The Malaysian Investment Development Authority (MIDA) states that investments in Malaysia rose by 83% to a total of RM 306.5 billion (~USD 73.33 billion) in 2021. Most of these investments were in the manufacturing sector, which saw a 114% increase from the previous year, with the electrical and electronics industry being the biggest recipient. This article will discuss how you can register your business in Malaysia.
Overview of Malaysia’s Business Potential
The state of Penang, known as Southeast Asia’s semiconductor hub, received the most significant amount of investment in Malaysia. The majority of the investments (68%) are foreign direct investments (FDI), with the top investors being the Netherlands, Singapore, China, Austria, and Japan. Here are some of the reasons that make Malaysia one of the top investment hotspots in the SEA region:
- Malaysia lies at the center of Southeast Asia, home to a market of 661.8 million people with a total GDP of USD 3.0 trillion. It is located near one of the world’s busiest shipping lanes, the Straits of Malacca, which provides access to the global supply chain via the Port of Klang and the Port of Tanjung Pelepas.
- It is considered Southeast Asia’s second most developed and competitive country, ranking 32nd globally based on the IMD World Competitiveness Ranking 2022. Moreover, the country outperforms other emerging markets and developing economies, being ranked first in Southeast Asia for foreign investment.
- Malaysia has a young, diverse, and multicultural population. It is classified as an upper-middle-income country by the World Bank, with a GNI per capita of RM45,874 (~USD 10,376). The country is open to foreign investments and has already received funds from over 50 countries. As of December 2021, the total amount of foreign direct investments (FDI stock) was USD 189 billion.
- The English language is widely used in business, and the cost of living in Malaysia is the lowest in Southeast Asia, ranking 56th globally according to Mercer’s 2021 Cost of Living Survey. The legal system in Malaysia is well-established, with the Malaysian Constitution providing the legal framework. The services and manufacturing sectors lead the economy.
Why register a company in Malaysia
1. Quick and Seamless Incorporation
Incorporating a business in Malaysia is a fast, simple, and cost-effective process. In recent years, the government’s efforts to improve policies and procedures have reduced the wait time for business registration and employment permit applications. In five to ten days, a new business can be registered. Moreover, an expatriate can get a work permit in five working days.
Malaysia offers low startup costs thanks to its low property rental rates. The low monthly minimum wage of RM1,500 (~USD 334), for companies with five or more employees) also makes it economical to run a business in Malaysia.
2. Avoiding Double Taxation
Double taxation is not an issue for businesses in Malaysia, as the country is part of DTAs (Double Taxation Agreements) with countries worldwide. This agreement ensures that a single source of income is not taxed in two countries simultaneously.
3. Increasing demand from the locals
Malaysia’s strong GDP of USD 943 billion, with a growth rate of 8.7% in 2022, reflects its overall economic strength. The government’s efforts to maintain robust growth in various industries, coupled with its National 4IR Policy and adoption of Industrial Revolution 4.0, make Malaysia an attractive business market. As Malaysians’ incomes increase, there is a growing number of consumers who can purchase low- to middle-market products and services.
4. Government Support
The Malaysian government supports businesses by encouraging foreign investments with incentives ranging from tax exemptions to grants. Depending on the business, there may be specific grants and incentives aimed at supporting innovation or contributing to the country’s economy. By understanding these incentives, businesses can maximize their potential and succeed in Malaysia.
Full Business Setup Guide for Foreign Investors
Understanding Legal Entities available in Malaysia
According to WeCorporate, there are five business structures to choose from when setting up in Malaysia.
- This is a traditional type of business entity in Malaysia and is owned by a single individual who must be a Malaysian citizen or permanent resident.
- The advantages of a sole proprietorship include quick setup and low yearly maintenance costs.
- However, the owner can be subject to unlimited liability and unfavorable tax rates.
- This is started by two or more persons and administered by the Partnership Act 1961.
- The advantages of a partnership include affordable set-up and maintenance costs, shared liability among all partners, and ease of incorporation with the Companies Commission of Malaysia (SSM).
- However, apart from the unlimited liability and an unfavorable tax rate, the business continuity can be impacted if a partner leaves, dies, or quits the partnership. It may also be challenging to receive important bank loans.
Sendirian Berhad (Sdn. Bhd.):
- This is a private limited company that is limited by shares and has a separate legal entity feature.
- The advantages of a Sdn. Bhd. include limited liability to the owner/shareholder, easier to obtain loans and contracts, favorable tax rates, and flexibility in share structures.
- However, the high cost of set-up and maintenance and additional compliance requirements are some of the drawbacks.
- It is a public limited company limited by shares and is recommended for companies with significant business operations.
- The advantages of a Bhd. include limited liability, the ability to raise capital and funding, flexible ownership of shares, and growth and expansion opportunities.
- However, the disadvantages include higher set-up costs, strict compliance and regulatory requirements.
Limited Liability Partnership (LLP):
- A corporate structure administered under the Limited Liability Partnership Act 2012. It possesses the features of both conventional partnership and Sdn. Bhd.
- The characteristics of an LLP include limited liability for partners, a customized partnership agreement, no cap on the number of partners, and the appointment of a compliance officer.
- The advantages of an LLP include limited liability, flexibility in management and control, and ease of formation and maintenance.
