It is common knowledge that once a Company is incorporated, you will need to apply for business licenses before they can start operating their business. Most Companies who wish to rent an office to operate will need to apply business premise license and signboard license from the respective state authorities.
However, there is a distinct difference in paid-up capital if a Company ventures into sector/industry specific businesses. For example, the Company ventures into wholesale business. A local owned Company can apply the Wholesale, Retail and Trade (WRT) license with only paid-up capital of MYR 250,000. For a 100% foreign owned Company, in order for them to apply the WRT license, they need a MYR 1,000,000 paid-up capital.
This shows that even though the Company need to apply a sector/industry specific business license, they still do not need to appoint a local nominee director within the Company, unless stated otherwise by the local authority.
Registration of EPF and SOCSO
After setting up a company in Malaysia as a foreigner, you may look to hire local employees. The Employees Provident Fund (EPF) profile must be registered by a Company within 7 days when Company first hires an employee at any available counter or online via the official website.
Registering the EPF is mandatory for employers to make the required contribution to employee retirement benefit scheme based on their monthly wages.
Once EPF is registered, the Company is also liable to register Social Security Organisation (SOCSO) profile. This must be done within 30 days when Company first hires an employee via email application to idportalperkeso.gov.my.
The SOCSO profile is also mandatory as it was founded to provide the employees in private sector with social security protection in accordance with the Employees’ Social Security Act 1969.
You can read more about EPF, SOCSO, and other employee contributions in our article here.
Registration with Inland Revenue Board (LHDN)
Next, you will need to register your Company profile with Inland Revenue Board (LHDN). Not only it is crucial for a Company to complete its annual tax filing, but the Company is also compulsory to perform the monthly tax deduction (MTD) against the employees’ salaries.
A MTD is an income tax deduction mechanism where a certain amount is deducted from the employee’s current remuneration package. Purpose of these deductions is to minimize the financial burden on employees of paying lump sum when the actual tax amount has been determined by end of the year.
Annual Business Reporting
Currently, the Company Act 2016 has eased the annual business reporting requirement for private limited companies. Some of the filings to do include:
File annual return according to the Company anniversary date – date of when the Company was initially incorporated. Example: The Company was incorporated in 21.07.2018, the first annual return must be filed by 21.07.2019 or before 20.08.2019 (30 days). Late filing penalty may be imposed if the filing is done after 30 days.
Lodge unaudited financial statement with the Companies Commission of Malaysia – Suruhanjaya Syarikat Malaysia (SSM). This type of business entity is exempted from preparing an audited report if they meet one of the criteria:
- Dormant companies
- Zero-revenue companies
- Threshold-qualified companies – Revenue < MYR 100,000, total assets < MYR 300,000 and employee < 5 people
File the annual tax return filing with Inland Revenue Board – Lembaga Hasil Dalam Negeri (LHDN) even though the Company was deemed dormant for the annual period
Application of work visa – Employment Pass
In Malaysia, the Malaysian Development Investment Authority (MIDA) has mapped out several work visas depending on the circumstances. The most common is the Malaysia Employment Pass.
If you are planning a long-term stay in Malaysia, the Malaysia My Second Home (MM2H) Programme is a great option. They are allowed to stay and invest in Malaysia for a long period of time. However, these participants are not allowed to work/be employed while staying in Malaysia except those who were issued with special work passes.
Depending on the type of job and skills, different working passes are issued when obtaining a work permit.
Employment Pass: This pass is issued to employees with specific skills, usually for technical or managerial jobs. The minimum period is usually 2 years.
Temporary Employment Pass: Issued for employment for less than 2 years or for jobs with a monthly salary less than MYR 5,000
Professional Visit Pass: Issued to foreign nationals who remain employed by the company in the home country but are required by a Malaysian company to provide certain services for a period up to 6 months.
Any private limited Company (Sdn. Bhd.), local and foreign alike is able to apply an Employment Pass for their foreign candidates. You only need to apply for a business license if the authority deems the business is listed for such licenses. The estimate duration to apply an Employment Pass can be 6 months or more.
Tax Structure in Malaysia
In Malaysia, the tax structure is territorial. Residents and non-residents alike are taxed on their Malaysian-sourced income while any foreign-sourced income is normally not taxable. This is applicable to both local and foreign owned Companies alike.
Based on the year assessment (YA) 2020, the corporate tax rate is as follows:
Company with paid-up capital < than MYR 2.5 million
On the first MYR 600,000 profit is taxed at 17%
Subsequent balance will be taxed at 24%
However, for Company with paid-up capital > than MYR 2.5 million, the tax rate is flat at 24%.