Guide for Foreigners to Register a Company in Malaysia

Malaysia, a Southeast Asian economic powerhouse, offers abundant opportunities to build a foreign company in Malaysia. With its business-friendly policies and stable political environment, Malaysia has become a magnet for foreign direct investment, reaching a record high of RM 893.20 billion in the first quarter in 2023.

Whether you’re a seasoned entrepreneur or new to the world of business, our guide provides the essential steps and information you need to navigate the process smoothly.

Can Foreigners Start a Business in Malaysia?

The answer is a resounding yes, albeit with some key considerations.

Malaysia’s commitment to international trade agreements, such as the ASEAN Free Trade Area, encouraging more foreign companies in Malaysia

The government consistently implements policies and initiatives to attract foreign capital, recognizing its pivotal role in bolstering the economy.

However, to ensure a seamless entry into the market, it’s imperative to grasp the regulations in place. There are primarily two areas with restrictions for foreign-registered companies in Malaysia:

1. Business Entity Types: Not all business structures allow full foreign ownership. Popular options for foreigners include private limited companies (Sdn Bhd) and limited liability partnerships (LLPs), which can be entirely foreign-owned. Certain industries like banking and education may necessitate a percentage of Malaysian ownership.
2. Industry Restrictions: Specific sectors, such as agriculture and oil & gas, impose limitations on foreign involvement. This serves to strike a balance between attracting foreign expertise and nurturing domestic industries

Business Entity Options for Foreigners

1. Branch Office

Ideal for: Short-term ventures, market research, and local presence establishment.

Key Features:

• Functions as an extension of your foreign company, with no separate legal entity.
• You assume full responsibility for all branch debts and liabilities.
• Activities must align with your foreign parent company’s scope.
• Requires at least one Malaysian resident agent for setup.

2. Representative Office

Ideal for: Market research, business intelligence gathering, and brand awareness.

Key Features:

• No independent legal standing; all liabilities borne by the parent company.
• Cannot engage in profit-generating activities, contract signing, or trading.
• Limited to promotional activities, market research, and coordinating parent company functions.

3. Private Limited Company (Sdn Bhd)

Ideal for: Long-term commitments, operational control (except in specific sectors).

Key Features:

• Most popular entity for foreign investors, allowing 100% foreign ownership in most sectors.
• Separate legal entity, safeguarding personal assets in case of company debts.
• Requires at least one shareholder and a maximum of 50.

4. Sole Proprietorship

Ideal for: Small-scale ventures managed by a Malaysian permanent resident.

Key Features:

• Quick and straightforward setup process.
• Unlimited liability; personal assets at risk if the business incurs debts.
• No annual audits or filings required, but annual renewal fees apply

5. Partnership: (For Permanent Residents Only)

Best for: Professional firms with two or more partners, like law or accounting practices.

Key Features:

• Requires all partners to be Malaysian permanent residents (maximum 20).
• Partners share profits, losses, and liabilities.
• Partnership itself isn’t taxed; partners report individual income.

6. Limited Liability Partnership (LLP)

Ideal for: Collaborative ventures seeking asset protection and compliance ease.

Key Features:

• Blends partnership structure with limited liability benefits akin to Sdn Bhd.
• Foreigners can establish an LLP; a compliance officer needs Malaysian residency.
• Partners’ personal assets protected in case of business debts.
• Less stringent compliance compared to Sdn Bhd.

7. Choosing the Right Entity

Selection hinges on your business objectives, scale, and industry. Consider factors like:

• Control and Liability: Do you prefer full control or a partnership arrangement?
• Business Activities: Will you directly trade or focus on research?
• Tax Implications: Entities may have differing tax structures.

Step-by-Step Process for Registering a Company

With adequate preparation and understanding, the company registration in Malaysia for foreigners can proceed smoothly and efficiently.

Step 1: Selecting Your Business Structure

The initial critical decision involves choosing the most appropriate business entity for your requirements. Each structure offers distinct advantages and constraints.

Here’s an overview of popular options for foreign investors:

• Private Limited Company (Sdn Bhd):

  The preferred choice, providing flexibility, limited liability protection, and the option for 100% foreign ownership (excluding specific sectors). It mandates at least one shareholder and allows up to 50.

