Malaysia’s 2025 Budget: Major Boost for Startups and Venture Capital with RM1 Billion Fund Launch

Prime Minister Datuk Seri Anwar Ibrahim announced the establishment of the National Fund-of-Funds (NFOF) under Khazanah Nasional Bhd. The fund, which will launch in November 2024 with an initial allocation of RM1 billion, aims to assist venture capital fund managers in investing in local startups. RM300 million has been earmarked specifically for 2025.

Presenting the Budget 2025 under the theme “Ekonomi MADANI: Negara Makmur, Rakyat Sejahtera” on October 18, 2024, Anwar outlined key measures for entrepreneurs. He also revealed plans to broaden the scope of the sales and services tax (SST) and reform subsidies for commonly used fuel. The government aims to reduce the fiscal deficit to 3.8% of GDP in the coming year, down from an estimated 4.3% in 2024, while prioritizing digital and technology-driven sectors through the high growth high value (HGHV) initiative.

The Malaysian government has unveiled its largest budget to date, amounting to RM421 billion for 2025. This budget allocates RM335 billion for operating expenses, RM86 billion for development initiatives, and RM2 billion for contingency savings. A notable focus is enhancing the startup ecosystem and supporting small and medium-sized enterprises (SMEs) through various financial measures and incentives.

A new Investment Incentive Framework aimed at promoting high-value sectors such as electrical and electronics, artificial intelligence, and sustainable technology will launch in the third quarter of 2025. 

This framework includes tax benefits for multinational enterprises investing up to RM2 million annually and an investment matching fund exceeding RM100 million. The government is also establishing economic clusters based on regional specialties to store balanced growth and providing targeted income tax incentives in specific states to stimulate local economies.

Significant financial commitments have been made to support local startups and innovation. The KWAP’s Dana Perintis fund will receive RM1 billion, with RM200 million earmarked for 2025. 

The Cradle Fund will also be allocated RM65 million, including a matching grant to encourage collaboration between government-linked companies and startups. Furthermore, the National Fund of Funds will be created under Khazanah, supporting venture capital firms with RM300 million dedicated to startups in 2025.

In the move, RM800 million will be allocated to Bumiputera entrepreneurs, with another RM1.3 billion allocated to contractors. The government is also increasing the minimum wage to RM1,700, effective February 1, 2025, with a deferred implementation for smaller employers. Tax deductions will be provided for employers who invest in flexible work arrangements, and caregiver leave to enhance work-life balance. 

To enhance the venture capital landscape, the government has streamlined the approval process for cross-border fund flows under the Foreign Exchange Administration Policy. This adjustment allows for approvals based on the overall size of the fund mandate, ensuring that Malaysia remains attractive to foreign investors.