What’s in this article
- Definition of a Foreign Company under Malaysia’s Companies Act 2016
- What is a Subsidiary Company in Malaysia?
- Steps to Register a Subsidiary in Malaysia
- A Strategic Entry Point into Malaysia and ASEAN Markets
- Disadvantages of Setting Up a Subsidiary Company in Malaysia
- Documents Required to Set Up a Subsidiary in Malaysia
- Steps to Register for a Subsidiary in Malaysia
- Taxation for Subsidiaries in Malaysia
- Differences between a Subsidiary and a Branch
- READY TO KICKSTART YOUR FOREIGN COMPANY REGISTRATION IN MALAYSIA?
- FAQs
Malaysia has emerged as an attractive destination for foreign investments, drawing multinational corporations and smaller foreign enterprises alike. With its strategic Southeast Asian location, skilled workforce, and supportive government policies, Malaysia offers foreign companies a valuable regional presence. Many businesses pursue company registration in Malaysia to establish subsidiaries, tapping into the Malaysian and ASEAN markets and benefiting from the country’s favorable tax policies and free trade agreements, which provide an ideal framework for expansion.
Definition of a Foreign Company under Malaysia’s Companies Act 2016
The Companies Act 2016 in Malaysia defines a foreign company as either an entity incorporated outside Malaysia or an unincorporated body, such as a society or association, that may, under its jurisdiction’s laws, sue or be sued or hold property in the name of its appointed officers. This definition emphasizes that these companies do not have their principal place of business in Malaysia. In contrast, a local company registered under Malaysian law can access tax exemptions and incentives provided by Malaysia’s free trade agreements with ASEAN and other regions, making it advantageous for establishing subsidiaries.
What is a Subsidiary Company in Malaysia?
A subsidiary company in Malaysia operates as a separate legal entity from its parent company, which offers several benefits. One of the primary advantages is limited liability—subsidiary debts and obligations do not affect the parent company. Foreign investors can wholly own a subsidiary in Malaysia, provided they have a legitimate residential address in the country. Subsidiaries also have the flexibility to operate under a distinct name from their parent company and engage in different business activities, making it ideal for businesses that wish to diversify or expand into new sectors in Malaysia. Subsidiaries are structured as private limited companies (Sdn. Bhd.), with a membership cap of up to 50 individuals.
Key Requirements for Setting Up a Subsidiary in Malaysia
To set up a subsidiary in Malaysia, companies must meet specific requirements. Stakeholders must provide identification documents, such as NRIC or passport copies, and the subsidiary must maintain a residential address in Malaysia for official correspondence, although a local resident director is not mandatory. Additionally, subsidiaries are taxed separately from their parent companies, allowing them to qualify for various tax incentives, particularly in high-priority sectors like technology, manufacturing, and renewable energy.
Advantages of Establishing a Subsidiary in Malaysia
Establishing a subsidiary in Malaysia brings substantial advantages. As an ASEAN member, Malaysia grants companies access to a large, expanding market with streamlined trade policies. The country’s education system produces a skilled and multilingual workforce, suitable for industries such as technology, manufacturing, and services. Furthermore, Malaysia offers various incentives and grants to subsidiaries in prioritized sectors, including tax holidays, grants, and exemptions that support industries like high-tech, renewable energy, and digitalization.
Steps to Register a Subsidiary in Malaysia
The process of registering a subsidiary in Malaysia begins with a name search and approval from the Companies Commission of Malaysia (SSM). Companies must prepare and submit an application with necessary documents, including identity verification for stakeholders. Following registration with the SSM, subsidiaries are encouraged to open a corporate bank account for operational transactions and capital purposes. Certain industries, particularly regulated ones like healthcare, finance, and education, may require sector-specific licenses.
A Strategic Entry Point into Malaysia and ASEAN Markets
Establishing a subsidiary in Malaysia offers foreign companies a legally compliant, operationally flexible way to enter the Malaysian market and expand within the ASEAN region. This structure allows companies to leverage Malaysia’s strategic advantages, support local employment, and benefit from government incentives, contributing to growth and success in both the local and regional markets.
Disadvantages of Setting Up a Subsidiary Company in Malaysia
However, there are also some disadvantages that come with incorporating a subsidiary Company. Some of them are:
- Holding/ Parent Company may not have full access towards the cash flows and transactions that occur within a subsidiary Company. This may lead to mismanagement or fraud which Holding/ Parent Company may not realise until it is too late.
