Sole Proprietorship in Malaysia

Before you incorporate a company in Malaysia, there are many types of business structures to consider. As a matter of fact, the famous 5 structures businessmen aim to venture into are sole proprietorship, partnership, private limited (Sdn. Bhd.), public limited (Berhad) and limited liability partnership (LLP). With sole proprietorship in Malaysia being the focus of this article in particular.

What is Sole Proprietorship

In a sole proprietorship, the sole owner basically uses their personal name as the name of the business. Another key point is that all profit loss generated by the business goes directly to the owner. Which also means a sole proprietorship does not require a separate tax return filing.

It is basically the simplest for of business ownership available in Malaysia and most local businessmen tend to opt for this structure. The sole proprietorship in Malaysia is governed by the Registration of Businesses Act 1956.

Why choose Sole Proprietorship amongst others?

As has been noted, a sole proprietorship is a structure most local businessmen tend to venture into. The reasons for this are:

1. Easy formation

The structure itself is simple to form. There are four steps to form the sole proprietorship in Malaysia:

• Visit any Companies Commission of Malaysia (SSM) branch to complete the registration form
• The SSM officer will assist to check the availability of the proposed name
• If the name is available, the form is completely filled, then the officer will assist to register the sole proprietorship with a fee of MYR 60 per annum for using a trade name or MYR 30 per annum for using personal name. If you’re opening another branch, the fee is only MYR 5 per annum
• After you’ve made payment, within an hour, you can retrieve your business registration certificate from a SSM counter.

2. Becoming your own boss

A sole proprietor business owners have the power to make their own decision without wasting their time involving other parties. Hence, if the decision made lead to a profitable path, the owner would greatly gain the income without the need to share with others.

3. No corporate tax

Since the profit and losses generated by the business will directly go into the owner’s pocket, hence they are only required to file them as business income as part of their personal tax computation. No separate corporate tax filing is required. The tax rate is between 0% to 30%.

4. Lowest annual cost

Another benefit of venturing into sole proprietorship is because they have the lowest annual maintenance cost. Business owners are only required to pay their annual registration fee, which generally cost between MYR 5 to MYR 60 per annum. They can do so by visiting any SSM branch available.

5. Winding up easily

The process to close down a sole proprietorship is also the easiest and fastest. The business owners may visit any SSM branch available to immediately close their business. Another option is to stop paying the annual registration fee altogether.

Partnership VS. Sole Proprietorship in Malaysia

Businessowners normally opt for a partnership once their sole proprietorship business is stable and wishes to expand with an addition of partners in the business. The structure is similar to that of a sole proprietorship, but the difference is the addition of owners within the business.

The benefits to start a partnership are the same as sole proprietorship, however, for those who wish to make a decision without interruption from other parties, continuing with sole proprietorship is a better option.

Those who wish a longevity of their business without the risk of having a fall out with their partners, maintaining a sole proprietorship is also a better option.

Private Limited (Sdn. Bhd.) VS. Sole Proprietorship in Malaysia

A sole proprietorship may benefit a businessman in a lot of way, however, by upgrading their business from sole proprietorship to a private limited (Sdn. Bhd.) shows the business is expanding.

A sole proprietorship is easier to maintain and manage but may have restriction when it comes to applying for business loans. Hence, upgrading from sole proprietorship to a private limited (Sdn. Bhd.) will give better access to capital options.

How is Sole Proprietorship taxed in Malaysia?

As mentioned, a sole proprietorship will not be taxed separately for its owner. All business income received by the business owner must be declared in the personal tax filing. The tax rate chargeable towards a personal tax is between 0% to 30%. Other items taxable by sole proprietor are:

• Self-employment taxes
• Social security taxes – EPF, SOCSO and EIS
• Property taxes

Bookkeeping for Sole Proprietorship in Malaysia

One of the many aspects a business owner needs to take note of is the account related matters of their business. Since business owners will need to declare all business-related income in their personal tax computation, hence the profit loss statement, balance sheet statement and all business-related documents and transactions must be kept neatly and organised.

This way, if the business owner were to hire a third party to assist with his personal tax filing, all business transactions can be declared with accordance to the Income Tax Act 1967.

Will Sole Proprietorship benefit an individual when it comes to reducing tax?

In one way, you can say that having a business can assist to reduce a person’s tax. With this in mind, the Inland Revenue Board (LHDN) lists several items eligible for tax deduction. Some of them are business travel expenses, office rentals, banking fees as well as professional development made on a regular basis.

This way, you can enjoy earning from your business at the same time start cutting off some taxes as well.

Ready to incorporate your company in Malaysia or require accounting and taxation services? Reach out to us today for a free consultation!