Many entrepreneurs are keen to start a company in Malaysia. They are attracted by the country’s favourable business environment and the opportunity to develop their business in one of the fastest growing economies in South East Asia. Its unique geographical location, political stability, prosperity and growing GDP make Malaysia an ideal location for business investment. Imperial & Legal specialists highlight 5 of the most interesting economic advantages of this jurisdiction.
Malaysia is a combination of tax advantages, strong legal protection and a convenient geographical location. Opening a company here gives foreign entrepreneurs access to a dynamic market and international trade agreements.
Businesses in Malaysia pay less tax than other jurisdictions in the region, and the legislation in place in this country allows aspiring overseas entrepreneurs to significantly reduce their fiscal costs.
In addition, foreign earnings of even resident Malaysian companies are not subject to corporate tax until they are remitted to Malaysia.
The new Companies Act has greatly simplified the process of starting and running a new business in Malaysia:
The Malaysian government is doing its best to simplify business processes for both its tax residents and foreign entrepreneurs. The results of this work are reflected in numerous international rankings.
In 2020, Malaysia was at an honourable 12th position in the World Bank’s “Ease of Doing Business” report. It ranks 27th on the list of the world’s most competitive economies from the World Economic Forum’s Global Competitiveness Report 2019.
In its ranking of the world’s freest economies, the American development institute Heritage Foundation put Malaysia at 24th place.
Sustained GDP growth coupled with a stable political system and a strong economy have attracted numerous foreign investors to Malaysia.
Moreover, to attract even more foreign capital into the national economy, Malaysian authorities have entered into international investment promotion and protection agreements, aka IGAs (Investment Guarantee Agreements) with 61 jurisdictions.
The laws in force in this country protect the interests of foreign investors. According to some experts, Malaysia ranks second in the world in terms of minority shareholder protection.
This remarkable country sits at the heart of the Association of Southeast Asian Nations. Together with Malaysia, ASAEN includes 9 other jurisdictions: Brunei, Cambodia, Indonesia, Laos, Myanmar, Philippines, Thailand, Singapore, Vietnam and Indonesia. Currently, the population of these countries is more than 667 million people. Companies registered in Malaysia are successfully developing this huge market by organising shipments by sea through convenient sea ports (Klans, Johor, Kuantan, Penang and others).
As a full member of ASEAN, Malaysia is also a member of the ASEAN Free Trade Area, which allows Malaysian companies to reduce their costs in supplying products to member countries.
ASEAN also has a number of free trade agreements signed with jurisdictions such as:
Moreover, Malaysia has direct bilateral free trade agreements with Japan, India, Pakistan, Turkey, Australia, New Zealand and Chile.
Malaysians attach great importance to good education and quality vocational training. Every year, the number of public educational institutions, including technical schools, centres of excellence and polytechnic universities, grows.
When you open your company in Malaysia, you get access to an educated and executive workforce. An additional advantage for your business will be the relatively low level of labour costs for hired employees.
Foreign businessmen note that there is practically no language barrier in Malaysia, as in this country, in addition to the official Malay language, English, Tamil and Mandarin Chinese dialects are widely spread.
A limited liability company is the most common corporate form for business registration in Malaysia. Therefore, we will look at it in as much detail as possible.
Commercial organisations of this type must have in their name the designation Sdn. Bhd, from the Malay “Sendirian Berhad”.
Such a company has its own legal personality, so the liability of the founders for its debts extends only to their shares in the share capital. Accordingly, the authorised capital consists of contributions from the founders of Sdn. Bhd. which are either in cash or by transferring property (e.g. real estate) to the company. Equity participation in the founding capital of a company may also be a financial obligation of the entrepreneur. In this case, the entrepreneur undertakes to pay creditors a certain amount if the company declares bankruptcy.
Formally, the minimum paid-up capital of Sdn. Bhd. is not regulated and can be as low as 1 Malaysian ringgit. However, in practice, there are requirements of numerous government agencies and banks, without which foreign entrepreneurs will not be able to open a current account, obtain a commercial licence or apply for a business visa to Malaysia.
All your circumstances and wishes must be taken into account in order to give you a comprehensive answer. This means that you must first get answers to clarifying questions:
Malaysian partnerships are quite simple to administer and do not require substantial costs. This legal form of doing business is inseparable from its owners. Only private individuals who are citizens or permanent residents of Malaysia can act as partners in such a business organisation.
A full partnership can have from 2 to 20 members in total. Each partner is able to represent the entire organisation. If the partnership declares bankruptcy, the founders will be fully and jointly liable for its debts with all their assets.
