Foreign Participation in the Education Sector in Malaysia

Education in Malaysia is crucial for economic growth. The government foresees the education sector propelling the services sector to comprise 70% of GDP. The Malaysian government has implemented measures to attract foreign investors aimed at elevating academic and institutional standards by introducing the liberalisation measures in 2012, allowing international schools, technical and vocational schools (including those for special needs), and private universities to achieve up to 100% foreign equity, subject to approval from the Ministry of Education (“MOE”) or the Ministry of Higher Education (“MOHE”). These initiatives aim to enhance educational diversity and quality by promoting increased international collaboration and investment in Malaysia's education sector.

In addition to establishing a private higher education institution (“PHEI”), foreign investors can participate in Malaysia’s education sector through acquisition. The acquisition of a PHEI in Malaysia involves a comprehensive due diligence process, including financial audits, compliance verifications, and evaluation of academic programs and facilities. Furthermore, prior approval from the Minister is required before a company engages in any transaction that significantly impacts its educational operations, including sales, disposals, restructuring, or any transformative actions such as mergers.

Relevant Regulations overseeing the Private Higher Education Sector

Private higher education institutions (“PHEI”) in Malaysia includes Private universities and branch campuses of foreign universities with university status, Private colleges/institutions with non-university status and Technical and vocational training institutions (“TVET”). The Private Higher Education Institution Act of 1996 (the “Act”) regulates the formation of PHEI in Malaysia and the employment of foreign nationals working at PHEI. The establishment, management and quality of the courses of study conducted in PHEI are further governed by the Malaysian Qualifications Agency (“MQA”), The Education Act 1996 and The Universities and University Colleges Act 1971.

Establishment and Registration of PHEI in Malaysia

Foreign investors wishing to establish a PHEI in Malaysia must comply with the registration requirement specified in the Act. These requirements encompass essential licensing and registration requirements, including the following:

1. Incorporation under the Companies Act 2016

   Investors intending to set up a PHEI in Malaysia must be incorporated under the Companies Act, 2016 and regulations. Regulation 4 of the Private Higher Educational Institutions (Establishment of Private Higher Educational Institution and Branch) Regulations 2018 provides that both the issued and paid-up capital and the initial fund of the company shall not be less than one million Ringgit.

    

2. Approval to Establish PHEI and Approval to Conduct Courses of Study

   To establish a PHEI, applicants must first obtain approval in principle from MOHE. This involves submitting a proposal outlining the PHEI concept plan to the MOHE's Registration and Standards Division, followed by a presentation if required. An approval in principle for the PHEI's establishment will be granted if MOHE is satisfied with the concept plan.

   Upon approval of establishment, the company must formally apply to the MOHE to establish the PHEI and to offer any study courses or training programs independently or in collaboration with universities, university colleges, or other higher educational institutions, whether public, private, or professional bodies within or outside Malaysia. The application will undergo assessment by the MQA Panel of Assessors, and approval letters will be issued upon MQA's approval.

    

3. Registration of PHEIs

   Upon obtaining approval, the company must proceed to register with MOHE as a PHEI under the Act and its accompanying regulations. This application should be submitted to the Department of Higher Education, and upon successful processing, a Certificate of Registration will be issued.

    

4. Programme Accreditation by the MQA

   There are two stages of programme accreditation: Provisional Accreditation and Full Accreditation. Provisional Accreditation assesses whether a Higher Education Provider meets the minimum requirements to offer a program, focusing on program design across nine key areas defined in the Code of Practice for Programme Accreditation (“COPPA”). Full Accreditation confirms that programs meet COPPA, Programme Standards, relevant guidelines, and comply with the Malaysian Qualifications Framework.

    

5. Registration of Employees in Educational Institutions and Specific Immigration Procedures

   PHEIs wishing to employ foreign lecturers and trainers must seek approval from MOHE's Registration and Standard Division. After receiving approval, they must apply to the Immigration Department for Employment Passes. Once granted an employment pass, foreign lecturers are then required to apply to the Education Department for Permits to Teach, in accordance with the provisions of the Act and its Regulations.

Acquisition and Restrictions on Ownership of Real Property

Investing in Malaysia's education services frequently involves acquiring and/or leasing land. Essential facilities such as campus buildings and student accommodations are critical factors in student enrolment decisions. However, it is important for foreign investors to be mindful of Malaysia's law and regulations concerning foreign ownership of land when considering such investments.

Acquiring land for the development of campus buildings, student accommodations, and educational facilities remains a viable strategy. A foreign entity who wishes to acquire land in Malaysia must obtain approval from the state authority (“State Consent”). In addition, under the Economic Planning Unit (“EPU”) Guideline on Property Acquisition (“EPU Guideline”), approval from the EPU is required in the following situations:

• Direct acquisition of property valued at RM20 million and above, resulting in the dilution of the ownership of property held by Bumiputera interest and/or Government agency.
• Indirect acquisition of property by other than Bumiputera interest through the acquisition of shares, resulting in a change of control of the company owned by Bumiputera interest and/or Government agency, having property more than 50 percent of its total assets, and the said property is valued at more than RM20 million.

*Please note that the transactions described above are not exclusively applicable to acquisitions by foreign entities. Instead, the emphasis is on scenarios involving the dilution of ownership or control held by Bumiputera interest and/or a government agency.

Generally, EPU approval is granted subject to inter alia, the following requirements:

• The investing company shall have at least 30% of their shareholdings held by Bumiputera interests; and
• A minimum paid-up capital of RM100,000.00 for local companies owned by local interests; or
• A minimum paid-up capital of RM250,000.00 for local companies owned by foreign interests.

Apart from acquiring land, it is also common for foreign entities to enter into lease agreements with local property owners to operate educational institutions. This allows foreign entities to establish a presence and operate within the country, avoiding the complexities associated with land acquisition. According to the Malaysia National Land Code, leases for the entire alienated land can be granted for up to 99 years, while leases for a part of the land or a building on the land can be granted for up to 30 years. These leases may be renewed upon expiration.

Conclusion

Investing in Malaysia's private education sector presents substantial opportunities but involves navigating intricate regulatory hurdles. Prospective investors shall conduct extensive research and obtain legal counsel to adhere to evolving education laws, licensing criteria, and regulatory frameworks in Malaysia.