax exemption where (1) the finished products are exported, raw materials are not produced in-country, or the quality or price are not commensurate with production even if raw materials are produced in-country, or (2) the finished products are designed for the domestic market but the raw materials are not produced in-country.

Reinvestment Allowance

(RA)15 years

This allowance is given to companies that have been in operation for at least 36 months and are reinvesting

in capacity expansion or the modernization of production equipment.

RA of 60% of qualifying capital expenditure is permitted and the RA may be used to offset 70% of statutory

income for each year of assessment (for a period of 15 years from application). Unutilized allowances may

be carried forward to subsequent years until fully utilized.

‐Import duty and sales tax

exemption on machinery

and equipment

A business may apply for import duty and sales tax exemption where the machinery and equipment, spare parts and consumables used directly in the manufacturing process can not be obtained in Malaysia.

6

Investment Promotion (2): List of Major Investment Incentives for Distributors

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on MIDA data

Integrated Logistics Services (ILS)

Competent

authority

Incentives

Eligibility

criteria

Malaysian Investment Development Authority (MIDA)

At least 60% of its equity is held by Malaysians.

ILS provider must be engaged in warehousing, transportation and/or

freight forwarding and provide at least one of the following services:

• Distribution

• Other related services (e.g. palletizing, product assembly /

installation, bulk breaking, consolidation, packaging / repackaging,

procurement, quality control, labelling / relabeling, inspection, etc.)

• Supply chain management

ILS provider must own at least 20 commercial vehicles and have at

least 5,000m2 of warehousing space.

International Integrated Logistics Services (IILS)

Remarks

ILS provider can apply for either of the following tax incentives:

Pioneer status

• A tax exemption of 70% of the statutory income for a period of five

years from the start of business

Investment Tax Allowance (ITA)

• 60% of the qualifying capital expenditure may be deducted from

taxable income. The ITA can be offset against 70% of the statutory

income for each year of assessment. Unutilized allowances can be

carried forward to subsequent years until fully utilized.

100% foreign equity ownership is permitted

No tax incentives are offered

Definition The main business activities of an ILS provider are freight

forwarding, warehousing and transportation.

ILS provider must acquire licenses for each of the businesses they

engage in, in addition to the ILS status.

An IILS provider is a company that provides integrated and seamless logistics services (door-to-door) along the logistics value chain as a single entity on a regional or global scale.

A company that acquires IILS status will be issued with the various

licenses it needs for its businesses by the Royal Malaysian Customs

Department.

IILS provider must be engaged in warehousing, transportation and/or

freight forwarding (including customs clearance) and provide at least

one of the following services:

• Distribution

• Other related services (e.g. palletizing, product assembly /

installation, bulk breaking, consolidation, packaging / repackaging,

procurement, quality control, labelling / relabeling, inspection, etc.)

• Supply chain management

IILS provider must own at least 20 commercial vehicles and have at

least 5,000m2 of warehousing space.

IILS provider must use Malaysia as a hub for logistics supply chain

services in the region.

7

Investment Promotion (3): List of Major Investment Incentives for Other Sectors

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., based on data from JETRO materials

Incentive Duration Details

5 years

5 years

10 years

Regional Headquarters

(Principal Hub)

Treasury Management

Centers (TMC)

Multimedia Super Corridor

(MSC)

These are incentives for companies that use Malaysia as a base for controlling their regional businesses and operations. Existing incentives for Operational Headquarters (OHQ), International Procurement Center (IPC) and Regional Distribution Center (RDC) have been integrated.

Corporate tax incentives are tiered on the basis of the scale and content of the Principal Hub’s operations, with tax rates of 0%, 5% and 10% applying, respectively.

These incentives may be extended by an additional five years if the company meets certain criteria (on increasing employment and business expenditure).

TMC refer to companies that undertake centralized treasury management in the region. Approved TMC are

eligible for a 70% exemption on statutory income arising from service fees, management guidance services,

interest income, guarantee income, etc. for a period of five years. They are also exempted from withholding

tax on interest payments and stamp duty.

Expatriate employees of TMC are taxed only on the portion of their taxable income that is attributable to the

number of days of their stay in Malaysia.

MSC is a government initiative that aims to provide a venue for the creation, distribution and use of

multimedia products and services and serve as a base for IT development in Asia.

Companies with approved MSC status enjoy 100% corporate tax exemption that comes with Pioneer

Status for 10 years, or a 100% ITA (Investment Tax Allowance) on qualifying capital expenditure for

five years. Multimedia equipment is exempt from import duty.

Free Trade Zones (FTZ)

Licensed Manufacturing

Warehouses (LMW)

‐

FTZ have extra-territorial status and are thus exempt from import duty, sales tax, and other duties/taxes.

Companies that locate in an FTZ are required to export at least 80% of their output.

The LMW incentive caters to export manufacturers that establish offices in Principle Customs Area

other than FTZ. As with FTZ, at least 80% of an LMW company’s output must be exported.

