What is the prevailing attitude towards foreign investment?
Malaysia is among the most attractive countries in South East Asia for foreign investment. Over the years, foreign equity restrictions in many sectors have been liberalised. For example, Malaysia currently allows up to 100 per cent foreign equity participation in various service sectors, including telecommunications, healthcare, professional services, environmental services, distributive trade services, education services, courier services, tourism services, social services, transport services, sporting and other recreational services, computer and related services and business services.
Malaysia generally seeks to attract foreign investment in the information technology industry through the Multimedia Super Corridor (MSC) scheme, which is a scheme maintained by the government to foster the growth of research, development and other high technology activities in Malaysia. Foreign investors who obtain an MSC status receive tax and regulatory exemptions as well as public service commitments in exchange for a commitment of substantial technology transfers (see: www.mdec.my).
The Malaysian government continues to emphasise the business-friendly aspect of Malaysian foreign investment policy.
What are the main sectors for foreign investment in the state?
According to the Department of Statistics, Malaysia’s inward foreign direct investment in 2018 spread across a range of sectors, which are mainly in services (50.2 per cent), manufacturing (47.4 per cent), construction (2.3 per cent) and agriculture (0.2 per cent)
Is there a net inflow or outflow of foreign direct investment?
According to the Department of Statistics, in 2018, Malaysia’s recorded net inflow of foreign direct investment was 32.6 billion ringgit, whereas Malaysia’s recorded direct investments abroad was 21.3 billion ringgit. As such, there remains a net inflow of foreign direct investment in Malaysia.Investment agreement legislation
Describe domestic legislation governing investment agreements with the state or state-owned entities.
There is no domestic legislation that governs investment agreements with the state or state-owned entities.
International legal obligationsInvestment treaties
Identify and give brief details of the bilateral or multilateral investment treaties to which the state is a party, also indicating whether they are in force.
To date, Malaysia has entered into 71 bilateral investment treaties, of which 54 are in force (five have been terminated).
Malaysia is a signatory to several multilateral investment treaties and multilateral treaties with investment provisions, such as the following:
- the Comprehensive and Progressive Agreement for Trans-Pacific Partnership;
- the Association of South East Asian Nations (ASEAN) Comprehensive Investment Agreement (2009);
- the ASEAN-Australia New Zealand Free Trade Area (2004); and
- the Organisation of the Islamic Conference (OIC) Investment Agreement (1981).
Malaysia is also a signatory to other bilateral investment treaties entered into under the ASEAN bloc, such as the following:
- ASEAN-Hong Kong, China SAR Investment Agreement (2017);
- ASEAN-India Investment Agreement (2014);
- ASEAN-China Investment Agreement (2009);
- ASEAN-Korea Investment Agreement (2009); and
- ASEAN-Japan Comprehensive Economic Partnership Agreement (2008).
Currently, Malaysia is a party to the Regional Comprehensive Economic Partnership (RCEP) negotiations, which is a free trade agreement between ASEAN, Australia, China, India, Japan, Republic of Korea and New Zealand. The goal of RCEP is to create a more comprehensive regional economic integration among its members. It also aims to simplify and harmonise the member countries’ respective bilateral free trade agreements.
If applicable, indicate whether the bilateral or multilateral investment treaties to which the state is a party extend to overseas territories.
Malaysia does not have any overseas territories.
Has the state amended or entered into additional protocols affecting bilateral or multilateral investment treaties to which it is a party?
No. However, Malaysia has replaced at least two BITs, the Malaysia-Romania BIT (1982) and Malaysia-Pakistan BIT (1995). These are now replaced by the Malaysia-Romania BIT (1996) and Malaysia-Pakistan Closer Economic Partnership Agreement, respectively.
Has the state unilaterally terminated any bilateral or multilateral investment treaty to which it is a party?
No. However, several countries have terminated their BITs with Malaysia:
- On 1 January 2004, Malaysia and Norway denounced the Malaysia-Norway BIT (1984). Under the relevant sunset clause, this BIT continues in effect for a period of 15 years subsequent to that date in respect of investments made while the BIT was in force.