- However, the disadvantages include mandatory compliance with certain statutory requirements, lack of separate legal entity status, and difficulty in raising capital.
Documents to start a company in Malaysia
- The certificate of incorporation
- The company’s articles of association and memorandum
- A listing of all local and foreign directors and their specific powers within the company
- The memorandum of understanding of the foreign company
- A copy of the reservation and application of the names of the company
- A copy of the email indicating the approval of the reservation of the name of the company
- A statutory declaration of the agent of the company
- Registration Fees
Malaysia Company Registration Process
When a foreign company wants to set up in Malaysia, it should first choose a company name and register it through the Companies Commission of Malaysia (SSM) online system, along with a payment of RM50. After the name is approved, it will be held for 30 days from the date of approval. During this 30-day period, the following information must be submitted to the Companies Commission of Malaysia (SSM):
- Details about all shareholders, including their name, nationality, identification, and place of residence. For corporate entities, the information required will be the corporate name, registration number, registered office, and place of incorporation.
- Information about all company directors, including their name, nationality, identification, and place of residence.
- A list of the company’s members or shareholders.
- Information on the number of shares and their class for foreign companies with share capital. If it is a foreign company without share capital, information on the amount each member will contribute to the company’s assets will be required.
- The name and address of the company’s agent, who should be of Malaysian descent.
- The application for foreign company registration, along with a statement from the company’s agent confirming their appointment.
A corporate bank account, also known as a business bank account, is an ideal option for business owners. Having a corporate account makes it easier to issue business-related checks and provides the option for overdrafts up to a certain limit, reducing the likelihood of bounced checks and giving the business owner access to extra funds. Moreover, a corporate bank account can process a high volume of transactions, maintaining a professional image for your business.
To open a corporate bank account, you will need to provide the bank with the application forms, identification of authorized signatories and directors, company documents such as the certificate of incorporation, and a resolution from the board of directors.
The entire process of opening a corporate bank account in Malaysia may take three months, although it can take longer if the bank needs to carry out extensive investigations.
Taxation and Accounting
In Malaysia, where tax laws are constantly changing, it’s crucial to keep your business finances updated to ensure efficient compliance and minimize potential tax liabilities and investigation risks.
It is imperative for investors to be cognizant of taxes prevailing in the country. Failing to comply with tax regulations could result in significant financial losses. Moreover, it is crucial for businesses to ensure accurate taxation, timely tax filing, and payment to minimize tax liabilities. Following are the categories of taxes that foreign investors need to be familiar with:
- Corporate Tax
- Real Property Gains Tax (RPGT)
- Digital Services Tax
- Personal Income Tax
- Stamp Duty
- Sales & Services Tax
- Withholding Tax
Hiring and Payroll
The payroll system in Malaysia is complex, and businesses must adhere to various laws and regulations. If you are looking to expand or start your business in Malaysia, it’s crucial to understand how payroll operates there.
Income Tax: Part of payroll in Malaysia involves paying income tax to the Inland Revenue Board (LHDN). The fiscal year runs from January 1st to December 31st. Both tax residents and non-residents (employees who work in Malaysia for 60-182 days per year) are required to pay tax, with a cap of 30% for income over MYR 2,000,000. Employees must file their taxes each calendar year before April 30th.
Leaves: Employees on the payroll in Malaysia are entitled to 11 public holidays a year. They are also entitled to paid annual leaves (8-16 days) and sick leaves (14-22 days) based on their length of service. Other leaves, such as maternity, paternity, compassionate, bereavement, study, and marriage leaves, are subject to employer approval.
Social Securities: EPF, SOCSO, and EIS are the most commonly provided securities for workers in compliance with payroll regulations in Malaysia. The Employees Provident Fund (EPF) is a compulsory savings plan for retirement, with both employee and employer contributions. The Social Security Organization (SOCSO) and the Employment Injury Insurance Scheme (EIIS) provide social insurance for employees.
Visa and Immigration
In Malaysia, individuals can obtain an Employment Pass (EP) for a minimum duration of 1 month and a maximum of 5 years.
The Employment Pass has three categories:
- Category I (EPI) for expatriates with a basic salary of RM 10,000 or more;
- Category II (EPII) for expatriated with a basic salary of RM 5,000 to RM 9,999.99;
- Category III (EPIII) for skilled workers earning between RM 3,000 and RM 4,999.99, for which the employer must seek approval from the Ministry of Home Affairs.
For those visiting to provide consulting services or training opportunities, they will need a Professional Visit Pass (PVP), which is valid for up to 12 months.
The Residence Pass – Talent (RP-T) is a long-term visa valid for 10 years, allowing the holder and their spouse and children below 18 to stay and work or study in Malaysia. To qualify, applicants must have
- Working experience of 3 years in Malaysia and holding a legal Employment Pass,
- a minimum basic salary of RM 15,000
- a recognized degree or professional certificate, and
- paid taxes to the government for at least 2 years.
The Malaysia Tech Entrepreneur Program (MTEP) was introduced to support foreign tech entrepreneurs establishing businesses in the ASEAN market from Malaysia. It offers two types of work visas:
- Professional Visit Pass (PVP-MTE) valid for 1 year for new entrepreneurs
- Residence Pass (RP-MTE) is valid for up to 5 years for established entrepreneurs.
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