5 yearsIncentives for Halal

industries

Halal industry players that locate in a government-designated Halal Park are eligible for a 100% corporate tax exemption on qualifying capital expenditure for 10 years or a 5-year corporate tax exemption on income arising from export sales.

Machinery, equipment and raw materials used in the development and/or production of halal-promoted products are exempt from import duty and sales tax.

Halal industry players that locate outside a designated Halal Park are eligible for a 100% ITA on qualifying capital expenditure for a period of five years.

8

Information on the Malaysian Companies Act

Malaysia enacted a new Companies Act in January 2017 (prior to which the Companies Act of 1965 had been in force).

The new act provides a framework for the governance, such as disclosure requirements, director duties and responsibilities, and shareholder protection with a focus on the protection of the rights of minority shareholders. The new act is not significantly different from the companies laws of the developed countries.

It falls under Ministry of Domestic Trade, Co-operatives and Consumerism control.

The provisions of the Companies Act are enforced and administered by the Companies Commission of Malaysia (CCM).

An overview of the key changes

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd., from various materials

Merits and points to bear in mind

The amendment of the Companies Act was underpinned by the following

aspirations:

1. To simplify and modernize company incorporation and operation so

as to promote companies and make them more attractive entities

2. To revise and simplify share capital management

3. To strengthen and revise corporate governance

4. To introduce more diversity into insolvency proceedings

The key changes are as follows:

Abolition of the Articles of Association requirement

Introduces single member companies (single director)

Abolition of the requirement to hold an annual shareholders meeting

Easing of the rules on the number of shareholder signatories on written

resolutions

A broader scope of immunity and compensation for directors

Stronger business accountability for directors (heavier penalties)

Abolition of par value shares

Reductions in share value without a court sanction

Strengthened obligation to disclose the company name and registration

number

The merits of the amendment:

A single resident director and simplification of written resolutions at a

shareholders meeting promote the simplification of company

incorporation and operations and facilitate more efficient management.

Introduces the concepts of judicial management, which resembles

corporate rehabilitation procedure in Japan, and corporate voluntary

arrangement (voluntary liquidation) thus widening the range of

insolvency proceedings and giving companies the option to choose the

optional rescue mechanism

Points to bear in mind with the amendment:

Companies are not, in principle, permitted to engage in businesses

other than those stated in the Articles of Association, thus a

reexamination / review of this document is essential.

Penalties have been strengthened, thus efforts to consolidate

administrative structures and strengthen compliance are

recommended.

Many items relating to privately-owned companies are not regulated

by law and these will need to be regulated by the Articles of

Association.

While the new act went into effect in January 2017, Malaysian

authorities have yet to come up to speed on certain aspects of its

operation (the formatting of documents for submission, etc.) so any

ambiguities should be checked.

9

Regional Centers : Principal Hubs

What a Principal Hub looks like

Source: Compiled by the Global Strategic Advisory Department of Mizuho Bank, Ltd. from MIDA materials

In April 2015, Malaysia’s Ministry of International Trade and Industry announced the Principal Hub incentive to replace the Operational Headquarters, International Procurement Center, and Regional Distribution Center statuses, as an incentive to promote the establishment of regional headquarters in Malaysia.

Definition: A Principal Hub is a locally incorporated company that uses Malaysia as a regional/global headquarters that manages, controls and supports its key operations including risk management, decision-making, strategic business activities, commercial transactions, finance, management and human resources management.

The period for applications for the new incentive was from May 1, 2015 to April 30, 2018.

Principal Hubs are controlled by the Malaysian Investment Development Authority (MIDA).

Operational Headquarters

(OHQ)

Principal Hub

International Procurement Centre

(IPC)

Regional Distribution Centre

(RDC)

A. Strategic services

1. Regional profit and loss (P&L) / business unit

management

2. Strategic business planning and corporate development

3. Corporate finance advisory services

4. Brand management

5. Intellectual property management

6. Senior-level talent acquisition and management

B. Business services

1. Bid and tender management

2. Financial and fund management

3. Research, development and innovation

4. Project management

5. Sales and marketing

6. Business development

7. Technical support and consultancy

8. Information management and processing

9. Economic / investment research and analysis

10. Strategic sourcing, procurement, and distribution

11. Logistics services

C. Shared services

1. Corporate training and human resource

management

2. Finance and accounting (operational processing and

internal audits)

3. General administration

4. IT services

Regional P&L management:

Regional P&L management refers to allocating management

resources, determining the regional or global business direction,

monitoring revenue and expenditure budget, and ensuring a

positive ROI with a focus on the growth of the company.

The following are given as qualifying Principal Hub services.

To qualify for the incentive, a Principal Hub needs to provide at least three qualifying services (one of which must be a strategic service) to controlled companies.