Partnerships are usually registered in Malaysia for joint business projects to pool the capabilities of two or more businessmen on a parity basis. If the business idea proves to be viable and generates a steady income, the partners re-register their enterprise as a limited liability company. Conversely, if there is only one partner left in a full partnership, it is better for him to re-register as a sole trader.
Full partnerships opened in Malaysia do not pay corporation tax. The profits made are distributed to the partners, who then privately declare their income and pay taxes.
A Malaysian general partnership is registered under a trade name, you cannot use the name of one of the partners as the name of the whole firm!
All Malaysian limited liability partnerships must state the legal form at the end of their name. The abbreviation PLT for “Perkongsian Liabiliti Terhad” is usually used for this purpose.
Such ventures differ significantly from limited partnerships in other jurisdictions in terms of their capabilities:
Here are a few examples:
Shares and founders
The authorised capital of Sdn. Bhd. is divided into par value shares held by the founders in accordance with their contributions. All shareholders have rights in such a firm. For example, they participate in the appointment of the management of the company and are invited to the annual meeting of the founders.
A characteristic feature of a limited liability company is that its shares are registered and cannot be placed on the stock market.
From 1 to 50 entrepreneurs and companies can establish Sdn. Bhd. can be established by 1 to 50 entrepreneurs and companies. Shares may be held by Malaysian and foreign residents.
Guidance
In a Malaysian limited company, management is carried out by a director or a board of directors appointed by the founders. A businessman can run his company himself or hire a professional manager. The main thing is that at least one of the directors of Sendirian Berhad must be a natural person legally residing permanently in Malaysia, having a residence permit or citizenship of the country. Under the law, the business owner must be a Malaysian citizen or a holder of a residence permit and be at least 18 years of age.
Corporate Secretary
Another key person in the newly formed limited company is the company secretary, who is a suitably qualified Malaysian resident. His duties include administrative functions and custody of important corporate records. In addition, every company in Malaysia is required to appoint a corporate secretary within 30 days of incorporation. This requirement is set out in Section 236 of the Companies Act 2016
Annual accounts
All Malaysian Sdn. Bhd. are required to prepare and file their tax return and annual financial report in a timely manner. If your corporation has made significant financial progress, an audit will be required and the results of the audit, together with the accounts, will be approved at the annual shareholders’ meeting.
The name of such a company must indicate the legal form – Berhad or Bhd. Shareholders in these business structures are also not fully liable for debts arising in the course of the company’s activities, but risk losing an amount equal to the market value of the shares they own.
The main difference between Bhd. Bhd. is that the former can issue different classes of shares, including bearer shares, which are listed on the stock exchange to attract additional investment.
The authorised share capital of public companies in Malaysia must be paid up before an application for registration can be made. The minimum paid-up share capital in Bhd is not less than 2 million ringgit.
At least 2 founders are required to start a public company. Berhad can have as many shareholders as you like, both people and other corporations, including residents of other countries
Generally, Malaysian Bhd’s are governed by a board of directors. At least 2 directors of such a business entity must reside in Malaysia.
As with private companies, every public limited company in Malaysia must have a corporate secretary who is a permanent resident or national with a government licence.
All Malaysian Bhd’s are audited every year, the results of which, together with the final accounts, are approved at the Annual General Meeting.
Maintaining a public company registered in Malaysia is not cheap, so this legal form is usually chosen by established overseas entrepreneurs with sufficient resources.
According to official statistics, this is the most common way of doing business in Malaysia. The main reasons for this demand are the simplicity of registration, lack of complex reporting and significant administrative costs.
This legal form allows the entrepreneur to have sole control over his or her business. A sole proprietor can conduct business in his or her own name or register a separate trade name for this purpose. Unlike corporations, sole proprietors are not required to make their financial statements available to the public.
An individual entrepreneur is not a corporate entity and, therefore, he is inseparable from his business and is fully liable for all debts incurred.
For the same reason, self-employed individuals registered in Malaysia are subject to taxation as individuals, at a progressive rate.
Corporate tax is imposed on all profits earned in Malaysia, whether or not the company is a tax resident in Malaysia.
Resident Malaysian companies also pay tax on foreign income if it is remitted to Malaysia.
The corporate tax rate depends on the tax residence of the firm and the amount of profit earned:
It is noteworthy that in Malaysian tax law, the application of a progressive scale in the assessment of corporate tax does not mean an increase in the company’s fiscal costs, but, on the contrary, an opportunity to save money.
If you want to know which resident companies in Malaysia are charged income tax at the progressive rate, explore the block of popular incorporation questions at the end of this article or seek advice from our lawyers.
If a Malaysian company sells domestically produced or imported products, sales tax is levied. There is no uniform rate for this fiscal payment in Malaysia – depending on the class of goods, it may be 5 or 10 per cent.
