Malaysia’s Budget 2027: Key Tax and Investment Changes for Foreign Investors

Malaysia’s Budget 2027 introduces new tax incentives and investment measures aimed at attracting higher-value foreign investment. The RM510 billion (US$125 billion) spending and investment framework includes preferential corporate tax rates for regional headquarters, financing for strategic industries, and extended green investment incentives, alongside changes affecting business taxation and expatriate employment.

Tax changes and investment incentives for foreign businesses

Enhanced incentives for regional headquarters and Global Services Hubs

Budget 2027 enhances the Global Services Hub (GSH) incentive framework, with the revised measures scheduled to begin on January 1, 2027.

The proposed incentives include:

• A preferential corporate income tax rate of 5 percent on qualifying GSH income for eligible new companies.
• A 5 percent rate on qualifying income exceeding a specified baseline for eligible existing Principal Hub and GSH companies.
• Incentive periods extendable in five-year increments, up to a maximum of 30 years.
• Withholding tax exemptions on qualifying interest payments and stamp duty exemptions on eligible intercompany loan agreements involving treasury activities.

The treasury-related exemptions will also extend to qualifying operations under the Johor–Singapore Special Economic Zone (JS-SEZ) incentive package.

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The potential 30-year incentive period may appeal to multinational companies consolidating regional management, procurement, finance, and shared-service functions in Malaysia, particularly where relocation or establishment involves substantial upfront investment.

However, the 5 percent rate applies only to qualifying income. Large multinational groups subject to global minimum tax rules must also determine whether the preferential rate produces additional tax savings after accounting for potential top-up taxes.

Corporate tax deductions and capital allowances

While the GSH framework primarily targets multinational service operations, Budget 2027 also proposes tax relief for qualifying micro, small, and medium-sized enterprises (MSMEs), alongside changes to business expense deductions.

The proposed SME income tax rates are 14 percent on the first RM150,000 (US$36,700) of chargeable income and 16 percent on income between RM150,000 and RM600,000 (US$146,900). The threshold for small-value assets eligible for capital allowances will also increase to RM3,000 (US$734), while accelerated capital allowances for qualifying locally produced machinery, equipment, and information and communications technology assets will be extended until December 31, 2030.

Access to these measures may depend on company size, ownership, and other prescribed conditions, limiting their availability to some foreign-owned subsidiaries.

The budget also proposes restricting salary expense deductions for businesses outside the applicable MSME exemption. Under the proposed requirement, wages must be paid through bank accounts using payment channels permitted under Malaysia’s Employment Act 1955. The restriction does not apply to deductions for other business expenses.

Separately, targeted sales tax relief is proposed for qualifying manufacturers, potentially reducing costs associated with eligible purchases.

Investment opportunities in Malaysia’s priority industries

Advanced manufacturing and semiconductors

Malaysia is directing additional financing towards semiconductor design, advanced packaging, and other higher-value manufacturing activities.

Budget 2027 includes:

• RM1.2 billion (US$294 million) from Khazanah Nasional and the Retirement Fund Incorporated (KWAP) to support Malaysian semiconductor companies.
• RM2.1 billion (US$514 million) from the NIMP Fund, KWAP’s Dana Pemacu, and Khazanah’s MTC Fund for mid-tier companies in electrical and electronics, digital technology, aerospace, and medical devices.
• RM450 million (US$110 million) from Khazanah’s Jelawang Capital and KWAP’s Dana Perintis for startup development.

The Malaysian Technology Development Corporation’s SemiconStart program will also provide follow-on equity investment for startups involved in chip design, advanced packaging, and semiconductor materials.

Although much of this financing targets Malaysian businesses rather than foreign investors directly, international semiconductor companies may benefit through joint ventures, supplier agreements, technology partnerships, and equipment contracts with eligible domestic manufacturers.

Digital infrastructure and data centers

Alongside semiconductor development, Malaysia is expanding investment in digital infrastructure.

Budget 2027 highlights the New Economy Venture Fund, established by Sime Darby Property, the Employees Provident Fund, and the Armed Forces Fund Board, to develop data centers and industrial logistics assets in Elmina, Selangor.

