Seemingly innocuous changes to government policies can have significant unintended consequences if they are poorly designed and communicated.
The latest example is the new policy to raise the wage thresholds for expatriate workers.
On one hand this is a shoulder-shrug upwards adjustment but on the other it is poorly designed because it is based on misconceptions about expatriate employment.
It has also been poorly communicated, making it look like an anti-foreigner agenda that sends shivers through the expatriate community.
Expatriate Salary Requirements: Key Changes (Effective June 1, 2026)
The basic misconception is the idea that expatriates are taking jobs from Malaysians.
First, Malaysia has a strong pool of high-skilled local professionals and there are too few expatriates to make the claim that they are taking jobs from locals true.
According to the latest statistics from home minister Saifuddin Nasution Ismail in a parliamentary answer in November last year there are 120,183 expatriates in Malaysia. This is 0.6% of the total workforce or 2% of graduates.
Most are from China (27,460), India (23,131), the Philippines (9,302), Japan (8,739) and Indonesia (8,333).
Second, it is already costly to pay for visas, relocation and expatriate salaries so they are not competitive in a cost sense. Companies only pay this premium when it is absolutely necessary in key sectors such as aerospace, manufacturing (food processing) and construction.
Third, expatriates are employed for very specific reasons based on experience and expertise often in emerging technologies such as machine learning, automation and data analytics. Companies will only incur the cost and inconvenience if they have no local candidates.
This will not change by raising the minimum salary threshold, but it might change by increasing salaries for locals to encourage them to acquire these skills.
One exception to this rule is in higher education where 20-25% of the CEOs of private universities are foreigners with no obvious reason in terms of qualifications, experience or knowledge of Malaysian education to justify their appointment and salaries above the large pool of local academic leaders.
In addition, there is a “tax on talent”. By raising wage thresholds, we are simply taxing critical knowledge transfer, not protecting local jobs. We need to lower costs and restrictions in hiring high-value talent, not raise it.
Finally there is the “HQ risk”, the danger that you will not lose just one expatriate role but the whole workforce. If multinational companies find it too difficult to place a regional leadership team of expatriates in Kuala Lumpur, Penang or Johor they will not replace them with locals, they will just move the regional headquarters and eco-system to Singapore or Bangkok.
These are problematic enough but are trumped by the biggest problem of “signal risk” which influences how foreign professionals and investors view Malaysia. The new home ministry rules give a very bad signal that Malaysia is unfriendly to foreigners.
Based on immigration data the number of expatriates has fallen 22% from around 154,155 in 2023. This is due to tighter requirements, difficult recruitment conditions and a more welcome environment with better options in other countries.
This decline in expatriates will get worse under the new regulations and will harm investment and economic growth. According to Saifuddin’s response in parliament last year, expatriates contribute RM75 billion in economic value, equivalent to 4.8% of GDP.
Despite this massive contribution the signal to expatriates appears to say, “we don’t like you, we don’t want you to stay here and we’re going to make you expensive so that companies will hire cheaper locals.”
Unfortunately, coming in succession to other restrictions on MM2H and TalentPass rules many of us genuinely do not know whether this new signal is intended or not.
The views expressed are those of the writer and do not necessarily reflect those of FMT.