- On 20 June 2015, Indonesia unilaterally terminated its BIT with Malaysia. Under the relevant sunset clause, this BIT continues in effect for a period of 10 years subsequent to that date in respect of investments made while the BIT was in force.
- On 23 March 2017, India unilaterally terminated its BIT with Malaysia. Under the relevant sunset clause, this BIT continues in effect for a period of 10 years subsequent to that date in respect of investments made while the BIT was in force.
Has the state entered into multiple bilateral or multilateral investment treaties with overlapping membership?
Malaysia has entered into a number of bilateral and multilateral investment treaties with overlapping membership, which coexist with each other. These include:
- investment treaties with the other ASEAN member states (ie, Cambodia, Indonesia (BIT terminated) and Vietnam);
- investment treaties entered into by ASEAN as a bloc (eg, China, India (BIT terminated) and South Korea); and
- investment treaties with other OIC member states (ie, Albania, Algeria, Bahrain, Bangladesh, Burkina Faso, Djibouti, Egypt, Guinea, Indonesia (terminated), Iran, Jordan, Kazakhstan, Kuwait, Kyrgyzstan, Lebanon, Morocco, Pakistan, Saudi Arabia, Senegal, Sudan, Syrian Arab Republic, Turkey, Turkmenistan, the United Arab Emirates, Uzbekistan and Yemen).
Is the state party to the ICSID Convention?
Yes. Malaysia became a signatory of the Convention on the Settlement of Investment Disputes between States and Nationals of Other States (ICSID Convention) 1965 on 22 October 1965 and the Convention came into force on 14 October 1966 through the Convention on the Settlement of Investment Disputes Act 1966.Mauritius Convention
Is the state a party to the UN Convention on Transparency in Treaty-based Investor-State Arbitration (Mauritius Convention)?
To date, Malaysia has not signed the Mauritius Convention.Investment treaty programme
Does the state have an investment treaty programme?
There is no publicly available information on Malaysia’s investment treaty programme, if any.
Regulation of inbound foreign investmentGovernment investment promotion programmes
Does the state have a foreign investment promotion programme?
Yes. The Promotion of Investments Act 1986 is domestic legislation that aims to promote foreign investments in Malaysia in industrial, agricultural and other commercial enterprises by providing certain reliefs from income taxes and investment tax allowances.Applicable domestic laws
Identify the domestic laws that apply to foreign investors and foreign investment, including any requirements of admission or registration of investments.
Registering the Promotion of Investments Act 1986, which provides for the promotion by way of relief from income tax of the establishment and development in Malaysia of industrial, agricultural and other commercial enterprises, for the promotions of exports and for incidental and related purposes. Another law is the Safeguards Act 2006, which provides for the investigation and determination of safeguard measures on products imported into Malaysia and other matters connected therewith. For example, the government of Malaysia extends a full tax exemption incentive of 15 years for firms with ‘pioneer status’ (companies promoting products or activities in industries or parts of Malaysia on which the government places a high priority), and 10 years for companies with ‘investment tax allowance’ status (those on which the government places a priority, but not as high as pioneer status).
There is no domestic legislation that specifically requires the admission or registration of investments for the purposes of admitting or registering a foreign investment. However, a number of bilateral and multilateral investment treaties to which Malaysia is a party require that foreign investments be admitted or registered by Malaysia by being an approved project by the relevant government ministry in Malaysia. In this respect, the Ministerial Functions Act 1969 grants government ministries in Malaysia broad discretionary powers over the approval of specific investment projects.
Generally, these are BITs that were signed between December 1960 and January 1992, whereby what amounts to an investment in respect of investments in the territory of Malaysia are ‘all investments made in projects classified by the appropriate Ministry of the Federation of Malaysia in accordance with its legislation and administrative practice as an “approved project”’.
Foreigners may purchase property worth over 1 million ringgit without restriction. The Malaysian government no longer requires foreigners to obtain approval from the Foreign Investment Committee.
