Malaysia Builds Venture Infrastructure Through Coordinated Capital, Tax, and Institutional Support
Saint Clair Market Intelligence | January 2026
Malaysia has deployed a three-pronged strategy to develop its venture capital ecosystem: a RM1 billion national fund-of-funds anchoring emerging managers, concessionary tax rates at fund level, and patient sovereign capital maintaining presence through market cycles. Khazanah Nasional’s Jelawang Capital has reopened applications for its second manager cohort with lowered barriers, whilst the government offers a 5% corporate income tax rate for qualifying funds. For international investors, the coordinated approach addresses structural challenges — limited partner confidence, manager track record gaps, and policy friction — though Malaysian fund structures remain taxed at entity level rather than offering the pass-through treatment available in Singapore or Cayman.
The Fund-of-Funds Foundation
Khazanah Nasional launched Jelawang Capital in October 2024, establishing Malaysia’s first dedicated national fund-of-funds with RM1 billion allocation. The institution operates two programmes: the Emerging Fund Managers’ Programme (EMP) supporting Malaysian GPs raising their first, second, or third funds, and the Regional Fund Managers’ Initiative (RMI) attracting established international managers.
In June 2025, Jelawang selected its first cohort: three emerging Malaysian managers (Vynn Capital, Kairous Capital, First Move) under EMP and two regional firms (Taiwan’s AppWorks, Singapore’s Granite Asia) under RMI. Since selection, the cohort has attracted over RM30 million from external capital providers and deployed over RM60 million across more than ten early-stage companies.
On 16 January 2026, Jelawang opened its second EMP cohort with structural refinements: year-round rolling applications, lowered minimum fund sizes for pre-seed and seed strategies, and greater flexibility during early fundraising stages. The first cohort required RM60 million minimum fundraise with 20% committed — barriers that constrained earlier-stage specialist managers.
Tax Framework: Concessionary but Not Transparent
In June 2025, Finance Minister II Amir Hamzah Azizan announced concessionary tax rates: a 5% corporate income tax at fund level for qualifying Venture Capital Companies investing minimum 20% in local startups (available for ten years), and 10% for other VC and PE firms registered with Securities Commission Malaysia.
The critical distinction for international investors: Malaysian funds are taxed at entity level, not pass-through. Under the Limited Liability Partnerships Act 2012 and Inland Revenue Board Public Ruling 8/2022, LLPs are bodies corporate for tax purposes — chargeable income is taxed at the fund, not flowing through to partners. Distributions to partners are then exempt from further Malaysian taxation, avoiding double taxation but not providing true transparency.
The 5% rate applies to statutory income from all sources, excluding interest from fixed deposits and Shariah-compliant deposit profits. Qualifying funds require Securities Commission certification by 31 December 2035. The incentives extend to onshore LLPs and Labuan LP/LLP structures.
For context: the standard Malaysian LLP corporate rate is 24%. The 5% concessionary rate is materially attractive domestically. But compared to Singapore Variable Capital Companies or Cayman limited partnerships — where gains flow to LPs untaxed at fund level — Malaysian structures deliver post-tax returns at fund level before distribution. International LPs should model accordingly.
Budget 2026 increased the combined allocation under KWAP’s Dana Perintis and Jelawang Capital from RM550 million to RM750 million, with RM550 million earmarked specifically for semiconductor ecosystem development. Bank Negara Malaysia streamlined foreign exchange procedures, allowing VC and PE firms to apply based on fund mandate size rather than transaction-by-transaction for cross-border activities.
Institutional Philosophy: Patient Capital
The coordination reflects deliberate philosophy. Khazanah Managing Director Amirul Feisal Wan Zahir, speaking at the Malaysian Venture Forum in December 2025, positioned state institutions as cycle-stabilising forces: “Institutions provide the continuity that allows talent, capital, and technology to compound rather than reset at every cycle.”
This responds to regional conditions. DealStreetAsia data shows Southeast Asian VC dealmaking at its weakest in over six years. Malaysia attracted approximately $360 million in venture funding over the past two and a half years — modest regionally but representing systematic deployment.
Institutional presence carries reputational risk. Khazanah and KWAP faced scrutiny following direct venture failures: KWAP’s $30 million in Indonesian aquaculture startup eFishery (collapsed following fraud allegations) and Khazanah’s RM27 million in FashionValet (sold at RM40 million combined loss). The fund-of-funds model theoretically mitigates this through manager selection rather than direct company picking.
The Investment Proposition
For international investors, Malaysia’s institutional approach offers distinct characteristics: fund-of-funds infrastructure providing governance standards, sovereign anchor capital reducing fundraising uncertainty, and coordinated policy addressing operational friction.
The open questions are execution-dependent. Can emerging Malaysian managers generate returns competitive with Singapore, Indonesia, or Vietnam where exit routes run deeper? Does the “Malaysian nexus” requirement (30% Malaysian key person shareholding for EMP eligibility) optimise allocation or constrain upside?
The second EMP cohort results, expected within 12-18 months, will provide early indicators. For international LPs, Malaysia now presents a testable proposition: whether sovereign-anchored intervention can accelerate ecosystem development in markets lacking organic density.
Sources:
Jelawang Capital, Applications for Jelawang Capital’s Next Emerging Fund Managers’ Programme: https://www.jelawangcapital.com/our-resources/applications-for-jelawang-capital-s-next-emerging-fund-managers-programme-emp-is-now-open
Asia Asset Management, Malaysia’s Jelawang Capital names five fund managers: https://www.asiaasset.com/post/29770-jelawang5fundmanagers-gte-0624
Asia Asset Management, Malaysia revamps tax incentives to strengthen venture capital ecosystem: https://www.asiaasset.com/post/29773-malaysiamofbnm-gte-0625
DealStreetAsia, Malaysia’s multi-billion-ringgit efforts to help build a resilient ecosystem: https://www.dealstreetasia.com/stories/khazanah-malaysia-ecosystem-465643
Khazanah Nasional, Jelawang Capital Selects First EMP and RMI Fund Managers: https://www.khazanah.com.my/news_press_releases/jelawang-capital-selects-first-emp-and-rmi-fund-managers-to-deepen-malaysias-venture-capital-ecosystem/
Jelawang Capital, Budget 2026 Reaffirms Venture Capital’s Role in Advancing Malaysia: https://www.jelawangcapital.com/our-resources/budget-2026-reaffirms-venture-capital-s-role-in-advancing-malaysia
KPMG, Malaysia: Direct and indirect tax proposals in 2026 budget: https://kpmg.com/us/en/taxnewsflash/news/2025/10/malaysia-direct-indirect-tax-proposals-2026-budget.html
Inland Revenue Board Malaysia, Public Ruling No. 8/2022 - Taxation of Limited Liability Partnerships: https://www.hasil.gov.my/media/3wzlz0nl/pr_8_2022.pdf
EY Malaysia, Tax incentives for venture capital: https://www.ey.com/en_my/technical/tax-alerts/tax-incentives-for-venture-capital
PWC Tax Summaries, Malaysia - Corporate - Tax credits and incentives: https://taxsummaries.pwc.com/malaysia/corporate/tax-credits-and-incentives
Disclaimer: This article is for informational purposes only and does not constitute investment advice or an offer to invest in any fund or vehicle. Saint Clair does not provide investment recommendations. All decisions should be made based on independent research and consultation with qualified advisors.
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