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:

• Association of South-East Asian Nations (ASEAN)
• Organization of Islamic Countries (OIC)

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

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.