Malaysia Unveils Tax Perks to Boost VC Investment in Startups

Malaysia has rolled out new tax incentives to attract more investment into its venture capital (VC) and private equity (PE) sectors to deepen the funding pool for local startups. Second Finance Minister Amir Hamzah Azizan announced the measures on Tuesday. 

Under the new scheme, eligible investment funds will enjoy a reduced tax rate of 5% for up to 10 years, provided they allocate at least 20% of their capital to Malaysian startups. The initiative is designed to encourage long-term commitments to the local innovation landscape.

Additionally, VC and PE management firms registered with the Securities Commission Malaysia will benefit from a 10% tax rate. The incentives also apply to onshore limited liability partnerships, broadening access for a wider group of investors and fund structures.

Second Finance Minister Amir Hamzah Azizan acknowledged that Malaysia’s venture capital ecosystem remains relatively small, with total funding reaching just US$429 million in 2024. However, he emphasized that the government’s ambitions go far beyond these figures, aiming to position Malaysia as a regional hub for startup investment and innovation.

To complement the new tax measures, Bank Negara Malaysia is introducing reforms to the Foreign Exchange Policy (FEP) to simplify cross-border fundraising. Venture capital and private equity firms can now apply based on their fund mandate size instead of individual transactions. This change is expected to ease operations and attract more global capital into the country.

Amir noted that, beyond capital, policy reforms are crucial for driving innovation. Previously, Malaysia relied on tax exemptions that applied under strict conditions. The updated approach—offering concessionary tax rates with broader eligibility—aims to modernize the system and make it more accessible to a wider range of investors and fund managers.

As part of efforts to deepen the ecosystem, sovereign wealth fund Khazanah Nasional and its fund-of-funds unit Jelawang Capital have appointed the first five venture capital firms under two flagship programs. These include the Regional Fund Managers’ Initiative (RMI) and Emerging Fund Managers’ Programme (EMP) designed to grow local talent and attract global players.

Under the Emerging Fund Managers’ Programme (EMP), the three selected local venture capital firms are First Move, Kairous Capital, and Vynn Capital. First Move invests at the pre-seed stage, working closely with second-time founders and domain experts to turn early ideas into scalable companies. Kairous Capital supports tech startups aiming to grow beyond Malaysia, particularly into Indonesia, Thailand, and Vietnam. Meanwhile, Vynn Capital concentrates on mobility and supply chain sectors, investing across Southeast Asia from seed to Series A stages.

Two regional firms—AppWorks and Granite Asia—were chosen under the RMI. Taiwan-based AppWorks plans to launch Malaysia-specific cohorts for Web 2.0 and Web 3.0 startups, while Granite Asia, a multi-stage investor with a strong global track record, will support sectors such as enterprise software, health tech, and automation. Both aim to help Malaysian startups scale regionally and tap into international networks.