Malaysia Branch Office Guide: Foreign Branch Setup

Foreign investors are choosing Malaysia for various reasons, from its favourable tax regimes, ease of business setup, and stable political environment, among others. While some may choose to incorporate a new company as a first-time entrepreneur or expand its operations as a separate legal entity such as a private limited company (Sdn Bhd), there are others who opt to set up a Malaysia branch office.

A branch office is a type of business entities in Malaysia for foreign investors who are looking to access a new market. As a branch office, there is no separation of legal entity from its parent company, but rather an extension. This means that both companies must operate in the exact same manner with the same business activities.

There are plenty of advantages when it comes to setting up a Malaysia branch office, such as:

Greater level of control

As branch offices have their own legal entity status, they are fully controlled by the parent company. Every decision and overall business activities are overseen by the parent company.

Regulated based on parent company’s jurisdictions

The legislation of a branch office is governed by the country of the parent company. This can be an advantage or a disadvantage, depending on the regulations of the parent company’s country.

Ease of company setup & cost-effective

Compared to incorporating a private limited company or a subsidiary, setting up a Malaysia branch office is considered the cheaper option. The compliance regulations of a branch office are also much easier compared to other entity types. It is also considered an adequate business structure for low-risk business activities.

Avoidance of double taxation

As Malaysia has many double taxation treaties with other countries, the branch office is taxed on the income that is generated in Malaysia only.

It is attractive for foreign investors to set up a Malaysia branch office. However, there are also some disadvantages that should be carefully considered before making a decision.

Some of the disadvantages include:

Liability of branch office

The parent company bears full responsibilities on the debts and any other forms of liabilities accumulated by the Malaysia branch office. This could be detrimental to the sustainability of the parent company should there be high levels of debt by the branch office.

Diluted reputation of branch office

Clients are more likely to be drawn to dealing directly with the parent company instead of going to a branch office. Long-term, this could be an issue for the sustainability of the branch office.

No tax benefits

Branch offices in Malaysia are usually treated as non-tax residents. In this case, they are unable to enjoy any tax incentives that other types of entities enjoy.

As branch offices are extensions of a parent company, there are a few legal requirements that need to be fulfilled for successful setup.

These legal requirements are:

Once these requirements are met, the following documents are needed for Malaysia branch office setup:

For shareholders who are corporate entities, you are required to provide the company name, country of incorporation, business registration number, and registered office address.

The setup of a branch office in Malaysia is very straightforward with 2 main steps.

Step 1: Register for company name

As both the parent company and the foreign branch office must have the same company name, this would be a simple process without thinking of a new name. The company name is to be registered with SSM via MyCoid. This is usually done by the company secretary.

Upon approval, the name will be reserved for 30 days from the date of confirmation. This can be extended for another 30 days, up to a maximum of 180 days.

Step 2: Official company registration with SSM

The registration of the foreign branch office must be made with SSM after company name approval. The fee to incorporate a branch office is dependent on the amount of your share capital.

A notice of registration – Section 15 of foreign company will be issued within 1 to 3 working days by the SSM upon compliance with the procedures and submission of completed documents.

A certificate of registration – Section 17 may be issued upon request with a prescribed fee.

If a foreign branch office is not for you, there are also other options to consider when it comes to investing in Malaysia as a foreigner. The most popular choice is a private limited company (Sdn Bhd). However, the type of entity you choose is dependent on the objectives of expanding into Malaysia.

Here are some of the options available:

1.   Private Limited Company

This is a great option for foreign investors as it can be 100% foreign-owned, easy to set up, and has limited liabilities. Furthermore, the company gets to enjoy tax allowances and benefits should they fulfil the eligibility requirements.

2.   Representative Office

Similar to a foreign branch office, a representative office is a straightforward business entity to setup in Malaysia. The purpose of a representative office in Malaysia is to assess the market, do market research, and determine if there is a product-market fit before officially operating as a full company.

The downsides of the representative office are that it cannot:

It also has a limited validity of 2 years, with renewal subject to approval.

3.   Subsidiary Company

The third option is a subsidiary company. This company type operates as a separate legal entity from its parent company. With this structure, day-to-day operations and decisions are usually made by an unrelated management team.

It is only in situations where the subsidiary would have an impact on the company as a whole that the parent company’s board of directors will be involved.

Setting up a branch office, or any other types of companies in Malaysia, is commonplace in today’s business environment. The country has progressed through the years to establish herself as one of Southeast Asia’s economic powerhouses with its ability to attract and retain businesses globally.

Some of the pro-business initiatives that the government has put forth to cement its position and continually increase foreign direct investments include: