Setting up a business in Malaysia
Updated 2017-09-18 11:34

As a central business hub in South-East Asia, Malaysia attracts foreign investors from across the world. Thanks to its extensive transport networks, the country is well-connected and deemed to be an accessible base from which to do business — particularly for those in the manufacturing, services or export industry.

Malaysia is the 18th largest export economy in the world, and it shipped US$189.6 billion worth of goods globally in 2016. Its top three exports are electrical equipment, including integrated circuits; mineral fuels, including oil; and machinery, including computers and telephones.

Statistics from the International Monetary Fund's World Economic Outlook Database, show that Malaysia's total Gross Domestic Product amounted to US$863.8 billion in 2016. This means that exports accounted for about 21.9% of total Malaysian economic output.

Most foreign entrepreneurs choose to set up shop in Kuala Lumpur, but various campaigns and development initiatives across the country have been designed to attract foreign investment, which is gathering momentum in places like Johor Bahru.

What kind of business can you do as a foreigner?

Firstly, you need to find out whether the type of business that you want to do is permitted for foreigners in Malaysia. The government wishes to ensure that there are enough jobs for Malaysians, so foreigners are not encouraged to set up a business or apply for jobs in certain governmental bodies and sectors, including the medical, pharmaceutical, textiles, mineral, wood and food industries.

However, Malaysia is focused on attracting foreigners to the manufacturing and services sector. The government's New Economic Model has been designed to propel Malaysia from a middle-income to a high-income economy, and greater emphasis will be placed on the development of the services sector to sustain the economy. In the Eleventh Malaysia Plan, 2016-2020, the services sector has been cited as being the primary driver of economic growth. The main growth contributors are projected to be the wholesale and retail trade, financial services and communications subsectors; and the services sector is expected to grow at 6.8% per annum and contribute 56.5% to the GDP in 2020, as well as provide 9.3 million jobs.

Recognising the growth potential in the services sector, the Malaysian government decided to liberalise 27 services subsectors in 2009 to attract more foreign investments and bring more professionals. These sub-sectors include health and social services, tourism services, transport services, business services, and computer services. The government liberalised an additional seven sectors in 2012 to allow up to 100% foreign equity participation in phases. These sectors include telecommunications, healthcare, professional services, environmental services and education services.

Types of business entities for foreigners

The three most common types of business entities adopted by foreigners in Malaysia are a private limited company, a Labuan company and a representative office.

A private limited company

International businesses in the manufacturing or services sector can typically do business in Malaysia without restriction, as the government wants to encourage export growth, knowledge-transfer, and job creation in this sector.

Foreigners are allowed to register a Sendirian Berhan in Malaysia with 100% foreign ownership, depending on the business. This is the local equivalent of a private limited company or LLC, and is the most common vehicle for investing in the country. 100% foreign ownership is permitted for companies in most industries, and the Malaysian Investment Development Authority (MIDA) maintains a detailed list of businesses open to foreign investment in Malaysia.

Two of the company's directors must be permanent residents in Malaysia, and a private limited company must have between two and 50 members. The company must also have a minimum of two shareholders.

You can register as a private limited company through the Companies Commission of Malaysia (SSM).

To register your business as a private limited company in Malaysia, you will need to decide which category you fall under.

If you wish your business to be 100% foreign owned, then you will need a minimum paid-up capital of RM500,000 for advisory and consultancy businesses, and RM1 million for import-export, restaurant and trading businesses. In order for your trade licence to be approved under the 100% foreign owned structure, you will also have to prove that the business will benefit the Malaysian economy and provide employment.

Alternatively, if you wish to register your business as a joint venture with a Malaysian partner who will have minimum 50% control, you will need to have a minimum paid-up capital of RM350,000 with an authorised capital of RM500,000.

It is important to note that the Malaysian government enocurages all business owners to employ Malaysian citizens. An exception may be granted for shareholder and director positions, but this is not guaranteed straightaway.

A Laduan company

Labuan is emerging as a regional offshore centre with a low tax jurisdiction. Labuan companies can rent properties in Malaysia but they are not allowed to make sales in the country, so they are unsuitable for international businesses hoping to sell to Malaysian customers. However, setting up a Labuan company is useful for entrepreneurs establishing a financial services, distribution or international trading business. A Labuan company is also useful for regional distribution enterprises, as imports and exports to and from Labuan are exempt from duty.

Foreigners can own 100% of the company and incorporation is fast and affordable. Expatriates are able to apply for a two-year multiple entry Employment Pass as soon as the company has been incorporated.

You can register as a Labuan company through the Labuan International Business and Financial Centre (IBFC).

A representative/ regional office

A representative office is an appropriate way for a team to explore the Malaysian market. This business entity is not subject to corporate tax but it also cannot generate revenue, so cannot be involved in any form of trading, business or commerical activity. Instead, it can be used for representing the head office with support activities, such as market research and product development, planning or coordination, brand building and after-sales support.

It basically allows foreign companies to have a presence in Malaysia for two to five years to explore and analyse opportunities, undertake feasibilty studies, and decide whether Malaysia is the right place for you to set up your business.

Expatriates can be employed in a regional or representative office, but the number allowed depends on the functions and activities of the office. The set-up of this office is not required to be incorporated under the Malaysia Companies Act 1965, but its proposed expenditure must be at least RM300,000 per annum.

Other business entity options

A sole proprietorship/ partnership

This is the easiest and cheapest way to establish a business in Malaysia, and it is owned and run by one person, with no legal distinction between the owner and business. This means that it is subject to income tax of the owner, rather than corporate tax. However, there is nearly zero protection to the business owner, so it's advisable to incorporate an LLC instead.

A free-zone company

This is popular for foreign companies that are in export-oriented businesses as it makes full use of the ports and free zones in Malaysia. Companies that wish to use Malaysia as a regional manufacturing or distribution base can benefit from free zones if most of their business is conducted outside the country.

How to register a company

The Companies Commission of Malaysia (SSM) serves as an agency to incorporate companies and register businesses in Malaysia. In order to register your company, you will need to follow these steps.

A name search must be conducted to determine whether the proposed name of your company is available for registration. The name should be the same as the one registered in your company's country of origin. To apply for the name search, you will need to submit a completed Form 13A of the CA (Request for Availability of Name) to SSM, and pay a RM30 fee for each name applied.

After you have received approval of your company's name, you then have three months to submit the following registration documents.

  • A certified copy of the certificate of incorporation or registration of the foreign company.
  • A certified copy of the foreign company's charter, statute, or Memorandum and Articles of Association, or other instrument defining its constitution.
  • Form 79 (Return by Foreign Company Giving Particulars of Directors and Changes of Particulars).
  • A memorandum of appointment or power of attorney authorising the person(s) residing in Malaysia to accept on behalf of the foreign company any notices required to be served.
  • Form 80 (Statutory Declaration by Agent of Foreign Company).
  • The original copy of Form 13A and a copy of the letter from SSM approving the name of the foreign company.

A certificate of registration will then be issued by SSM if you have met all the requirements.

Set-up costs

To set up a business in Malaysia you can expect to pay a registration fee for the business entity that best suits your situation, noting that each authority has its own requirements and procedures. You should also allow enough for multiple trade licences, a deposit for an office/shop space, an initial bank account deposit, tax regulations, and compliance and maintenance procedures. A breakdown of relevant costs can be found on the Malaysian Investment Authority's website.

Useful links:

Malaysian Investment Development Authority (MIDA)
Sectors open to foreigners
Companies Commission of Malaysia (SSM)
Incorporation of foreign company
MICCI ' Malaysia International Chamber of Commerce and Industry
MACS - Association Malaysian company secretaries
Malaysia Business Registration

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