Malaysia can be said as one of the most successful countries in Southeast Asia, being a middle-income country that consistently shows a robust growth. Even though the country’s development has been guided by the Government, Malaysia’s economy is steadily opening and advancing fast towards technology and innovation.
Why should you choose Malaysia as an entrepreneur?
The country is destined for modernization which suits its aim to be a high-income country by year 2030. The economy is pushed towards higher value-added industries and services, away from the country’s reliance on natural resources, and target an increase of well-being for its people.
Ranked as the 12th easiest and friendliest place to do business by The World Bank in year 2020 with a score of 81.5%, Malaysia has also become one of the prime destinations in Asia for company registration amongst local and foreigners alike. It offers many advantages as an investment destination, favourable tax regime as well as strong government support.
Malaysia aims to become one of the pillars in Southeast Asia by expanding their advantages which includes:
A population that is highly proficient in English language, which is known to be a globally used language in business
Large Companies that are already leaders in Southeast Asia
Relatively low corporate taxes in the global competition
Large population that makes an attractive consumer base for businesses
Malaysia is the second highest connectivity in Southeast Asia, just behind its neighbour, Singapore. It has a much larger population which directly makes it one of the most interesting digital markets in the region. These characteristics has helped in the rapid development of foreign investors to expand their market in the country.
Tips: The easiest business entity that foreign businessmen prefer is incorporating a Private Limited Company (Sdn. Bhd.). The cost to incorporate this type of entity is only MYR 1,060 and it can be solely own by a foreigner, given he has a local residential address.
Type of business entities available for foreign owned Company in Malaysia
With the revision of the Company Act 1965 to Company Act 2016, foreign investors are now allowed to solely own a Company (becoming a director and shareholder) without the need to appoint a local nominee director. This is allowed in the major vast of industries available in the country except for strategic sectors for national interest.
Private Limited Company (Sdn. Bhd.)
This type of entity is the most preferred business structure in Malaysia, especially amongst foreigners. Among the famous reasons why they chose to incorporate a private limited Company (Sdn. Bhd.) are:
Can be 100% owned without the need to appoint local nominee director as long as owner has a valid local residential address
Does not need to relocate to Malaysia immediately to run the business operation
Initial paid-up capital starting with only MYR 1 and can be increased gradually if need to
Territorial corporate tax structure where the Company will be taxed based on their Malaysian-sourced income regardless by resident or non-resident Company
Can easily open a corporate bank account without the need to be physically present in Malaysia
Can venture into almost all type of business as long as they meet the paid-up capital requirements
There are not many distinguished differences between a 100% local owned Company versus those who are 100% foreign owned. In terms of regulation, both type of owners is permissible to incorporate a private limited Company (Sdn. Bhd.) as long as they have a local residential address. They are also allowed to venture into almost all type of business as long as they meet the paid-up capital requirements which can be a bit high for foreign owned Company starting from MYR 500,000 to MYR 1,000,000.
Same goes for annual compliance that the Company will need to abide annually. Every registered private limited Company (Sdn. Bhd.), regardless of who owns it, has the responsibility to:
File annual return according to the Company anniversary date – date of when the Company was initially incorporated
Lodge audited or 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 unless they meet the criteria
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, the director is still liable to file the tax return
It is no wonder, starting a business with a private limited Company (Sdn. Bhd.) has been widely accepted by not only local businessmen, but also foreign investors. It is an opportunity given by not many countries throughout the world. Even the process of registration is simple and reasonable priced at MYR 1,060.
Public Limited Company (Berhad)
A public limited Company (Berhad) is almost similar to the private limited Company (Sdn. Bhd.) except, this type of entity is mostly suitable for those who aim for a larger business scale. Those who wish to expand their business by venturing into a public listed Company are normally those who are already part of a public listed Company in their home country.