Foreign investors can now own or establish a business in Malaysia with 100 per cent foreign equity, depending on the nature of the business, except in sectors where participation of Malaysians is a requirement.Relevant regulatory agency
Identify the state agency that regulates and promotes inbound foreign investment.
The Malaysian Investment Development Authority, established under the Ministry of International Trade and Industry, regulates and promotes inbound foreign investment into Malaysia (see: www.mida.gov.my/home/).Relevant dispute agency
Identify the state agency that must be served with process in a dispute with a foreign investor.
Based on the majority of investment treaties to which Malaysia is a party, the Attorney General’s Chambers of Malaysia is typically the state agency to be served with process in a dispute with a foreign investor.
Investment treaty practiceModel BIT
Does the state have a model BIT?
The latest publicly available model BIT is the Malaysian Model BIT (1998) (see: https://investmentpolicy.unctad.org/international-investment-agreements/treaty-files/2834/download).Preparatory materials
Does the state have a central repository of treaty preparatory materials? Are such materials publicly available?
Malaysia does not have a central repository of treaty preparatory materials. However, the ASEAN Trade Repository functions as a single point of access to all the trade-related information of ASEAN member states, including Malaysia (see: https://atr.asean.org/index.php/links/search/?country_code=my&src=home).Scope and coverage
What is the typical scope of coverage of investment treaties?
Malaysian BITs tend to cover a broad range of investments, including movable and immovable property and other property rights, shares, stocks and debentures of companies or interests in the property of such companies, debt instruments and claims to money or performance having a financial value, intellectual and industrial property rights including copyrights, patents, trademarks, tradenames, industrial design, trade secrets, technical processes and know-how and goodwill, and business concessions conferred by law or under contract.
Such investment treaties provide protection to citizens of the contracting state, and any corporation, partnership, trust, joint-venture, organisation, association or enterprise duly incorporated in accordance with the applicable laws of that contracting state.
Once a foreign investor has established a lawful investment in Malaysia, it will enjoy the rights and protections set out in the relevant BIT. For several BITs with Malaysia, such investments must first be admitted or registered as an approved project by Malaysia to qualify as an investment under the relevant BIT. The requirement to be designated as an approved project is, however, slowly being removed from newer BITs that Malaysia seeks to enter into.Protections
What substantive protections are typically available?
Malaysian BITs provide a core set of protections by providing investors with full and adequate protection and security in the territory of the state, protection from expropriation or nationalisation and guarantees of fair and equitable treatment.
Malaysian BITs also contain most-favoured-nation (MFN) clauses, which in effect provide that a country accorded an MFN status shall receive fair and equitable treatment that is not less favourable than that accorded to investments made by investors of any other country.Dispute resolution
What are the most commonly used dispute resolution options for investment disputes between foreign investors and your state?
No publicly available investment treaty award has been rendered against Malaysia. Both of the two reported investment disputes brought against Malaysia that were arbitrated were under ICSID.Confidentiality
Does the state have an established practice of requiring confidentiality in investment arbitration?
The lack of public information on investment arbitrations involving Malaysia does not allow firm conclusions to be drawn regarding Malaysia’s policy on confidentiality, although there are indications that Malaysia favours confidentiality.Insurance
Does the state have an investment insurance agency or programme?
Malaysia does not have an investment insurance agency or programme. However, Malaysia is a member of the Multilateral Investment Guarantee Agency.
A number of Malaysian BITs include compensation-for-losses clauses, which regulate the treatment of foreign investors in the event their investments suffer losses owing to war or other armed conflict, revolution, a state of national emergency, revolt, insurrection or riot by requiring Malaysia to provide MFN treatment to the availability of compensation for such losses.
Notably, Malaysia has also entered into investment guarantee agreements with the United States (1959) and Canada (1971).
Investment arbitration historyNumber of arbitrations
How many known investment treaty arbitrations has the state been involved in?
There are at least three known investment treaty arbitrations involving Malaysia.
In 1994, in Gruslin v Malaysia (I) (ICSID Case No. ARB/94/1), a claim filed under the Belgium-Luxembourg Economic Union (BLEU)-Malaysia BIT (1979) was initially amicably settled. In 1999, in Gruslin v Malaysia (II) (ICSID Case No. ARB/99/3), the dispute arose out of the alleged losses in the value of the claimant’s investment arising from Malaysia’s alleged violation of the terms of an intergovernmental agreement concluded with the BLEU; particularly, that Malaysia’s imposition of exchange controls allegedly constituted a breach of its obligations under said agreement. The claimant’s claim was dismissed in November 2000 for lack of jurisdiction under article 25(1) of the ICSID Convention and article 10(1) and (2) of the BLEU-Malaysia BIT (1979) (see: www.italaw.com/sites/default/files/case-documents/ita0385.pdf).
In 2005, in Malaysian Historical Salvors Sdn Bhd v Malaysia (ICSID Case No. ARB/05/10), a claim filed under the Malaysia-UK BIT (1981) arose out of the alleged non-payment of amounts owed to a claimant from the sale of items recovered from the cargo of a ship that sank in Malaysian waters pursuant to a salvage contract concluded between the British investor and Malaysia. In 2007, the claimant’s claim was dismissed for lack of jurisdiction under article 25(1) of the ICSID Convention. In February 2009, the tribunal’s award on jurisdiction was annulled by way of a majority decision (see: www.italaw.com/cases/646).
Notably, in 2017, a claimant issued a Notice of Dispute against Malaysia under the provisions of the 1987 ASEAN Agreement for the Promotion and Protection of Investments (see: www.italaw.com/sites/default/files/case-documents/italaw9246.pdf). The Malaysian government has since reached a settlement with the investor, averting the threat of a treaty claim.Industries and sectors
Do the investment arbitrations involving the state usually concern specific industries or investment sectors?
Based on the publicly available investment disputes set out at question 24, investment arbitrations involving Malaysia have not demonstrated any concern for any specific industry or investment sectors.Selecting arbitrator
Does the state have a history of using default mechanisms for appointment of arbitral tribunals or does the state have a history of appointing specific arbitrators?
Malaysia does not have any consistent history of using default mechanisms for the appointment of arbitral tribunals. In Gruslin (II), the claimant and Malaysia agreed to constitute a tribunal consisting of a sole arbitrator and agreed to the appointment of the arbitrator (Award of 27 November 2000, at paragraphs 4.1 to 4.2). In Malaysian Historical Salvors Sdn Bhd v Malaysia, the claimant and Malaysia also agreed to constitute a tribunal consisting of a sole arbitrator but left the appointment of the sole arbitrator to the Secretary-General of ICSID (Award on Jurisdiction of 17 May 2007, at paragraphs 26 to 28).Defence
Does the state typically defend itself against investment claims? Give details of the state’s internal counsel for investment disputes.
Of the three investment disputes lodged with ICSID against Malaysia, Malaysia defended itself against two (Gruslin (II) and Malaysian Historical Salvors Sdn Bhd v Malaysia) investment treaty claims and settled one (Gruslin (I)). That said, Malaysia’s internal counsel for investment disputes is the Attorney General’s Chambers of Malaysia. However, it is not atypical for Malaysia to engage both domestic legal firms and foreign legal firms as external counsel (eg, Malaysian Historical Salvors Sdn Bhd v Malaysia (Award on Jurisdiction dated 17 May 2007), the Decision on the Application for Annulment dated 16 April 2009 and Gruslin (II) (Award dated 27 November 2000)) to represent it in claims.
Enforcement of awards against the stateEnforcement agreements
Is the state party to any international agreements regarding enforcement, such as the 1958 UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards?
Malaysia acceded to the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards 1958 (New York Convention) on 5 November 1985. Malaysia has attached the Reciprocity Reservation in ratifying the New York Convention. As such, Malaysia will apply the New York Convention only to the recognition and enforcement of awards made in the territory of another contracting state to the New York Convention.