• Limited Liability Partnership (LLP):

  Suited for partnerships seeking asset protection, blending partnership flexibility with limited liability akin to a Sdn Bhd. Foreigners can establish an LLP, necessitating a local resident as the compliance officer.

• Sole Proprietorship:

  It is quick to establish but comes with unlimited liability, which puts personal assets at risk if the business faces debts. It is exclusive to permanent residents of Malaysia.

As a foreigner-registered company in Malaysia, you may consider factors like:

• Control and Liability: Full control or collaborative approach? Importance of asset protection?
• Business Activities: Direct trading or focus on research and promotion?
• Tax Implications: Varying tax structures across entities.

Step 2: Selecting a Company Name

Choosing the right company name is crucial for establishing your company registration in Malaysia for foreigners. Here’s what you need to know about the search and approval process:

Submitting Your Name:

• Kick-off the process by electronically submitting your desired company name through the Companies Commission of Malaysia (SSM) online system.
• There’s a nominal fee of RM 50 associated with the submission.

Approval and Reservation:

• If your chosen name meets SSM’s guidelines, it will be officially approved.
• This approval comes with a 30-day reservation period, giving you time to complete the registration process.

Extending the Reservation:

• Need more time? You can extend the reservation period in 30-day increments for another RM 50 fee per extension.

Foreign Entities – A Note on Naming:

• For foreign companies establishing a branch office, the name should ideally mirror the name of your parent company abroad. This ensures brand consistency.
• Subsidiary companies, however, have more flexibility. While using a similar name is recommended, an identical name isn’t mandatory.

Tips for Choosing a Strong Name:

• Availability: Conduct a preliminary name search to avoid potential conflicts with existing registered names.
• Brand Alignment: Choose a name that reflects your brand values and resonates with your target audience in Malaysia.
• Compliance: Ensure the name adheres to SSM’s guidelines, which may restrict the use of certain symbols or characters.

Step 3: Registering with SSM

With your chosen structure and company name confirmed for your company registration in Malaysia for foreigner, it’s time for official registration with SSM:

• Online Registration: Proceed with online company registration on the SSM website upon receiving name confirmation.

• Required Documents:
  • Identification card copies for all directors
  • Declaration of compliance
  • Director or promoter declaration before appointment
  • Date of incorporation
  • Company registration number
  • Company name
  • Registered office address
  • Share capital details
  • Details of directors and shareholders
  • Memorandum and articles of association

Here is a quick overview of foreign company registration fees:

Once the registration is complete, the Companies Commission of Malaysia will issue the notice of registration within one working day.

Step 4: Post-Registration Considerations

While registration marks a significant milestone, a few additional steps remain:

• Company Bank Account: Open a dedicated company account to segregate business finances from personal funds.
• Tax Registration: Register your company for relevant taxes with the Inland Revenue Board of Malaysia (IRB).
• Business Licence: Obtain the necessary business licence from relevant authorities depending on your industry.

Remember, this is just the beginning. Consultation with a legal or business advisor familiar with Malaysian regulations ensures a seamless setup and compliance for your successful venture in this dynamic market.

Legal Requirements for Foreigners

Minimum Capital Requirements

Some types of businesses don’t have a specific amount of money you have to invest, but others do. Here’s a quick look:

• Private Limited Company (Sdn Bhd): You don’t need a minimum amount of money, which is great for new businesses.

• Limited Liability Partnership (LLP): Like Sdn Bhd, there’s no set minimum amount of money needed.

• Representative Office: This type of business doesn’t need money because it’s not trying to make a profit.

Having a Local Director or Partner

Depending on the type of business and what it does, you might need someone from Malaysia to be part of your business.

Here’s what to know:

• Private Limited Company (Sdn Bhd): Usually, you don’t need a local director if your company is 100% owned by foreigners. But in some industries like banking, you might need one. Sometimes, though, you might need a local person to help with certain things.
• Limited Liability Partnership (LLP): Foreigners can start an LLP, but the person in charge of making sure everything is done right needs to be from Malaysia.
• Sole Proprietorship: This type of business is only for people who are permanent residents of Malaysia.