If a firm provides services, it must include it in its bill, which is currently 8%. At a preferential rate of 6%, service tax is charged on activities such as food and drink preparation and delivery, communication services, paid car parks and transport of goods.
An overview of the Malaysian tax system deserves its own publication. To find out what other fiscal payments await a Malaysian company and how you can legally optimise your tax burden, contact Imperial & Legal.
The Malaysian government has made it relatively simple to incorporate a new company. But if you are not familiar with the peculiarities of Malaysian corporate law, the best solution is to seek advice from Imperial & Legal’s professional incorporation agents. With our help, you will register your business in Malaysia as quickly and cost-effectively as possible.
At the first consultation, we immediately record all the circumstances and wishes of the entrepreneur who has approached us in order to select the best legal form for company registration in Malaysia.
Since our article is about how to start a business for a foreign businessman, in our example we will deal with the registration of a limited liability company.
The next steps in the preparation process will be as follows:
For successful registration of Sdn. Bhd. needs a registered office in Malaysia. Also, at least one of the directors of your company must be in the country and hold a passport of a citizen or permanent resident card.
Your corporate secretary must also be a local resident and hold a licence from the Companies Commission of Malaysia. The Malay name of this government organisation is Suruhanjaya Syarikat Malaysia. Hereafter, for brevity, we will use the abbreviation SSM to refer to the Commission.
Imperial & Legal has packages for would-be Malaysian entrepreneurs where you are provided with a registered office, a nominee local director and a reliable secretary with a state licence.
Starting a corporation in Malaysia no longer requires the personal participation of the founders. The application form and the registration fee must be completed and submitted together with the additional documents of the future company through the government’s online portal.
All this work can be undertaken by our lawyers. As you have been actively assisted by Imperial & Legal staff during the preparation stage, SSM representatives are unlikely to have any clarifying questions about your application. Your application will be approved within 7 working days at the latest. Corporations officially registered in Malaysia will be provided with a certificate.
If you need advice on tax registration, obtaining a commercial licence, hiring employees, opening a current account with a Malaysian bank, bookkeeping and preparing annual accounts, Imperial & Legal specialists are always ready to help you!
Whatever business tasks a foreign entrepreneur is solving, Imperial & Legal will find an individual approach and reliable legal support!
A limited liability company in Malaysia is more favoured than a limited liability partnership. PLTs are more likely to be opened by Malaysian business start-ups.
Depending on what your goals are, your company can open in Malaysia:
A subsidiary is a separate legal entity operating a country in its own name. To establish a subsidiary, one of the corporate forms discussed earlier is used.
It may be part of a group of companies and may offer the same products or services to the Malaysian market as the overseas head office (although the latter is not a prerequisite), but in the event of bankruptcy of the subsidiary, the parent company has no material liability for the debts incurred.
A branch of a foreign company is established to carry on the same business activities in Malaysia as it does in its home country. Although all Malaysian branches of foreign corporations are subject to mandatory registration, they do not have the legal personality of a separate legal entity. By establishing a branch, the parent company is liable for all its debts.
A branch office of a foreign firm must have its own authorised agent in Malaysia. This legal form is usually chosen by those foreign businessmen who do not plan to operate in the Malaysian market for a long period of time.
A representative office is opened when an overseas businessman wants to explore a new market before he starts selling his products and services in Malaysia.
Like a branch, a representative office is registered without forming a legal entity, and all its costs and debts are borne by the foreign parent company.
But unlike a branch office, a representative office is not intended to carry out profit-generating business operations in Malaysia. The tasks of the representative office staff are to explore new markets by collecting and analysing information, to plan activities in the region, to present the goods and services of the parent company, and to develop new products and adapt old ones.
The Malaysian tax authorities calculate income tax at a progressive rate if a resident company meets at least one of the following requirements:
Whereas in some jurisdictions, in order to retain a unique name, businessmen are forced to register dormant companies, in Malaysia you have the option to borrow a name for a yet-to-be-registered company for 6 months.
This service is available for a small fee on the official website of the Companies Commission. However, you should first check that your name is acceptable and that it does not overlap with the names of businesses operating in the country.
To find out in detail how company names are verified and reserved in Malaysia, book a consultation with our lawyers!
A company with unlimited liability is registered in Malaysia only for those businessmen who are absolutely confident in their entrepreneurial abilities and whose activities are related to a narrow professional field (e.g. accounting).
The owners of such a company are fully liable to its creditors even if the company has a paid-up authorised capital. This type of corporation is rarely used, even by Malaysian businessmen.
Malaysia is a promising destination for foreign businessmen, offering tax incentives, legal protection for investments and access to the fast-growing markets of Southeast Asia.
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