Malaysia’s Budget 2027: What Foreign Companies Need to Know

Executive Summary

Budget 2027 makes Malaysia more attractive for regional headquarters, treasury functions and senior international staff – and more expensive for established operating subsidiaries. Foreign subsidiaries should budget now for a RM2,000 wage floor from June 2027 – without counting on the MSME exemption – and move every salary payment onto bank transfers before a new tax-deduction condition takes effect. Groups considering a regional hub should look closely at the new 5% Global Services Hub rate. All measures remain proposals until the Finance Bill and implementing rules are published, so treat them as planning assumptions, not settled law.

Foreign subsidiaries should assume they carry the 2027 wage bill

The national minimum wage rises from RM1,700 to RM2,000 a month from June 2027. Micro, small and medium enterprises (MSMEs) with annual sales below RM50 million are exempt. Do not automatically assume a smaller foreign subsidiary qualifies. Under the standard SME definition used across Malaysian government programmes, subsidiaries of multinationals and large firms are not SMEs at all, whatever their turnover. The eligibility rules for the wage exemption have not been published – employer groups are already asking how the threshold will be applied – but until they are, the safe planning assumption for any foreign-owned subsidiary is that the RM2,000 floor applies.

A second floor is on its way: a minimum monthly salary of RM2,500 for semi-skilled workers and graduates, presented as the first step of a wider wage reform. The Human Resources Ministry has promised details, but as of mid-October 2026 it is not clear who counts as semi-skilled, when the floor starts, whether smaller firms are exempt, or what legal instrument will be used. Employer groups have already warned of wage compression, so expect the detail to move. For many employers, that compression – staff just above the new floors expecting their differential back – can easily cost more than the floors themselves.

Less visible, but easy to get wrong: companies other than MSMEs will only be able to deduct salary costs if wages are paid through a bank account or another channel permitted under the Employment Act 1955. The condition is slated to apply from year of assessment 2028. The rule targets the employment of undocumented foreign workers, but it catches any salary paid in cash or outside the permitted channels. The direct tax risk sits in your own payroll – including any part of an expatriate’s salary paid offshore or through a home-country payroll, which should be checked against the new condition. Labour contractors are a separate issue: their fees are not your salary costs, but if they pay workers in cash, you carry the compliance and reputational exposure, and EU customers’ forced-labour checks will ask the same question.

The real opportunity is regional hubs and treasury

From 1 January 2027, the Global Services Hub (GSH) incentive becomes considerably more generous:

• New GSH companies pay a special 5% rate on income from qualifying hub activities.

• Existing Principal Hub and GSH companies pay 5% on income above their prescribed baseline.

• The incentive period can be extended in five-year steps, up to 30 years.

• GSH companies running treasury and fund-management activities will be exempt from withholding tax on interest and from stamp duty on intercompany loan agreements. The same applies under the Johor-Singapore Special Economic Zone (JS-SEZ) package, which recorded RM132 billion in investment between 2025 and June 2026.

For groups running Asian treasury, procurement or shared-service functions from Singapore or from their home country, this deserves a serious comparison. Whether the 5% rate is actually achievable will depend on the qualifying conditions – substance, headcount and spending thresholds – which MIDA has not yet published.

Expat packages become more attractive – and more expensive

From 1 January 2027, spouses of Category I Employment Pass holders who hold a Dependant Pass may work in Malaysia, subject to conditions still to be published. The catch is scope: since June 2026, Category I requires a basic salary of at least RM20,000 a month, so this helps senior postings only. For those families, a partner’s career is often the main reason to turn down or cut short a posting and this measure removes much of that obstacle.

At the top end, the 30% income tax rate will start at RM1 million of chargeable income instead of RM2 million. The rate on the RM1–2 million band therefore rises from 28% to 30% – up to RM20,000 more tax a year on that band for a resident taxpayer, only slightly offset by the lower middle-band rates and higher personal relief. Where the employer has promised a net salary or operates tax equalisation, the company pays, and the gross-up makes it more. The change applies from year of assessment 2027; non-residents already pay a flat 30%.

