Merchandise Trade

• Malaysia has been a member of the World Trade Organization (WTO) since January 1, 1995.


• Malaysia is a member of the ASEAN, alongside Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam. Malaysia has preferential tariffs for imports from ASEAN members (these cover textiles, textile products, wheat flour, wood products and iron and steel products), as well as being more informal on certification procedures and rules of origin from the bloc.


• Malaysia's average applied most-favoured-nation tariff increased from 5.6% in 2013 to 7.5% in 2017.


• Almost all rates (99% of tariff lines) are ad valorem, while duty-free lines account for 56.2% of all tariff lines. The number of different tariff rates increased from 19 in 2013 to 25 in 2017.


• Ad valorem tariff rates range from zero to 60% for industrial products and 0-90% for agricultural products. Among different product groups, average tariffs are highest for transport equipment (the simple average tariff rate was 21.5% in 2017).


• Import duty exemptions are applied to local and foreign manufacturing companies on raw materials and components used in the manufacture of goods for export and for machinery and equipment not available in Malaysia, but used directly in the manufacturing process.


• Malaysia requires import licenses for imports of "sensitive" or strategic industries (mainly construction equipment, autos, agriculture, meat and basic machinery).


• Export duties range from 5-30% and apply to 217 tariff lines (mainly crude oil, palm oil and wood).


• The export of products such as rubber, timber, palm oil and tin requires special permission from relevant government agencies and, in order to encourage domestic processing, these may be subjected to additional taxation.


• Malaysia's average tariff rate stands at 4.4%. Import duties levied on goods imported into Malaysia generally range from 0-50%. Goods such as raw materials, machinery, essential foodstuffs and pharmaceutical products are not dutiable or are subject to lower tariffs.


• Importers of meat and poultry products must meet halaal certification standards. The import of pork is subject to an additional permit requirement and a valid import permit issued by the Malaysian Quarantine and Inspection Services must be obtained for every consignment of pork.


• Alcohol beverages are subject to an effective tariff rate of up to 500% of their value when import duties and excise taxes are combined.


• Malaysia has imposed various anti-dumping measures on a wide range of products, predominantly in the areas of machine parts, steel, iron and machinery on goods coming from Mainland China and a few other Asian nations to protect domestic industries.

Sources: WTO – Trade Policy Review, Fitch Solutions

Trade Updates

In October 2019, India announced that it was considering restricting the import of certain goods from Malaysia. India is the largest importer of Malaysian palm oil and Malaysia’s seventh largest import partner overall. In January 2020, India imposed restrictions on refined palm oil from Malaysia.

Multinational Trade Agreements

Active

1. Malaysia is a member of the WTO (effective date: January 1, 1995).


2. ASEAN Free Trade Area (AFTA – effective as of January 1993): AFTA reduces tariff and non-tariff barriers between member states. The 10 members of the AFTA are Brunei Darussalam, Cambodia, Indonesia, Laos, Myanmar, Philippines, Singapore, Thailand and Vietnam. Five of the member states are significant trading partners of Malaysia. Advantages will also accrue from the planned integration of the ASEAN Economic Community AEC) which will provide a significant advantage to Malaysia, reinforcing its position as a manufacturing hub.


3. ASEAN-Mainland China Free Trade Agreement (FTA) and Economic Integration Agreement (effective date: January 2005 for goods and July 2007 for services): The FTA is a comprehensive economic co-operation between ASEAN member states and Mainland China. The goal of the agreement is not only to eliminate tariffs, but also to address behind-the-border barriers that impede the flow of goods and services. Mainland China is Malaysia’s largest trade partner, accounting for 13.9% of Malaysia’s exports and supplying 19.9% of imports.


4. ASEAN-South Korea FTA (AKFTA - effective date: July 2007 for goods, May 2009 for services): AKFTA aims to create more liberal, facilitative market access and investment regimes between South Korea and ASEAN. A business council was set up in December 2014 to enhance economic cooperation between parties and boost total trade to USD200 billion by 2020. The agreement allows 90% of the products being traded between the ASEAN and South Korea to enjoy duty-free treatment. South Korea is one of Malaysia’s top 10 trade partners.