- Loans approved and personally signed by the Holding/Parent Company on behalf of the subsidiary may directly impact the company if the subsidiary mismanages them. Exposure towards such liabilities may not do well for a Holding/Parent Company.
- A well-known or publicly listed Holding/Parent Company may indirectly tarnish its reputation if its subsidiary breaks a law or faces legal charges.
Documents Required to Set Up a Subsidiary in Malaysia
A subsidiary in Malaysia will require the following documents for company set-up:
- Identification documents (NRIC/Passport) copies of all stakeholders involved within the subsidiary
- Proof of residential address of the stakeholders
- Company particulars of the parent Company certified by the appointed Company Secretary
- Board of resolution from the 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
Steps to Register for a Subsidiary in Malaysia
However, the steps to incorporate a subsidiary Company are almost similar to incorporating private limited Companies or public limited Companies. The difference is, that 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, and the incorporation fee is only MYR 1,000. The higher the authorised share capital is, the higher the fees chargeable.
Step 1: Register the company name
To kickstart your subsidiary registration in Malaysia, you will need a company name. This can be done online via MyCoid to reserve your ideal name and is usually completed by your company secretary.
Step 2: Register with SSM
After you receive approval for your company name, you can proceed to do the official company registration with SSM within 30 days.
Step 3: Office Registration
You must register your office within 14 days after completing your incorporation. It is a requirement for subsidiaries in Malaysia to have a physical or virtual office.
Taxation for Subsidiaries in Malaysia
Subsidiaries operate as local companies in Malaysia because they are considered tax residents. This means that the taxation regulations adhere to that of those companies.
The corporate tax for Malaysian companies is between 17% to 24%. Malaysia grants subsidiaries tax incentives.
Differences between a Subsidiary and a Branch
One of the common dilemmas that foreign companies face is whether to incorporate a subsidiary or a branch in Malaysia. Hence, the table below will aid your decision-making process by highlighting the key differences of both entity types.
Key Differences
| Characteristics | Branch | Subsidiary |
|---|---|---|
| Independence | It depends solely on its Holding/ Parent Company abroad, hence, all reporting and business activities will be similar. | Considered a separate legal entity where they can use a different identity and run a different nature of business compared to its Holding/ Parent Company. |
| Local Structure | Even though it is not a separate legal structure, it still has to be registered by the Company Act 2016 in Malaysia. | A subsidiary operates as a separate legal entity and incorporates as a brand-new company in Malaysia. |
| Accounting Management | Will manage its accounts either in connection with the foreign company or separately | Manages the accounting and reporting completely separate from the foreign parent company. |
| Ownership | The parent company abroad has a complete ownership interest in its Malaysian branch | The foreign company has limited ownership interest in the Malaysian subsidiary. |
FAQs
Subsidiary Company Setup: Must appoint at least one resident director to set up the Company.
Branch Office: Must appoint at least one resident agent to set up the Branch.
For simpler or more direct business activities that need to be the same as that of the parent company, a branch may be a more advantageous choice for obvious reasons that it’s simpler and less costly to setup. Companies such as banks and insurance companies usually choose to enter the Malaysian market by opening a branch.
However, for companies that wish to enter into more complex business activities, be involved in distributive trade and not bear liability for their Malaysian counterpart, the subsidiary is the legal entity that will allow for these advantages.
| Share Capital | Fees |
| Not more than RM1million | RM5,000 |
| Exceeds RM1million but not exceeding RM10million | RM20,000 |
| Exceeds RM10million but not exceeding RM50million | RM40,000 |
| Exceeds RM50million but not exceeding RM100million | RM60,000 |
| Exceeds RM100million | RM70,000 |
The company name should be submitted through the Companies Commission of Malaysia (SSM) online system with a fee of RM50. Once approved, it will be reserved for 30 days from the approval date. Request for extension of the period of name reservation will further incur a fee of RM50 for every 30 days.
The name should be the same as the foreign parent company name for a branch office. For subsidiary company setup, the name does not need to be the same as its parent company.
While opening a branch is administratively easier, faster and less costly to set up, it may not enjoy some of the benefits presented by a subsidiary company. The choice may depend on the parent company’s available capital, the nature of the business needs, company priorities and available resources. Foreign corporations wishing to enter the Malaysian market should understand and carefully consider on the advantages of both the branch and the subsidiary before making the decision.