Several measures deliberately stop at foreign-owned companies

A number of the budget’s business measures are designed for domestic firms only – and one is aimed at foreign competitors:

• SME tax cut: MSME rates fall to 14% on the first RM150,000 and 16% on the next RM450,000 of chargeable income. Under the rules in force since year of assessment 2024, a company with more than 20% foreign shareholding does not qualify for SME rates at all. Combined with the wage-exemption question above, many foreign subsidiaries will get the wage increase without the tax cut.

• M&A guarantees: RM1 billion of SJPP financing guarantees is earmarked for local companies expanding through mergers and acquisitions. This could strengthen domestic bidders in competitive sale processes.

• Automotive relocation: a deduction of up to RM5 million for relocating to the Automotive Hi-Tech Valley in Tanjung Malim is reserved for wholly Malaysian-owned vendors, for qualifying costs incurred from 2027 to 2030.

• Procurement: GLCs and Petronas target RM58 billion in procurement from Bumiputera companies, and GLC procurement guidelines, unchanged since 2006, will be revised from 2027. Foreign suppliers to GLCs should watch the new guidelines closely.

• E-commerce: an E-Commerce Bill will be tabled at the next Parliament sitting to make platforms and sellers more accountable, and the government is separately examining measures against foreign e-commerce players operating without proper oversight. Foreign platforms and cross-border sellers should expect new obligations, not incentives.

None of this is unusual for a development-oriented budget. Foreign companies should plan on the basis that the incentives will not reach them – and that the E-Commerce Bill may.

What the budget leaves out matters as much

For planning, uncertainty is often more expensive than a known burden. Several items foreign companies were waiting for did not appear:

• No broad SST reform: there is still no general input tax credit, so most SST paid on business inputs remains a cost. The exception worth knowing: from 1 January 2027, manufacturers can reclaim sales tax on machinery, spare parts and equipment bought from local traders and distributors. Research houses had already pencilled in a broader credit mechanism for 2028 at the earliest.

• No carbon tax update: the carbon tax announced for the iron, steel and energy sectors was deferred this year, and the budget gives no new timeline.  

• Nothing new on the global minimum tax, and an open question on the Reinvestment Allowance, which is under review to make it more targeted. Established foreign manufacturers planning expansions around it should not assume it survives in its current form.

One measure deserves more attention than it has received. Investment tax allowances of up to 100% for green technology projects, EV charging stations and green assets for own use are extended to 31 December 2030. For companies exporting to the EU, decarbonising Malaysian production reduces CBAM costs on steel, aluminium, cement, fertiliser and hydrogen exports, and helps meet EU customers’ emissions-reporting demands in every sector – and that investment is now partly subsidised.

What foreign companies should do now

• Recalculate 2027 wage costs on the assumption that the RM2,000 floor applies to you unless you have confirmed MSME status, and model the RM2,500 floor as a scenario rather than a certainty.

• Move every salary payment onto bank transfers before year of assessment 2028, including offshore or split-payroll arrangements for expatriates, and ask labour contractors and outsourcing agents to confirm they pay their workers the same way.

• Review expatriate policies: support for spouses’ employment on Category I postings and tax-equalisation budgets for packages above RM1 million.

• Assess the GSH incentive if you run regional functions, once MIDA publishes the conditions (applications open from 1 January 2027).

• Track the implementing rules. The Finance Bill will confirm the tax measures; the Minimum Wages Order and the Human Resources Ministry’s guidance will settle who is exempt and who counts as semi-skilled; MIDA’s guidelines will set the hub conditions.

The Supply Bill is being debated in Parliament now, and speculation about an early general election persists. Both could still change the detail. If you would like to discuss what Budget 2027 means for your Malaysian operations, please get in touch.

About the author

Prof. Dr. Harald Sippel, MBA is an Austrian-qualified attorney (Rechtsanwalt) and Senior Foreign Advisor at Aqran Vijandran in Kuala Lumpur, supporting foreign companies – with particular depth in Europe and Korean client work – on Malaysian matters across all practice areas. He advises DACH and Korean groups on the cost, structuring and compliance side of their Malaysian operations, from wage and expatriate questions to regional hub set-ups and EU supply-chain requirements.

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