Setting Up a Company in Malaysia: A Foreigner’s Guide
In order to grow your company, you may be looking at expanding your business to foreign countries. One potential country to consider is Malaysia, given the benefits of doing business there.
This article will cover some of these benefits, and how to go about setting up a company in Malaysia for foreigners, in particular:
- The reasons to set up a company in Malaysia
- For foreigners outside of Malaysia intending to set up a company in Malaysia
- For foreigners planning to be physically present in Malaysia to run their company
- How to set up a company in Malaysia
- What happens after setting up a company in Malaysia
Ease of doing business
One of the key benefits of setting up a company in Malaysia is the ease of doing business there. In the World Bank’s Ease of Doing Business Rankings 2020, Malaysia ranks 12 out of 190 countries for the ease of doing business.
For instance, it is relatively easy to start and operate a local firm there, with foreigners being able to establish 100% foreign-owned businesses.
Favourable tax laws
Additionally, Malaysia has a wide range of tax incentives offered to companies, such as the investment tax allowance given to companies operating in specified sectors, such as in machinery.
Malaysia has also signed tax treaties with many countries to help foreign investors avoid double taxation. There is also no withholding tax on dividends paid outside of Malaysia.
Central business hub
Malaysia is a central business hub in Southeast Asia, with close proximity to Singapore. This allows you to tap into consumer demand across different countries and expand your business.
Labour and rental costs
Another benefit of setting up a company and doing business in Malaysia is that Malaysia has more manageable labour cost and rental costs. For instance, the average labour cost in Malaysia is RM 1,100 (SGD 358.01) per month.
For Foreigners Outside of Malaysia Intending to Set Up a Company in Malaysia
Physical presence in Malaysia not required
You do not need to be physically present in Malaysia in order to set up a company there. For greater ease, you can even consider engaging a corporate services firm to help you to set up a company in Malaysia while you are in your home country.
Types of companies available to foreigners
A Labuan trading company is a company established in Labuan, Malaysia that carries on certain Labuan trading or non-trading activities.
Labuan companies enjoy tax advantages, with a tax rate of 3% on audited net profits for companies that carry out trading activities, and 0% for companies that carry out non-trading activities.
This is in comparison to the tax rate of 24% for other types of companies in Malaysia. Moreover, unlike companies such as the Sendirian Berhad, there is no restriction on the sector in which the Labuan company can operate.
To qualify for the Labuan tax incentives, a Labuan company must have a registered office in Labuan with the requisite number of full-time employees, and an adequate amount of operating expenditure (see below).
The registered office may be a virtual office, hence no physical presence in Malaysia is required.
To set up a Labuan company, there must be at least 1 director and 1 shareholder. The director and shareholder can be an individual or corporate entity.
Sendirian Berhad (Sdn Bhd)
Foreign investors can set up a company, also known as a Sendirian Berhad (Sdn Bhd), with 100% foreign ownership. This is a private company that is limited by shareholding. The Sdn Bhd is a separate legal entity from its owners, and can raise capital through shares.
You do not have to be physically present in Malaysia as long as the director and shareholder requirements are fulfilled. To set up a Sdn Bhd, the company must have:
- At least 1 director ordinarily resident in Malaysia,
- 1 shareholder; and
- 1 promoter.
A promoter is someone who helps to start the company, such as by raising capital.
Unlike the Labuan company, the Sdn Bhd can operate only in specific sectors, which include:
- Petroleum, oil and gas
- Banking and finance
- Tourism outbound and ticketing
For Foreigners Planning to be Physically Present in Malaysia to Run Their Company
Visa/pass requirements to be fulfilled before setting up a company in Malaysia
Foreigners who are planning to be physically present in Malaysia to run their company may need to first fulfil certain visa/pass requirements. The type of visa required will depend on the type of company that is set up, as discussed in the next section.
Types of companies
To set up a Labuan company, you have to apply for the 2-year renewable Labuan company Work Permit. This Permit will allow those who are not residing in Malaysia entry in and out of the country to facilitate activities like business meetings and opening of bank accounts.
Joint Venture Sdn Bhd
Foreign investors can enter into a joint venture with a Malaysian partner to set up a Joint Venture Sdn Bhd, with the Malaysian partner having minimum 50% control.
To set up a Joint Venture Sdn Bhd, the company must have at least 1 director and 1 shareholder. At least 1 of the directors must ordinarily reside in Malaysia, such as being a Malaysian permanent resident or being on a Resident Talent Pass.
The Residence Talent Pass allows skilled expatriates to obtain a 10-year renewable pass to work and reside in Malaysia. The conditions for eligibility are:
- You must have worked for a minimum of 3 years in Malaysia
- You must hold a valid Employment Pass with more than 3 months validity at the point of application
- You must earn a basic monthly salary of RM 15,000 excluding allowances and bonuses
- You must possess a Malaysian income tax file number and have paid income tax for at least 2 years
- You must hold at least a Bachelor’s Degree or Diploma in any discipline from a recognised university or a professional/competency certificate from a recognised professional institute
- You must have at least 5 years of work experience.