Getting Work Visas and Permits

You’ll probably need a special visa if you are a foreign company registered in Malaysia. Here’s what you should know:

• Employment Pass (EP): This is the most common visa for foreign business owners. You must pay yourself a minimum salary each month.

• Entrepreneur Visa (eVISA): This is a newer option for foreign entrepreneurs starting businesses focused on new ideas or technology.

Tax Considerations in Malaysia

Understanding taxes in Malaysia is really important if you’re thinking about registering foreign company in Malaysia. Let’s go through some important tax things you should know:

Corporate Tax Rates:

Malaysia has a competitive corporate tax system.

Right now, if you’re a company based in Malaysia or a foreigner register company in Malaysia with an office there, you’ll pay a flat rate of 24% on your profits.

However, there are some exceptions – If your company has less than RM2.5 million in capital and makes less than RM50 million in income, you might qualify for lower tax rates on the first RM150,000 of your profits.

Double Taxation Agreements (DTAs):

Malaysia has made agreements with more than 70 countries to make sure companies don’t get taxed twice on the same money.

These agreements say how income and profits are taxed in both Malaysia and the other country.

Goods and Services Tax (GST):

Malaysia has a Goods and Services Tax (GST) of 6%. This tax is added to most things you buy or services you use. It’s important to understand how GST works so you can follow the rules.

Other Important Taxes:

1. Withholding Tax:

This tax is taken out of payments made to people or companies outside of Malaysia, like for royalties or dividends. The rates depend on what the payment is for and if there’s a DTA with the country getting the money.

2. Real Property Gains Tax (RPGT):

If you sell property in Malaysia and make a profit, you might have to pay tax on that profit. The tax rate changes based on how long you’ve owned the property.

3. Stamp Duty:

This tax is paid on certain documents used in business, like contracts or agreements.

Additional Registrations and Licences

1. Specific Industry Licences

• Business Licence: This is a basic requirement for most businesses, given out by the local government (like the municipal council or district office).
  Example: A bakery needs a business licence from the local council to operate, showing they meet food safety standards.

• Sector-Specific Licences: Some industries have their own special rules and need licences from special groups. These licences make sure businesses follow the industry’s rules and protect consumers.
  Example: A company making medical devices needs a licence from the Medical Device Authority (MDA) to make sure their devices are safe and good quality.

2. Finding the Right Licences

• Do Your Research: Start by looking into your industry and where you’ll be working. Government websites often list what licences you need.

• Industry Groups: Joining groups related to your industry can give you good advice and resources about licences.

• Talk to Experts: Getting help from a business advisor or lawyer who knows Malaysian rules can save you time and make sure you get all the right licences.

3. Intellectual Property Protection

• Intellectual Property Corporation of Malaysia (MyIPO): This government group looks after registering and protecting intellectual property. They can help with the process of registering your ideas.

• Trademark Registration: Think about registering your brand name and logo with MyIPO. This means no one else can use them, protecting your brand and stopping others from confusing customers.
  Example: A company called “Freshpresso” can trademark their name and logo to stop others from copying them.

• Patent Registration: If you’ve made something new, like a cool invention, consider patenting it with MyIPO. This means only you can make or sell it for a while.
  Example: If a company invents a new way to make coffee, patenting it stops other companies from copying them.

4. Employment Rules

Building a fair workplace hiring people in Malaysia means following certain rules to make sure everyone is treated fairly:

• Social Security: Employers need to sign up with SOCSO and help with things like healthcare and retirement for employees.

• Work Visas: If you hire people from other countries, they need special visas to work in Malaysia.

• Minimum Pay: Malaysia has rules about the least amount of money you can pay your employees, and it can change depending on where you are.

• Extra Benefits: You don’t have to do this, but offering things like paid time off or health insurance can make people want to work for you.

Financial Aspects

Understanding Financial Practices in Malaysia:

• Currency: In Malaysia, the national currency is the Malaysian Ringgit (MYR). It’s important to know the current exchange rates and common payment methods such as cash, debit cards, and e-wallets to handle transactions effectively.

