Subsidiary in Malaysia Guide: How to Register?

Malaysia has established herself as one of the top destinations for foreign investments. In that vein, there are many foreign companies who have started their operations in Malaysia through setting up a subsidiary.

As enacted in Company Act 2016, a foreign Company in Malaysia is defined as:

• A company, corporation, society, association, or other body incorporated outside Malaysia.
• An unincorporated society, association, or other body which under the law of its place of origin may sue or be sued or hold property in the name of the secretary or other officer of the body or association duly appointed for the purpose and which does not have its head office or principal office of business in Malaysia.

On the other hand, a local company is:

• A company registered under the Malaysian law and can benefit from the tax exemptions available under the free trade agreements signed by the country with the ASEAN countries.

What is a Subsidiary Company?

A subsidiary is a separate legal entity from its parent company. In other words, a subsidiary company is legally liable to its own debt and liabilities without affecting their parent company.

This business entity 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.

Here are more characteristics of a subsidiary company:

• Identification documents (NRIC/Passport) copies of all stakeholders involved within the subsidiary
• Able to have a different company name from its parent company
• Able to operate in business activities different from its parent company and most Malaysian business industries
• Able to incorporated with a maximum of 50 members
• No requirement for a local resident for its director but requires a residential address

Advantages of Setting Up a Subsidiary Company in Malaysia

Foreign investors normally opt for a subsidiary company because of the following reasons:

Foreign investors normally opt for a subsidiary company because of the following reasons:

Separate legal entity

As mentioned earlier, the subsidiary company is considered as a “legal person” and is separated from its parent or holding company. This means that the assets and debts are different from each entity. A subsidiary company is also allowed to operate a business that differs from the holding or parent company.

Unrelated management team

A subsidiary Company is able to form its own management team which is not related to its Holding/ Parent Company. Normally, a team of local officers are formed in order to abide with the country’s local culture and regulation. The daily decision making will be done by the internal management team without the need to request for approval from Holding/ Parent Company.

However, if such decision may impact the subsidiary Company as a whole, then the Board of Directors may need to prepare a proposal and present it to the representative of their Holding/ Parent Company.

Diverse branding and identities

Incorporating a subsidiary is a good choice for foreign investors who wish to expand and diversify their business without jeopardising the initial business nature carried out by the Holding/ Parent Company. Hence, big brands from clothing Companies commonly use this type of business structure to diversify their business entities.

Example: GAP and GAP Kids.

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 occur within a subsidiary Company. This may lead to mismanagement or fraud which Holding/ Parent Company may not realise until it is too late.
• Any loans that are approved and signed personally by the Holding/Parent Company on behalf of the subsidiary may have a direct impact if the subsidiary did not manage it well. Exposure towards such liabilities may not do well for a Holding/Parent Company.
• If the subsidiary is owned by a well-known or public listed Holding/ Parent Company, it may indirectly tarnish its reputation if the subsidiary is caught breaking a law or faces any 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 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

Steps to Register for a Subsidiary in Malaysia

The steps to incorporate a subsidiary Company is almost similar to incorporating private limited Companies or public limited Companies. Difference 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.

Step 1: Register 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 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

Upon completion of your incorporation, you will be required to register your office within 14 days. It is a requirement for subsidiaries in Malaysia to have a physical or virtual office.

Taxation for Subsidiaries in Malaysia

As subsidiaries are considered tax residents in Malaysia, they operate as a local company. This means that the taxation regulations adhere to that of those companies.

The corporate tax for Malaysia companies is between 17% to 24%. Subsidiaries in Malaysia are also entitled to 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. The table below will aid your decision-making process by highlighting the key differences of both entity types.