5. ASEAN-India Comprehensive Economic Cooperation Agreement (effective date: January 2010): The agreement involves the liberalisation of tariffs on over 90% of products traded between the two regions, including the so-called 'special products', such as palm oil (crude and refined), coffee, black tea and pepper.


6. ASEAN-Australia-New Zealand FTA (AANZFTA - effective date: January 2010): The agreement aims to eliminate tariffs on 99% of exports to key ASEAN markets by 2020. AANZFTA aims to decrease barriers to trade in both goods and services, allowing for greater market access. The agreement covers nearly 700 million people.


7. ASEAN-Japan FTA: The ASEAN-Japan FTA is for goods only and came into force on December 1, 2008. The agreement will lead to the progressive elimination of tariffs on all goods and creates a potential regional market of over 750 million people. The FTA benefits a number of important sectors, including manufacturing, mining and agriculture.


8. ASEAN-Hong Kong FTA (AHKFTA): Hong Kong and the ASEAN commenced negotiations of an FTA and an Investment Agreement in July 2014. After 10 rounds of negotiations, Hong Kong and ASEAN announced the conclusion of the negotiations in September 2017 and forged the agreements on November 12, 2017. The agreements are comprehensive in scope, encompassing trade in goods, trade in services, investment, economic and technical co-operation, dispute settlement mechanism and other related areas. The agreements will bring legal certainty, better market access and fair and equitable treatment in trade and investment, thus creating new business opportunities and further enhancing trade and investment flow between Hong Kong and the ASEAN. The agreements will also extend Hong Kong's FTA and Investment Agreement network to cover all major economies in South East Asia. The agreement came into force on January 1, 2019 but will take time for all members of the ASEAN to comply as implementation is subject to completion of the necessary procedures. Hong Kong is a key export market and the reduction of tariffs will ease the trading process; Hong Kong's potential as a key export market increases the importance of AHKFTA.


9. Comprehensive and Progressive Trans-Pacific Partnership (CPTPP – effective date: March 8, 2018): The agreement comprises Australia, Brunei, Canada, Chile, Japan, Malaysia, Mexico, New Zealand, Peru, Singapore and Vietnam. The agreement was ratified in Q418, with the deal representing 13.4% of global GDP, making it the third-largest trade agreement after the North American FTA (the USMCA) and the European Union (EU). The agreement aims to cut tariffs, improve access to markets and set common ground on labour and environmental standards and intellectual property protections. The deal is particularly positive for Malaysia, as the United States’ increasingly protectionist stance will have negative implications for its main trading partners.


10. Malaysia-Chile FTA (effective date: April 18, 2012): The agreement aims to progressively reduce or eliminate tariffs on their respective industrial and agricultural products. As part of the agreement, Malaysia undertook to fully eliminate import duties on 9,311 tariff lines on date of entry into force. Chile undertook to fully eliminate import duties for 6,960 tariff lines from the date of entry for products that include video recording apparatus and data processing machines (electrical and electronic items), vulcanised rubber thread and cord, surgical gloves, vegetable fats, cocoa butter, fats and oil and parts of aircraft. A number of these measures have been superseded by the CPTPP.


11. Preferential Tariff Arrangement-Group of Eight Developing Countries (effective date: August 2011): The agreement involves countries that are members of the D-8 Organization for Economic Co-operation, namely Indonesia, Malaysia, Bangladesh, Pakistan, Iran, Egypt, Turkey and Nigeria. Objectives of the member countries are to reach a preferential trade agreement to enhance intra-trade and an agreement on administrative assistance in customs matters.


12. Malaysia-India Comprehensive Economic Co-operation Agreement (effective date: July 2011): This comprehensive agreement covers trade in goods, services, investments and the movement of natural persons. The items on which India has obtained market access from Malaysia include basmati rice, mangoes, eggs, trucks, motorcycles and cotton garments, all of which are items of considerable export interest to India. At the same time, adequate protection has been provided by the Indian side for sensitive sectors, such as agriculture, fisheries, textiles, chemicals and autos. This agreement covers a number of categories without provisions in the ASEAN-India Comprehensive Economic Co-operation Agreement.