Malaysia is also a party to the ICSID Convention, which entered into force on 14 October 1966 through the Convention on the Settlement of Investment Disputes Act 1966.Award compliance
Does the state usually comply voluntarily with investment treaty awards rendered against it?
Section 3 of the Convention on the Settlement of Investment Disputes Act 1966 provides that ICSID Convention awards shall be binding and be enforced in the same manner as if they are decrees or judgments of the High Court.
No information is publicly available regarding investment treaty awards rendered against Malaysia, if any.Unfavourable awards
If not, does the state appeal to its domestic courts or the courts where the arbitration was seated against unfavourable awards?
No information is publicly available regarding investment treaty awards rendered against Malaysia, if any.Provisions hindering enforcement
Give details of any domestic legal provisions that may hinder the enforcement of awards against the state within its territory.
The enforcement of non-ICSID arbitral awards in Malaysia is governed by the New York Convention and the Malaysian Arbitration Act 2005 (2005 Act), which gives effect to and implements the New York Convention and the United Nations Commission on International Trade Law Model Law on International Commercial Arbitration 1985 (as amended in 2006).
The 2005 Act provides for the mutual recognition and enforcement of arbitral awards made in the territory of a party to the New York Convention (section 38(4) of the 2005 Act). Such awards may be enforced by way of summary application to the court under section 38(1) of the 2005 Act. However, recognition of such awards may be refused for the following reasons (section 39(1)(a)(i) to (v) of the 2005 Act):
- that a party to the arbitration agreement was under some incapacity;
- that the arbitration agreement was not valid under the law to which the parties subjected it or, failing any indication thereon, under the law of the country where the award was made;
- that a party was not given proper notice of the appointment of the arbitrator or of the arbitration proceedings, or was otherwise unable to present its case;
- that the award deals with a difference not contemplated by or not falling within the terms of the submission to arbitration or contains decisions beyond the scope of the submission to arbitration;
- that the composition of the arbitral tribunal or the arbitral procedure was not in accordance with the agreement of the parties or, failing such agreement, with the law of the country in which the arbitration took place; and
- that the award has not yet become binding on the parties or has been set aside or suspended by a court of the country in which, or under the law of which, that award was made.
Additionally, recognition and enforcement of an award may be refused if the subject matter of the dispute is not capable of settlement by arbitration under the laws of Malaysia (section 39(1)(b)(i) of the 2005 Act), if the award is in respect of a matter that is not capable of settlement by arbitration, or if the award is in conflict with the public policy of Malaysia (section 39(1)(b)(ii) of the 2005 Act).
Malaysia does not have sovereign immunity in respect of the enforcement of awards against it in Malaysian courts. Under section 5 of the 2005 Act, the Malaysian government is bound by the provisions of the 2005 Act. However, any party seeking to enforce an award against the Malaysian government needs to be mindful of the provisions of the Government Proceedings Act 1956, which affords the state certain protection.
Principally in the context of commercial arbitrations, an award that has been recognised and enforced by entry as a judgment in Malaysia can be enforced against Malaysia by applying for the issuance of a certificate containing the particulars of the award under section 33 of the Government Proceedings Act 1956. This is to be done after the award has been recognised as enforceable under the 2005 Act.
Separate provisions apply to the recognition and enforcement of ICSID awards. Section 3 of the Convention on the Settlement of Investment Disputes Act 1966 provides that ICSID Convention awards shall be binding and be enforced in the same manner as if they are decrees or judgments of the High Court. Enforcement of ICSID awards cannot be challenged in Malaysian courts, except on grounds of sovereign immunity under article 55 of the ICSID convention. Pursuant to article 52(1) of the ICSID Convention, Malaysia may apply to have an ICSID award annulled on grounds of domestic or international public policy.
Update and trendsKey developments of the past year
Are there any emerging trends or hot topics in your jurisdiction?No updates at this time.