Why Emirati businesses should establish a major hub in Malaysia

For Emirati businesses looking to expand in ASEAN, Malaysia presents itself as an attractive major hub, offering a cost-effective alternative to Singapore.

Malaysia offers a vibrant business environment, efficient workforce and well-developed infrastructure, which are further supported by pro-business government policies.

Diplomatic relations between Malaysia and the United Arab Emirates (UAE) began around 1983 and have since developed into important trade and investment relations. The UAE is Malaysia’s largest trading partner in the Middle East, with bilateral trade reaching US$5.4 billion in 2021, an increase from US$4.93 billion in 2020. Trade is almost evenly divided, with the UAE enjoying a small surplus of just under $200 million.

Importantly for Malaysia, the country is competing with Singapore as a major hub for Emirati businesses, especially in manufacturing, logistics, ICT and Islamic finance, as they seek to enter the huge ASEAN market.

Current Malaysia and UAE trade

The UAE’s most important exports to Malaysia are oil and fossil fuels, some of which $1.39 billion Value to be exported in 2021. This was followed by pearls, gems and precious metals worth over $600 million, plastics exports over $200 million and aluminium exports at $187 million.

For Malaysia, the country’s main exports to the UAE include more than $700 million in electrical and electronic equipment, nearly $500 million in pearls and gemstones, about $256 million in boilers, nuclear reactors and machinery, and $220 million in Used in oil and fossil fuels (like the UAE, Malaysia is a net exporter of crude oil and its products).

Increased push for palm oil exports

Malaysia is keen to export more of the coveted palm oil to the UAE market as well as the Middle East.malaysia is second largest producer and world palm oil exporters, behind Indonesiaaccounting for 24% of global production and 31% of global exports.

Imports from the Middle East and North Africa 2.34 million tons Palm oil from Malaysia in 2021, with the UAE, Turkey, Saudi Arabia and Iran accounting for 82% of the total. Research conducted by the Malaysian Palm Oil Council shows that the UAE is expected to import 400,000 tonnes of palm oil by 2025, opening new export markets and opportunities for Malaysian palm oil producers. Indonesian producers will compete fiercely here as Indonesian palm oil has historically been cheaper due to its larger market share and lower production costs.

How UAE exporters are using Malaysia as a base for regional expansion

Over the past decade, Malaysia has emerged as a hub for attracting international businesses, particularly in the fields of manufacturing, logistics, information and communication technology, traditional financial services, and Islamic financial services. The country aims to compete with neighbouring Singapore as a cost-competitive alternative to entering one of ASEAN’s fastest growing markets.

Importantly, the country has become an investment destination for companies looking to diversify their supply chains, especially amid ongoing geopolitical tensions in the region. Malaysia offers a vibrant business environment, efficient workforce and well-developed infrastructure, which are further supported by pro-business government policies. In addition, the country’s strategic location in the Strait of Malacca and the southern part of the South China Sea gives businesses direct access to the ASEAN region with a population of over 600 million people, as well as more developed markets such as China, South Korea and Japan.

main hub plan

An important policy is Master Hub Program This provides many incentives for multinational companies seeking to establish regional hubs in ASEAN. To be identified as a primary hub, a company must be incorporated in Malaysia and be based in the country to manage and support key functions of its regional or global business.

The new rules include relaxation of eligibility conditions for businesses and the provision of zero to 10% corporate income tax (CIT) rates depending on qualifying business activities.

To be eligible, businesses must engage in one of the following activities:

Malaysia joins CPTPP and RCEP to benefit UAE exporters

Malaysia has a unique opportunity to join the Regional Comprehensive Economic Partnership (RCEP) and the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP), as the country is a signatory to both free trade agreements (FTAs).

RCEP is a 15-member free trade agreement, basically the largest free trade agreement in the world, accounting for 30% of global GDP of $25.8 trillion and 30% of the world’s population. Malaysia, which ratified the deal in March 2022, is expected to be the biggest beneficiary among ASEAN members, with export earnings expected to be $200 million, according to the trade ministry.

The CPTPP is an 11-member free trade agreement covering about 15% of global trade. Malaysia formally submitted its CPTPP ratification on September 30, 2022, becoming the ninth country to do so; only Chile and Brunei have yet to ratify the agreement. The Ministry of Trade forecasts that Malaysia’s total trade is expected to rise to US$655 billion by 2030 – from US$481 billion by 2021. In addition, the CPTPP proposes to expand access to new markets, such as Peru, Canada and Mexico not covered by existing trade agreements.

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