Even though the registration process is similar to that of a private limited Company (Sdn. Bhd.), there are still distinguished differences between the two:
Must have at least two (2) directors who ordinarily reside in Malaysia by having a principal place of residence in Malaysia
Public can purchase the Company shares via stock market
A more complex administration
Strict annual compliance such as holding annual general meeting and filing audited report are compulsory
Differences in the financial reporting standards where a public limited Company (Berhad) is mostly known to use Malaysia Financial Reporting Standard (MFRS) or International Financial Reporting Standard (IFRS) depending on the Memorandum of Articles (MoA)
Company profile including their financial statement is normally publicly available to attract investors as well as to reassure their existing investors of their stable financial status
It is not a common practice for start-up businesses to opt for a public limited Company (Berhad) straight away, however, it is known that once their private limited Company (Sdn. Bhd.) is ready for a large-scale expansion, they will high likely convert the Company accordingly.
Another option for a foreign owned Company available in Malaysia is the subsidiary Company. A subsidiary is a separate legal entity from its parent Company. In order words, a subsidiary Company is legally liable to its own debt and liabilities without affecting their parent Company.
This type of Company is also suitable for those who wish to expand their business from their home country to Malaysia as it can be 100% owned by a foreigner as long as he has a legitimate residential address in Malaysia.
Different from setting up a private or public limited Companies, a subsidiary will require:
Identification documents (NRIC/Passport) copies of all stakeholders involved within the subsidiary
Proof of residential address of the stakeholders
Company particulars of parent Company certified by the appointed Company Secretary
Board of resolution from parent Company to approve the incorporation of a subsidiary Company
Memorandum of appointment or power of attorney authorising the person residing in Malaysia to accept the notices on behalf of the parent Company
Statutory declaration by the agent of the parent Company
The steps to incorporate a subsidiary Company is almost similar to incorporation of a private or public limited Companies. Differences is, once the Company name is approved by the Companies Commission of Malaysia (SSM), they have 30 days to register the Company as a subsidiary with a fee depending on the authorised share capital. For example, the authorised share capital is MYR 400,000, the incorporation fee is only MYR 1,000. The higher the authorised share capital is, the higher the fees chargeable.
Similar to public limited Company (Berhad), a subsidiary Company has the obligation to:
Appoint a Company Secretary to handle the Company related documentation
Compulsory to file annual return as a subsidiary
Compulsory to appoint an auditor to prepare their annual audited financial statement
Compulsory to file tax return
Different from a subsidiary Company, a branch office is considered as an extension of it’s parent Company. It is not considered as a separate legal entity from the parent Company and must also run the same business as them.
Normally, a branch office is set up due to:
Access to a new market – Parent Company wishes to explore the market acceptance of their product or services in a foreign land but with minimal complication
Control of management – Since parent Company has full control of a branch office, it is easier to oversee the business operation
Simple registration – The registration process is much simpler compared to other entity available in Malaysia
As for the annual compliance factor, it is almost similar to subsidiary office except, a branch office must also file its parent Company audited financial report. As for the tax structure, branch offices are normally taxed as a non-resident which is unable to enjoy the local tax benefits. Their profits are taxable at 24% (subject to tax adjustments).
Representative Office (RO)
A representative office is normally used by foreign investors who wish to:
Plan or coordinate of business activities
Gather and analyse information and undertaking feasibility studies pertaining to investment and business opportunities available in Malaysia
Identify sources of raw materials, components, or other industrial products
Research and product development
Act as a coordination centre for the corporation’s affiliates
In short, a representative office is not actually to run a business but to do ground research if the location is suitable for the long-term planning and investment worthy of the foreign investors. Malaysia government normally gives around 2 to 5 years for a potential investor to operate a representative office to see if Malaysia is the right place for them to stay and start their business.
Some of the advantages of representative office are:
Compliance – Easy to comply with local authorities in regard to rules and regulations for the office’s approval
Work visa – Foreign expats and their dependants are entitled for a three-year work visa
Cost efficiency – Since the Company will not need an immediate set up, it will incur less setup and operational costs
From the points above, we can see that Malaysia offers vast options for foreign investors to run a business in the country. Not only the types of entity can accommodate to the business plan, but they also have advantages that other countries might not be able to offer.