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Foreign technology companies may find opportunities through procurement contracts for data-center equipment, cooling systems, power management, and specialized engineering services. However, these projects depend on reliable electricity and water supplies, making utility capacity and infrastructure costs important factors in determining project feasibility.

Renewable energy and green technology

Budget 2027 extends green technology investment incentives until December 31, 2030.

Qualifying green and sustainable technology projects, including electric vehicle charging infrastructure, may receive an Investment Tax Allowance of up to 100 percent. Similar treatment is proposed for eligible businesses purchasing green technology assets for their own use.

The budget also identifies RM17 billion (US$4.2 billion) in energy-related investment:

• RM15 billion (US$3.7 billion) from Tenaga Nasional Berhad to strengthen the national electricity grid.
• RM1 billion (US$245 million) from UEM Lestra for projects including energy storage at Kuala Lumpur International Airport and a 1-gigawatt hybrid energy project in Johor.
• RM1 billion (US$245 million) through KWAP’s Dana Iklim+ for renewable energy and decarbonization projects.

Grid expansion may improve the feasibility of electricity-intensive investments, particularly semiconductor manufacturing and data centers. However, the timing and location of infrastructure improvements will determine whether individual projects benefit.

Financial services and fund management

Beyond industrial and infrastructure development, Budget 2027 introduces incentives intended to strengthen Malaysia’s position in Islamic finance and wealth management.

Qualifying Shariah-compliant fund management service providers will receive a 40 percent income tax exemption for the years of assessment 2028 to 2030.

The government also proposes tax deductions for approved issuance costs associated with Sukuk Prisma for the years of assessment 2027 to 2030. Grants received under qualifying sustainable financing schemes will be exempt from tax beginning January 1, 2027.

Separately, Malaysia’s existing Forest City Single Family Office incentive framework offers qualifying structures a zero-tax incentive for up to 20 years. The government is also developing a Multi-Family Office framework.

Unlike the Shariah-compliant fund management incentive, which targets businesses managing investment funds, the family-office framework is designed for structures managing private family wealth. Foreign investors should therefore assess the applicable licensing and tax requirements based on their intended activities.

What Malaysia’s Budget 2027 means for foreign investors

Malaysia’s Budget 2027 presents foreign investors with new opportunities in regional headquarters, advanced manufacturing, digital infrastructure, and green technology. However, investment decisions must also account for changes to employment costs, location-specific incentives, and implementation requirements.

Investment location and the Johor–Singapore Special Economic Zone

The Johor–Singapore Special Economic Zone may appeal to multinational companies seeking to serve regional markets from Malaysia. Investors should compare available incentives with labor costs, infrastructure capacity, and access to suppliers before selecting a location.

Minimum wage and employment costs

Labor costs will also become an important consideration following the announced increase in Malaysia’s monthly minimum wage from RM1,700 (US$416) to RM2,000 (US$490), effective June 2027. MSMEs with annual sales below RM50 million (US$12.2 million) are exempted under the announced framework, allowing additional time to adjust.

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The government has also proposed a starting minimum salary of RM2,500 (US$612) per month for semi-skilled positions and graduates. Foreign-owned manufacturers and service companies with substantial workforces should assess the potential effect on payroll costs and determine whether they qualify for the MSME exemption.

Expatriate employment and work permits

While domestic employment costs are set to increase, Budget 2027 also introduces greater flexibility for certain foreign professionals and their families.

From January 1, 2027, spouses of Category I Employment Pass holders who hold Dependant Passes will be permitted to work in Malaysia, subject to prescribed conditions. This could make executive relocation easier for multinational companies.

Existing DE Rantau Nomad Pass holders who reach their two-year limit may also continue residing and working remotely in Malaysia, subject to eligibility criteria. The precise extension arrangements will depend on implementing guidance.

Implementation timelines for Budget 2027 measures

Several Budget 2027 tax and employment measures still require further legislation or administrative guidance. Foreign investors should confirm effective dates, eligibility conditions, and application procedures before incorporating anticipated incentives, exemptions, or employment arrangements into their investment plans.

Contact Dezan Shira & Associates for investment advisory in Malaysia

Contact Dezan Shira & Associates to assess how Malaysia’s Budget 2027 affects your investment plans, tax obligations, and business operations.

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