Guidelines for Setting Up a Representative Office in Malaysia

Setting up a representative office in Malaysia is a strategic move for businesses aiming to establish a presence in Southeast Asia. Malaysia’s robust economy, prime location, and business-friendly environment make it an attractive choice. A representative office enables companies to conduct market research, foster relationships, and promote their brand without engaging in direct commercial activities.

This guide covers the essential steps and considerations for setting up a representative office in Malaysia. From understanding the legal requirements to navigating the registration process, you’ll find the insights needed to ensure a successful establishment in this dynamic market.

What is a Representative Office (RO) in Malaysia?

A Representative Office (RO) is a liaison office for foreign companies interested in the Malaysian market. It enables them to establish a presence in the country without engaging in commercial activities. The primary purpose of an RO is to facilitate market research, promote the parent company’s products or services, and manage business relationships in Malaysia.

Key Features of a Representative Office

1. Non-Commercial Activities: An RO is not permitted to engage in any direct profit-making activities. This includes not being allowed to enter into contracts, invoice customers, or provide services for a fee.
2. Market Research: One of the main functions of an RO is to conduct market research and gather valuable insights about the Malaysian market. This helps the parent company understand local consumer behaviour, market trends, and competitive landscape.
3. Promotion and Publicity: An RO can actively promote the parent company’s products or services through marketing and promotional activities. This helps build brand awareness and establish a foothold in the local market.
4. Business Liaison: An RO acts as a communication bridge between the parent company and local businesses or government agencies. This facilitates smoother business operations and helps in building and maintaining strong relationships.
5. Limited Staffing: The staff of an RO is usually limited and primarily consists of expatriates and a few local employees. Their role is to support the RO’s functions of research, promotion, and liaison.

In summary, a Representative Office in Malaysia is an excellent option for foreign companies looking to establish a preliminary presence in the country. It allows businesses to conduct market research, promote their brand, and build essential business relationships, all while adhering to local regulations and minimizing financial risks.

Advantages and Disadvantages of Setting Up a Representative Office

Advantages

1. Cost-Effective Entry: Lower initial investment compared to a subsidiary or branch.
2. Market Research: Enables comprehensive market research and insights.
3. Brand Presence: Builds brand awareness and visibility in the market.
4. Business Relationships: Facilitates strong local business and government relationships.
5. Regulatory Compliance: Easier compliance with local laws.
6. Flexibility: Allows market testing without long-term commitment.

Disadvantages

1. No Revenue Generation: Cannot engage in profit-making activities.
2. Limited Activities: Restricted to market research, promotion, and liaison work.
3. Temporary Nature: Often seen as a short-term market testing setup.
4. Operational Restrictions: Limited operational capabilities.
5. Staffing Limitations: Usually limited to a small team.
6. Regulatory Scrutiny: Must avoid unauthorized commercial activities.

In summary, a Representative Office in Malaysia offers a cost-effective way to enter the market and conduct research but has significant limitations in generating revenue and operational scope.

Key Considerations Before Setting Up a Representative Office

Minimum Requirements for the Foreign Company

Before setting up a Representative Office (RO) in Malaysia, the foreign company must meet certain minimum requirements. Typically, the company should have:

• Years of Operation: To demonstrate stability and credibility, the foreign company must have been in operation for a minimum number of years, often at least 2-3 years.
• Financial Stability: Proof of financial stability and capability to support the RO’s operations in Malaysia.
• Good Standing: The company should be in good standing in its home country, with no ongoing legal or financial issues.

Permissible Activities of a Representative Office in Malaysia

An RO in Malaysia is limited to specific non-commercial activities that support the parent company’s interests. These activities include:

• Market Research: Conduct research to understand the local market, consumer behaviour, and industry trends.
• Information Gathering: Collecting data and insights relevant to the parent company’s business.
• Promotional Activities: Promoting the parent company’s products or services through marketing and publicity efforts.
• Business Liaison: Acting as a communication bridge between the parent company and local businesses, government agencies, or other stakeholders.
• Representation: Representing the parent company in various forums, conferences, and meetings to build brand presence and relationships.

Activities Not Allowed for a Representative Office in Malaysia

There are strict limitations on the activities an RO can perform, as it is not allowed to engage in any direct commercial or profit-making activities. These prohibited activities include:

• Trading: An RO cannot engage in any buying or selling of goods or services.
• Signing Contracts: It is not permitted to enter into contracts or agreements that generate revenue or involve commercial transactions.
• Billing and Invoicing: An RO cannot issue invoices or collect payments from customers.
• Providing Services: Offering services for a fee is prohibited.
• Revenue Generation: Any activity aimed at generating revenue directly is not allowed.