13. Malaysia-Australia FTA (effective date: January 2013): The agreement is a comprehensive agreement comprising 21 chapters encompassing trade in goods, services, investment and economic co-operation. It also covers intellectual property rights, e-commerce and competition policy and covers certain areas without provisions in the AANZFTA.


14. Malaysia-New Zealand FTA (effective date: August 2010): This comprehensive agreement covers the liberalisation of trade in goods, services, investment and economic co-operation. As part of the agreement, Malaysia and New Zealand will progressively reduce or eliminate tariffs on respective industrial and agricultural products. Malaysian exporters will enjoy free duty on cocoa products, carpets, tyres, margarine, steel wire, iron products and wood furniture. Imports from New Zealand into Malaysia will enjoy zero or lower duties for paper, plastics, automotive components and veneer and chemical products. Certain areas without provisions are covered in the AANZFTA.


15. Malaysia-Turkey FTA (effective date: August 2015): The agreement eliminates and binds duties on 70% of the tariff lines. Malaysia and Turkey will progressively reduce or eliminate tariffs on a substantial number of products traded between both countries, with expected duty-free imports by 2022.


16. Japan-Malaysia Economic Partnership Agreement (effective date: July 2006): The agreement covers trade in industrial and agricultural goods, trade in services, investment, rules of origin, customs procedures, standards and conformance, intellectual property, competition policy, enhancement of business environment, safeguard measures and dispute settlement. The agreement will result in tariff elimination of about 97% of trade in goods between the two countries on a trade volume basis, which will considerably promote trade in agricultural, forestry and fishery products, as well as industrial products between the two countries. The agreement has been somewhat superseded by the ASEAN-Japan FTA.


17. Malaysia-Pakistan Closer Economic Partnership Agreement (effective date: January 2008): The agreement encompasses liberalisation in trade in goods, services, investment, as well as bilateral technical co-operation and capacity building in areas such as sanitary and phytosanitary measures, intellectual property protection, construction, tourism, healthcare and telecommunications.

Waiting To Be Signed

Regional Comprehensive Economic Partnership (RCEP): A regional economic agreement that involves the 10-member ASEAN bloc and their FTA partners: Australia, Mainland China, Japan, New Zealand and South Korea. While India withdrew from the agreement in November 2019, in April 2020, member states of RCEP offered India a package to return to the negotiating table. The RCEP is envisioned to be a modern, comprehensive, high-quality and mutually beneficial economic partnership agreement that aims to advance economic cooperation, and broaden and deepen integration in the region. The RCEP will lower tariffs and other barriers to the trade of goods among the 15 countries that are in the agreement, or have existing trade deals with ASEAN. The agreement was finalised in November 2019 and is expected to be signed in November 2020.

Under Negotiation

1. Malaysia-United States FTA: Malaysia and the United States are negotiating an FTA. Areas of particular interest to United States' exporters include a reduction of Malaysian trade barriers to automobiles and certain agricultural products, provisions for the enforcement of intellectual property rights and broader access to Malaysia's service sectors, such as financial services, telecommunications and professional services.
    
2. Malaysia-EU FTA: Malaysia and the EU are negotiating an FTA. The EU is one of Malaysia's largest palm oil markets, importing MYR10 billion worth of palm products in 2016. Bilateral trade between the EU and Malaysia is dominated by industrial products. The EU mainly imports machinery and appliances and mainly exports electrical equipment and machinery (both ways industrial products account for more than 90% of trade). Other sectors of relevance in terms of EU imports from Malaysia are plastics, rubber, animal and vegetable fats and oils and, in terms of exports, mechanical products.
    
3. Malaysia-European Free Trade Association FTA: Malaysia and the European Free Trade Association (EFTA), consisting of Iceland, Liechtenstein, Norway and Switzerland, are negotiating an FTA. Exports from EFTA states consist mainly of precious stones, machinery and pharmaceutical products. Imports from Malaysia consist mainly of cellular phones and electrical equipment.