Basic requirements to know in order to set up a Company in Malaysia according to the Company Act 2016
As mentioned, the basic requirements to setup a Malaysia Company is the same for both local and foreigner:
Can be solely owned by one person – as long as he has a residential address in Malaysia [Must be two (2) at least for public limited Company (Berhad)]
Can either register the Company directly at Companies Commission of Malaysia (SSM) counter or appoint a licensed Company Secretary to do on behalf
A minimum paid up capital of MYR 1
Based on the Company Act 2016, it does not stipulate any equity conditions on Malaysian incorporated Companies. However, to increase local participation in businesses, the government normally encourages local and foreign entity to joint venture.
In the end of the day, even though the Company is solely owned by a foreigner, he does not have the need to appoint a local nominee director unless the business relates to strategic sectors of national interest such as water, telecommunications, and ports which will high likely need a local director and shareholder for the business license application.
Common misinterpretation by foreign businessmen about Incorporation in Malaysia
There are several times when clients engage with Paul Hype Page & Co. to discuss of their plan to expand their business in Malaysia, there are always some misconceptions between incorporating a Company as a local and foreigner. It normally relates to the items below:
Incorporating a Company
The steps to incorporate a Company such as private limited Company (Sdn. Bhd.) are the same for both local and foreign alike.
At least one director and shareholder that has legitimate local residential address
Minimum paid-up capital is MYR 1
The cost of registration with Companies Commission of Malaysia (SSM) is MYR 1,060
Must appoint a licensed Company Secretary within 30 days after incorporation is done
Can venture into almost all types of businesses available in Malaysia
The registration of a Company can be done online by the appointed licensed Company Secretary without the need of you to come down to Malaysia.
Opening a Corporate bank account
Once a Company is incorporated, they are allowed to open a bank account. Due to the restriction of travelling these days, most banks have opted to communicate online with most of their clients. This shows how committed the bankers are in easing the bank account opening procedure from their clients, regardless of where they are.
The difference between a local and foreign owned Company is that:
Local Company tend to opt for local banks such as Maybank and CIMB. These banks normally offer a lower initial deposit and only accepts physical applications by clients at their counter
Foreign owned Company are normally advised to engage with international banks such as HSBC, OCBC and UOB. These banks normally request for an initial deposit of MYR 50,000 to MYR 80,000 depending on the business activity and packages the Company opt for
The Know Your Client (KYC) procedure will be done online as well. In Paul Hype Page & Co., we normally furnish the Company profile as well as director NRIC/Passport to the bankers for them to run a background check. Once the background check is done and all are clear, bankers will then proceed to contact the clients to proceed further with the bank account opening application.
All documents will be furnished via email for client to review and understand better. Bankers will assist with any inquiries raise personally to client before guiding them to sign off the documents physically. Once done, client can now mail the original signed copies of the documents to us, the appointed Company Secretary for certification of true copy. We will then submit the certified true copy documents to the bankers for them to finalise the procedure.
All of this can be done when you are in your home country, without the need to come down to Malaysia.
It is common knowledge that once a Company is incorporated, they will need to apply for some licenses before they can start operating their business. Most Company who wishes to rent an office to operate will need to apply business premise license and signboard license from the respective state authorities.
This applies for both local and foreign owned Companies alike. The cost depends on the square feet of the office rented. A floor plan information is needed to submit for the City Hall to assess the fee based on the size. A starting cost from MYR 100 to MYR 1,000, depending on the finalisation of City Hall assessment.
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 licenses, they still do not need to appoint a local nominee director within the Company, unless stated otherwise by the local authority.
Currently, the Company Act 2016 has eased the annual compliance requirement for private limited Company (Sdn. Bhd.). All private limited Company (Sdn. Bhd.) local and foreign owned alike must abide to the annual compliance filing as below:
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:
Threshold-qualified companies – Revenue < MYR 100,000, total assets < MYR 300,000 and employee < 5 people
Application of work visa – Employment Pass
In Malaysia, the Malaysian Development Investment Authority (MIDA) has mapped out several different visa options for entrepreneurs depending on the circumstances.