Paid-up capital requirements
There is no minimum paid-up capital to set up a Labuan company.
The minimum paid-up capital for an Sdn Bhd depends on whether it is 100% foreign-owned. 100% foreign-owned Sdn Bhd companies must have a minimum paid-up capital of RM 500,000 for advisory and consultancy businesses, and a minimum paid-up capital of RM 1 million for import, export, restaurant and trading businesses.
How to Set Up a Company in Malaysia
Legal entity and type of business
First, companies should decide what kind of business they want to enter, and what kind of legal entity they want to set up, as this will affect the registration process.
Name search and registration
Sdn Bhd or Joint Venture Sdn Bhd
To set up an Sdn Bhd or Joint Venture Sdn Bhd, you should conduct a name search and reservation with the Registrar of Companies. Charges of RM 50 are imposed per name search.
To conduct a name search, submit a Request for Availability of Name form to Suruhanjaya Syarikat Malaysia (SSM). If the name is available and approved by SSM, it will be reserved for 30 days.
To set up a Labuan Company, you should reserve your company name by applying for approval with the Registrar with an application fee of RM 50. Approval will be granted within 24 hours, and the name can be reserved for up to 3 months. The Labuan Financial Services Authority can reject the name if it is undesirable.
Business address/ premises
You will also need a business address or premises. This is essential for other steps like setting up a bank account and application for work permits. For those residing in or intending to travel to Malaysia, you can rent an office or otherwise consider opting for a virtual office to save costs.
Incorporation of company
The following incorporation documents must be prepared to set up an Sdn Bhd, Joint Venture Sdn Bhd or a Labuan Company:
- Constitution of the company
- Statutory declaration by a director or promoter, declaring that they are not undischarged bankrupts and have not been convicted of any offence
- Declaration of compliance with the requirements of the Companies Act
- Identity card of every director and company secretary
To incorporate a Sdn Bhd or Joint Venture Sdn Bhd (but not a Labuan company), you also need to submit the company name’s approval letter from SSM.
The incorporation documents must be submitted to SSM within 3 months of SSM’s approval of the company’s name. If not, a new name search must be conducted.
Registration fee and certificate of registration
A registration fee of RM 1,000 is payable to set up an Sdn Bhd. A Business Registration Certificate will be issued within one hour of payment.
Registration fees for Labuan companies depend on the paid-up share capital of the company:
|Paid-up share capital of Labuan company||Registration fee amount|
|RM 50,000 and below||RM 1,000|
|More than RM 50,000 but less than RM 1 million||RM 2,000|
|RM 1 million and above||RM 5,000|
What Happens After Setting Up a Company in Malaysia?
Bank account and sales and services tax number
It is important that you open a bank account to keep personal and business finances separate.
It should also be noted that if you are not in Malaysia, it may be difficult for you to open a bank account. You will likely need to be present in Malaysia under a tourist visa, business visa or work permit to open a bank account there. Otherwise, you may wish to employ a corporate services firm to help with this.
After opening a bank account, you will need to use it to get a Sales and Services Tax (SST) Number. The SST is required before the company can commence operations, and is obtained by submitting the company’s information such as its email address and registration number to the Royal Malaysian Customs.
Depending on the industry that your company is in, you may need to apply for licences to operate. Industries which require licences include food and beverage, land transportation services and tour operation.
Registration as a taxpayer
The company will need to register as a taxpayer with the Inland Revenue Board of Malaysia. Documents to be submitted include the:
- Certificate of incorporation (Form 9)
- Information of managers, company secretary and shareholders (Form 49)
- List of shareholders (Form 24)
Registration with Employees’ Provident Fund
The company must register with the Employees’ Provident Fund within 7 days of hiring its first employee. This is done by submitting certified copies of the application Form KWSP 1, Form 49 to provide details of your directors and members, a certified copy of the identity card of one of the directors, a copy of the first month’s paycheck either in cheque or bank draft, and a copy of the Certificate of Registration from the SSM.
The Sdn Bhd and Joint Venture Sdn Bhd must prepare annual audited financial statements.
For Labuan companies, audited financial statements must be prepared if the company is a trading company.
Holding of Annual General Meeting (AGM)
A company must hold its first AGM within 18 months of incorporation, with subsequent AGMs held once every calendar year and not more than 15 months after the last AGM.
If you are considering setting up a company in Malaysia, it is recommended that you engage a corporate services firm. This allows you to get advice from professionals who are familiar with Malaysia’s local laws and practices for setting up a company there.
The corporate services firm can also facilitate the incorporation process for you. In turn, filings and submissions will be made easier.
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