Sources: WTO Regional Trade Agreements Database, Fitch Solutions

Foreign Direct Investment

• Sales and Services Tax (SST): 5%, 10% or 6%
• Corporate Income Tax: 24%

Source: Inland Revenue Board of Malaysia

Important Updates to Taxation Information

• The Malaysian tax authorities recently issued a practice note to state their position that payments for use of applications to create advertising campaigns constitute royalty under the domestic law.
   
• In March 2018, Malaysia's tax agency announced that businesses can newly challenge late-payment penalties in respect of goods and services tax (GST) via the tax agency's online portal.
• The Withholding Tax (WHT) exemption provided to non-resident companies for income received from MSC Malaysia companies has been revoked with effect from January 1, 2020. Effective the same date, the following income received by non-residents from MSC Malaysia companies will be subject to WHT: (i) fee for technical advice or technical services, (ii) licensing fee in relation to technology development, and (iii) interest on loans for technology development.

Localisation Requirements

The employment of foreign nationals is not encouraged in Malaysia with the 11th Malaysia Plan (2016-2020) aiming to limit the ratio of foreign labour at not more than 15% of total labour. Registered local job seekers are given priority over foreigners in filling job vacancies in the country.

Companies are granted a preapproved quota for the number of workers to be imported to Malaysia under the outsourcing licence. The price could range from MYR800 to MYR1,800 per year, on top of the levy, insurance, medical examination and cost of a banker's guarantee, which significantly add to high overheads, particularly for small businesses.

Employers seeking to employ foreign workers must notify the Department of Labour of vacancies by registering at Jobs Malaysia to ensure registered local job seekers are given priority. Foreign workers are employed for a period of 10 years in five permissible sectors (manufacturing, agriculture, plantation, construction and services) and, depending on the categorisation of their employment pass, they may or may not marry or bring their family members, dependants and foreign aides into Malaysia.

Obtaining Foreign Worker Permits for Skilled Workers

The entry of foreign nationals in Malaysia is governed by the Immigration Act of 1963 which also determines the types of employment passes that can be applied for by those aspiring to work in the country. Three types of permits are generally issued by Malaysian authorities which depend on the duration of contract of employment, position to be filled and minimum/maximum salary. They include the employment pass, the temporary employment pass and the professional visit pass permits. Foreign workers who wish to be employed by a company within Malaysia will have to have their application reviewed by the relevant government agencies, such as the Ministry of Manpower. The application for foreign workers by employers is, however, made easier in that it can be done at the One Stop Centre at the Foreign Workers Management Division of the Ministry of Home Affairs where various government agencies (departments and ministries) process the application for recruitment of foreign workers under one roof.

Visa/Travel Restrictions

Visa free access for citizens of North Korea has been discontinued as of March 6, 2017. Nationals of other countries are allowed to enter Malaysia for a maximum stay not exceeding a specified period of days, weeks or months (depending on country of origin). Generally, no visa is required for Commonwealth countries.

Sources: Government websites, Fitch Solutions

Sovereign Credit Ratings

Sources: Moody's, Standard & Poor's, Fitch Ratings

Competitiveness and Efficiency Indicators

Sources: World Bank, IMD, Transparency International

Fitch Solutions Risk Indices

Source: Fitch Solutions
Date last reviewed: April 22, 2020

Hong Kong’s Trade with Malaysia

Export Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	1,576.6
Commodity 2	Telecommunications and sound recording and reproducing apparatus and equipment	1,167.9
Commodity 3	Office machines and automatic data processing machines	366.3
Commodity 4	Miscellaneous manufactured articles	182.8
Commodity 5	Power generating machinery and equipment	115.7

Import Commodity	Commodity Detail	Value (US$ million)
Commodity 1	Electrical machinery, apparatus and appliances, and electrical parts thereof	16,326.5
Commodity 2	Office machines and automatic data processing machines	1,145.3
Commodity 3	Telecommunications and sound recording and reproducing apparatus and equipment	879.8
Commodity 4	Petroleum, petroleum products and related materials	746.8
Commodity 5	Miscellaneous manufactured articles	397.9