In summary, while setting up a Representative Office in Malaysia allows foreign companies to explore the market and build a presence, it comes with specific requirements and limitations. Companies must ensure they meet the minimum criteria and adhere strictly to the permissible activities to comply with local regulations.

Required Documents for Setting Up a Representative Office

Setting up a Representative Office (RO) in Malaysia involves submitting a range of documents to the relevant authorities. Ensuring you have all necessary documentation prepared will facilitate a smooth registration process. The key required documents include:

1. Application Form

• Completed Application Form: The Malaysian Investment Development Authority (MIDA) typically provides this form. It must be filled out accurately and completely.

2. Corporate Documents of the Parent Company

• Certificate of Incorporation: A certified copy of the parent company’s Certificate of Incorporation, demonstrating its legal status.
• Articles of Association: A certified copy of the Articles of Association or equivalent document outlining the company’s structure and operations.
• Company Profile: A detailed profile of the parent company, including its history, business activities, financial performance, and organizational structure.

3. Financial Statements

• Latest Financial Statements: Audited financial statements of the parent company for the past 2-3 years to prove financial stability and capability.

4. Proof of Business Activities

• Business Plan: A comprehensive business plan outlining the purpose of establishing the RO, proposed activities, and how it will support the parent company’s objectives.
• Market Research Plan: A detailed plan describing the market research and promotional activities the RO will undertake in Malaysia.

5. Representative Office Details

• Details of the RO: Information about the proposed RO, including its location, planned staffing, and operational setup.
• Proof of Office Address: Evidence of the address where the RO will be located, such as a lease agreement or utility bill.

6. Appointment of Representative

• Appointment Letter: A formal letter from the parent company appointing the representative(s) who will manage the RO, including their roles and responsibilities.
• Personal Details of Representatives: Copies of the representatives’ passports, resumes, and any relevant work experience or qualifications.

7. Regulatory Compliance

• Declaration of Non-Commercial Activities: A declaration confirming that the RO will not engage in any commercial or profit-making activities.
• Compliance with Local Laws: Documentation showing that the RO will comply with Malaysian laws and regulations.

8. Additional Documents

• Letter of Intent: A letter stating the parent company’s intention to set up an RO in Malaysia and the expected benefits.
• Supporting Documents: Any additional documents requested by MIDA or relevant authorities, such as letters of reference or additional financial records.

In summary, preparing and submitting the required documents accurately and comprehensively is crucial for successfully registering a Representative Office in Malaysia. Ensuring all documents are certified and translated (if necessary) will help streamline the approval process and establish your presence in the Malaysian market efficiently.

Timeframes for the Application Process

• Application Submission: The process typically starts with the submission of the completed application form and all required documents to MIDA.
• Processing Time: The approval process usually takes 1 to 3 months, depending on the completeness of the application and the authorities’ workload.
• Approval and Setup: Once approved, it may take additional time to set up the office, hire staff, and commence operations.

What is the Operational Expenditure to Set Up an RO in Malaysia?

The operational expenditure for setting up a Representative Office (RO) in Malaysia must be at least MYR 300,000 (approximately US$71,000) per annum. Additionally, the RO needs to be financed from sources outside of Malaysia.

Expatriate Posts

The RO is eligible for hiring expatriates, but expatriates can only be considered for managerial and technical posts. Furthermore, the expatriate must be currently working for the parent company or within the group or subsidiary.

Tax Considerations for Expatriates

Expatriates’ tax is based on the portion of chargeable income attributed to the number of days they are in Malaysia.

By understanding these financial and regulatory requirements, foreign companies can better plan and budget for establishing a successful presence in Malaysia through a Representative Office.

Comparison of RO vs. Establishing a Subsidiary in Malaysia

When considering market entry strategies in Malaysia, foreign companies often weigh the benefits of establishing a Representative Office (RO) versus setting up a subsidiary. Each option has distinct advantages and limitations.

Making the Decision

The choice between setting up an RO or a subsidiary depends on the company’s strategic objectives, budget, and long-term plans in Malaysia. Companies seeking to test the market with minimal financial commitment might prefer an RO, while those with a long-term vision of growth and revenue generation might opt for a subsidiary.

Conclusion

Establishing a Representative Office (RO) in Malaysia offers several strategic advantages for foreign companies looking to enter the Malaysian market. An RO provides a cost-effective and simplified means to conduct market research, promote products or services, and manage business relationships without engaging in direct commercial activities. This setup allows companies to build a presence and gather valuable market insights with lower initial investment and regulatory requirements.

For more detailed information and guidance on setting up a Representative Office in Malaysia, please visit http://www.mida.gov.my/