• Taxation: Malaysian corporate tax rates stand at 24% for resident companies and 26% for non-residents. Knowing about different taxes like the Goods and Services Tax (GST) is crucial for accurate tax filing and staying compliant.

• Financial Reporting: Companies in Malaysia have specific financial reporting requirements based on their size and revenue. Understanding relevant accounting standards and reporting deadlines is essential to avoid penalties.

Building Local Banking Relationships:

Establishing strong ties with local banks as a foreigner register company in Malaysia offers several advantages:

• Streamlined Transactions: A local bank account simplifies daily operations like payroll, vendor payments, and customer collections.

• Access to Financing: Local banks provide various loan and credit options to support business growth, potentially with more favourable terms.

• Financial Guidance: Many local banks offer dedicated business advisors who can provide valuable insights on managing finances in Malaysia.

Accessing Financing and Investment:

Options Available for foreigner register company in Malaysia:

• Bank Loans: Commercial banks offer various loan products tailored to different business needs, including working capital and equipment purchases.

• Islamic Financing: Malaysia’s Islamic finance sector provides Shariah-compliant financing options, catering to businesses with specific ethical considerations.

• Government Grants: The Malaysian government offers grants and incentives to attract foreign investment and support specific industries. Research relevant programs for potential funding opportunities.

• Venture Capital and Private Equity: High-growth businesses, particularly startups and innovative ventures, can explore investment opportunities from venture capital firms and private equity investors.

Cultural Insights

Understanding Malaysian business customs and etiquette is crucial for foreign companies in Malaysia aiming to establish successful relationships.

Business Culture and Etiquette in Malaysia:

• Hierarchy and Respect: Malaysian business culture is hierarchical, emphasising respect for seniority. Addressing superiors with titles and avoiding confrontational behaviour is important.

• Indirect Communication: Malaysians often communicate indirectly and may refrain from saying “no” directly. Patience, attentiveness to nonverbal cues, and focus on relationship-building are essential.

• Building Relationships: Trust and strong relationships are paramount in Malaysian business. Investing time in getting to know business partners and socialising outside of formal meetings is vital.

Challenges Foreign Entrepreneurs May Encounter:

• Language Barriers: While English is widely used in business, proficiency in Bahasa Malaysia can deepen cultural understanding and trust-building.
• Bureaucracy: Navigating government regulations and obtaining permits can be time-consuming. Expect potential delays and consider local assistance.
• Cultural Differences: Variances in business practices, communication styles, and negotiation tactics can be unexpected. Flexibility, adaptability, and openness to learning new approaches are key.

Tips for Successful Business Integration:

• Research: Familiarise yourself with Malaysian business norms before entering the market.
• Hire Locally: Local staff can bridge cultural gaps, offer insights into customs, and facilitate communication.
• Patience and Persistence: Establishing trust takes time. Show respect for local customs and be persistent in building relationships.

Resources and Support for Foreign Entrepreneurs

1. Governmental Support and Incentives:

• Malaysian Investment Development Authority (MIDA): Offers guidance on business setup, licences, and incentives for foreign investors.
• Tax Incentives: Explore tax breaks and incentives offered by the government for specific sectors.

2. Chambers of Commerce and Business Associations:

• American Malaysian Chamber of Commerce (AMCHAM) and EU-Malaysia Chamber of Commerce and Industry (EMCCAM): Provide networks and resources for American and European businesses respectively.
• Industry-Specific Associations: Joining relevant associations offers insights and networking opportunities.

3. Consulting and Legal Services:

• Business Consultants: Work with consultants familiar with Malaysian regulations for guidance on establishment and best practices.
• Legal Services: Consult with lawyers specialising in foreign investment for compliance and tailored legal advice.

Conclusion

Establishing a business as a foreign company in Malaysia presents a promising opportunity. Understanding the legal prerequisites and financial terrain, as well as adapting to cultural nuances, is vital. Thorough planning, local partnerships, and cultural acclimatisation are paramount for success. With meticulous preparation and cultural sensitivity, foreign entrepreneurs can realise their aspirations in registering a company in Malaysia.