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 tax rate is as follows:
Company with paid-up capital < than MYR 2.5 million
However, for Company with paid-up capital > than MYR 2.5 million, the tax rate is flat at 24%.
Insights: Based on the information above, it is safe to say that a foreigner can incorporate a private limited Company (Sdn. Bhd.) in Malaysia and still enjoy the benefits local business owners gain. The difference is only on paid-up capital which is determined on the type of business license the Company needs to apply.
Based on our experiences, we normally advice our clients to opt for private limited Company (Sdn. Bhd.). This type of business entity is not only easy to process but also offers great advantageous within the business model compared to other options available.
The time estimation to incorporate a private limited Company (Sdn. Bhd.) is only around 3 to 7 working days. The cost is only MYR 1,060 and can be done by an appointed licensed Company Secretary.
The documents needed before an incorporation is done are:
Stakeholders proof of residential address
Simple business plan explaining the business activity the Company will be operating
Steps to incorporate a private limited Company (Sdn. Bhd.):
1. Name reservation – It takes around 1 to 3 workings days for SSM to approved and the name proposed must have a specific definition to it
2. Risk assessment of stakeholder involve with the Company – will be done by the appointed licensed Company Secretary and result will be known within 24 hours
3. Incorporation – Once risk assessment is done and background are clear for all stakeholder within the Company, the Company Secretary will proceed with the incorporation which will take around 3 to 7 days for SSM to approved.
4. Company Secretary appointment – Once SSM has approved and Company is successfully incorporated, it will have 30 days to appoint a licensed Company Secretary as the first Company Secretary
5. Opening bank account
6. Apply business license which are applicable to business activities
7. Registration of Employees Provident Fund (EPF) and Social Security Organisation (SOCSO) profiles
8. Registration of Company profile with Inland Revenue Board (LHDN)
The steps are simple and can be done online by our team of experts in Paul Hype Page & Co. We not only thrive to help ease our clients to incorporate a Company in Malaysia without the need to be physically present in Malaysia, but also to ensure the Company has complied with the regulation as required by the authority for a smooth business operation.
Business opportunities in Malaysia for year 2021
There are a lot of business opportunities awaiting to be explored by foreign investors. Based on our research, these listed industries might give you an idea and a head start to plan your business expansion or venturing into a new business line altogether.
Malaysia citizen, like any other first world country love to dress up and look good, literally anywhere they go. Some are even more up to date than the others, making a fashion business highly acceptable in the country.
It is widely known that Malaysian are easily influenced whenever a famous influencer or fashionista come up with new styles. A lot of start up Companies use this advantage to market their product, regardless there are already plenty of fashion brands and outlets in the country.
If you are already in the fashion industry in your home country, then expanding it in Malaysia will no doubt thrive if you educate yourself with the local fashion which has its own significance.
2. Gadget related business
Malaysian youngsters are over the moon when it comes to having the latest gadgets. They not only want to own the latest gadgets, but they also prefer going to small gadget vendors or shops to repair and purchase gadget related accessories.
They are always looking out for a one stop centre to get reasonable priced gadgets that is also able to repair those gadgets when needed. If you have the suppliers, the skills and know a strategic place to operate the business, your business will definitely stand out beyond the rest.
3. Food and Beverages (F&B)
Besides fashion and gadgets, Malaysians are also known for their love for food. They would go to an extent of flying or driving to another state, just to try out the local food there. Recently, the influence of Korean wave has given opportunities for businessmen to open up Halal Korean food restaurants which was easily accepted by the community.
Venturing into the food industry will take time bloom, but if you have the creativity to come up with special recipe and unique presentation of your home country dish, not only will it differentiate your business from the competitors, but curious Malaysian’s food junkie will be eager to try them out.
From manufacturing to distribution or technical expertise in the services sector, Malaysia offers opportunities and capabilities across the value chain for someone to start a business.