10

About the Mizuho Bank Malaysia Offices (1)

AddressLevel 27, Menara Maxis, Kuala Lumpur City Centre,

50088 Kuala Lumpur, Malaysia

Tel. 60-3-2058-6881

Open Monday - Friday

Activities

• Deposit-taking

• Lending

• Import/Export Letters of Credit

issuance/acceptance/confirmation

• Acceptance/collection of trade bills

• Remittance/foreign exchange contracts

• Guarantees

Mizuho Bank (Malaysia) Berhad

Access from the airport:

Approximately 60 minutes by taxi (car)

11

About the Mizuho Bank Malaysia Offices (2)

AddressLevel 9 (B) & (C), Main Office Tower, Financial Park Labuan,Jalan Merdeka, 87000 Federal Territory of Labuan, Malaysia

Tel. 60-87-417766

Open Monday - Friday

Activities

• Deposit-taking (other than the Malaysian ringgit; there are

restrictions on a part of handling.)

• Lending (In principle, currencies other than the Malaysian ringgit)

• Remittance, foreign exchange contracts (other than the Malaysian

ringgit; there are restrictions on a part of handling.)

• Guarantees

AddressLevel 27, Menara Maxis, Kuala Lumpur City Centre, 50088 Kuala Lumpur, Malaysia

Tel. 60-3-2070-6880

Open Monday - Friday

Activities

• Deposit-taking (other than the Malaysian ringgit; there are

restrictions on a part of handling.)

• Lending (In principle, currencies other than the Malaysian ringgit)

• Remittance, foreign exchange contracts (other than the Malaysian

ringgit; there are restrictions on a part of handling.)

• Guarantees

Labuan Branch

Labuan Branch, Kuala Lumpur Marketing Office

Access from the airport:

Approximately 10 minutes by taxi

Access from the airport:

Approximately 60 minutes by taxi

12

In December 2010, Mizuho signed a business partnership memorandum with Maybank, Malaysia’s biggest bank.

We already have a close relationship with Maybank that dates back some 40 years, but entered into this

comprehensive partnership agreement so as to better support the business development endeavors of our clients in a

well-prepared manner through stronger ties with the Malaysian bank.

The gist of the memorandum

1. Exchange of product structuring knowhow

2. Cross-networking

3. Mutual referral of new business

Scope of the business partnership

Syndicated loans, structured finance, trade finance, derivatives, overseas services, cash management services,

Islamic banking, etc.

Business Cooperation (1): Malayan Banking Berhad (Maybank)

Maybank: An Overview

Founded in 1960, Maybank is the largest banking group in Malaysia with 2,400 offices and 44,000

employees serving 22 million customers in 20 countries worldwide. It offers a comprehensive range of

financial services including commercial banking, investment banking, Islamic banking, leases, insurance

and asset management. In 2009, Maybank Investment Bank, the investment-banking arm of Maybank, and

Mizuho Securities signed a memorandum of understanding to form an alliance.

In August 2016, Mizuho Securities and Maybank subsidiary Maybank Kim Eng entered into a business

alliance to expand their regional collaborations in the equity brokerage business for Asian markets.

13

In February 2006, Mizuho concluded a business collaboration memorandum with the Malaysian Investment Development

Authority concerning support for Japanese companies seeking to establish a business in Malaysia.

The aim is to promote investment in both Japan and Malaysia through mutual cooperation that leverages the strengths of each

party - Mizuho's customer base and expansive network and MIDA's expert advice and support.

The gist of the memorandum

1. Cooperation in attracting Japanese companies interested in business opportunities in Malaysia

2. Holding of dialogue sessions with Japanese companies, including small and medium sized enterprises

3. Support for Japanese companies in the selection of local partners in Malaysia and assistance with

completion of related procedures

Business Cooperation (2): Malaysian Investment Development Authority (MIDA)

MIDA: An Overview

Founded in 1967, MIDA is the government's principal agency to oversee and drive

manufacturing and service sectors in Malaysia. It provides support to investors in Malaysia’s

manufacturing and service sectors, facilitates project execution, and processes the following

applications for the two sectors:

Manufacturing licenses

Tax incentives

Expatriate positions

Customs duties exemptions on raw materials, components, machinery and equipment

14

Disclaimer

© 2018 Mizuho Bank, Ltd.

These materials have been prepared solely for the purpose of providing information relating to financial solutions, and are not intended to induce

or introduce readers to engage in any particular financial transaction. Nor do they assume any transaction with any Mizuho Financial Group

company.

These materials have been prepared based on information adjudged to be reliable and accurate, but Mizuho Bank, Ltd., does not guarantee its

reliability or accuracy. Readers are requested to exercise their own judgment when using these materials and, if necessary, to consult with

lawyers, certified public accountants, tax accountants, and other experts in this regard.

The entire content of these materials is subject to the copyright of Mizuho Bank, Ltd., with all rights reserved. Accordingly, these materials, in

whole or in part, may not be (i) copied, photo copied, or reproduced in any other means, or (ii) redistributed without written consent of Mizuho

Bank, Ltd.