How to incorporate a company in Malaysia?

Malaysia is a modern, dynamic country in Asia, occupying part of the Malacca Peninsula in the south, the northern part of Kalimantan Island and many of the surrounding islands.

The western part of this country shares a common border with Thailand, as well as maritime borders with Indonesia and Singapore. East Malaysia neighbours Brunei and Indonesia on land and the Philippines at sea.

Overseas business in Malaysia provides unique opportunities that are open to the enterprising foreigner once he or she registers his or her company in this hospitable country.

Why will it be beneficial for you to open a company in Malaysia?

The first and most obvious advantage of this island nation is its extremely favourable geographical location. By registering a company in Malaysia, you gain wide access to Asia’s vast markets with minimal logistics costs.

Malaysia has built a strong market economy focused on industrial production and foreign trade. Additional advantages of this jurisdiction are: well-developed infrastructure for business, a high level of digitalisation and a healthy competitive environment.

To accelerate the development of certain areas of the national economy and attract foreign investors, Malaysia has developed a number of effective instruments for both direct and indirect support of small and medium-sized enterprises. This country is considered an attractive territory for launching a start-up.

Malaysia has a favourable tax regime. It consists of a relatively low corporate income tax rate combined with tax incentives. This jurisdiction does not charge tax at source when bank accounts receive dividends from foreign companies. There are also many double tax treaties signed with other countries.

Effective instruments of legal protection of business and private property together with political and economic stability allows a foreign entrepreneur to develop his project confidently and systematically, as well as to take an active part in long-term projects.

Malaysia allows foreign nationals to be shareholders and directors of newly opened businesses without involving local residents. Modern online platforms have made the procedure of registering a company completely remote.

Of particular interest is the human resources potential of this state. Foreign investors, whose company will operate directly from Malaysia, can count on local high-class specialists who speak English.

Legal structure for incorporation of a company in Malaysia

Malaysia’s corporate law provides entrepreneurs with several types of organisations for business registration. The most common legal forms in this country are:

• Individual Entrepreneurship;

• Company with unlimited liability;

• A private company limited by guarantee;

• A public company limited by guarantee;

• Partnership;

• Limited liability partnership;

• A representative office or branch office of a foreign company.

Individual entrepreneur

The easiest and most common way to register a business in Malaysia is through sole proprietorship.

This form is excellent for those who want to be the sole owner of their business and carry out all their commercial activities independently. As a rule, individual entrepreneurs are spared the need for annual audits and re-registration.

However, this way of doing business is not without its disadvantages:

• It will only work if you already have a Malaysian citizenship or permanent resident card;

• Individual entrepreneurs are fully liable for the results of their business activities with all their property.

The profits of a self-employed person in Malaysia are taxed at the same progressive rates as the income of an individual. This rate, depending on the amount of income received, ranges from 1 to 30 per cent.

This legal form is usually registered directly in the personal name of the entrepreneur. If you wish, you can register under a corporate name and also legally establish a trade name under which you will offer your goods and services.

Most sole proprietorships in Malaysia pay an annual fee for the renewal of the SSM (Suruhanjaya Syarikat Malaysia — Companies Commission in Malaysia) commercial licence.

Company with unlimited liability / Sendirian / Sdn

Although an unlimited liability company is a separate corporate structure from its founders in matters of decision making, all liability for its debts and obligations rests entirely on the assets of the owners. In this respect, operating through an Sdn will be little different from a business conducted through a general partnership or as a sole trader.

In Malaysia, there are 2 types of limited liability companies — without authorised capital and with authorised capital.

This rather rare type of organisation is used when professional service providers decide to pool their efforts and resources. For example, a company with unlimited liability may be registered to open a law firm or an accounting firm. A high degree of liability implies that the founders will control all business processes in such a firm.

Limited Liability Companies

Like an Sdn, such a firm has a separate legal personality and is a separate legal entity. This allows it to acquire property, take out loans, enter into contracts, sue or be sued in its own name. This type of company has perpetual succession until the directors and shareholders decide to dissolve.

In limited liability companies, there is a division between the assets of the company and the assets of the founders. In Malaysia, there are 2 types of such business structures depending on how the founders and directors will be paid in the event of bankruptcy:

• Companies whose liability is limited to the authorised capital. Shareholders are liable for debts only by their contribution (in the form of a monetary or property contribution or, in some cases, a financial liability) to the authorised capital of the company;

• Companies whose liability is limited by a guarantee. A guarantee is a certain amount of money that the founders guarantee to pay in case of bankruptcy of the organisation.

Private and public companies are generally used for commercial activities, where the liability of shareholders is limited to the founding capital. Limited guarantee companies are chosen to register a non-profit or charitable organisation in Malaysia.

In the following, we will look at the more common commercial structures whose liability is limited to equity.

Private Limited Company / Sendirian Berhad / Sdn Bhd

Most used by foreign entrepreneurs to register a business in Malaysia. The reason for this is the new law that allowed 100% foreign ownership of a business for most business activities.

The liability of the founders for the debts of such a company is limited only to their contribution to the share capital. Sdn Bhd may have from 1 to 50 shareholders.

Such a business structure cannot issue bearer shares and place them on the stock market. At the same time, new corporate legislation has significantly simplified the procedure for transferring a stake in a company to a new owner, as well as issuing additional shares to new investors.

The minimum amount of the authorised capital of a private limited liability company is:

• 1,000 MYR ($21.01 at the May 2024 exchange rate) if the company is started by Malaysian citizens or permanent residents;

• MYR 500,000 ($105,485) is the minimum for foreign-owned companies.

To start a private limited company in Malaysia you will need to appoint at least one director and employ a corporate secretary.

At least one director in your company must be permanently resident in Malaysia. Only an individual can act as secretary. As with the management, the permanent residence of that person must be the country of incorporation of your company.

Our consultants will provide you with a reliable and executive corporate secretary and help you with your search for a nominee local director.

Every year, Sdn Bhd’s registered in Malaysia submit financial statements and tax returns. As this legal form is most used for small and medium-sized businesses, in most cases you will not need to have your accounts audited or approved by a general meeting of shareholders.

Public Limited Company / Berhad / Bhd

Berhad also has a separate legal personality from its founders and shareholders, just like a private company. The amount of the equity interest in a public company that shareholders risk in the event of its bankruptcy is equal to the market value of their shares.

What is the difference between a Bhd and a private limited company?

Berhad allows a foreign entrepreneur to issue bearer shares and trade them freely on the stock market to attract additional investment in the business. However, it should be noted that the public status of a company does not oblige it to issue bearer shares.

Public companies are more often chosen to incorporate large enterprises. The administrative costs associated with operating a Bhd are usually higher than in a private limited company.

At least one founder is required to open a public limited company. There is no limit to the maximum number of shareholders in such a company.

At least 2 Malaysian resident directors are required to be appointed to manage such a firm. The management of the company is organised into a board of directors headed by a chairman. A public company can be managed by both its founders and hired managers.

The founders must pay the stated amount of the public company’s authorised capital. Currently, its minimum amount for Bhd is MYR 2,000,000 ($421,981.10).

Malaysian public limited companies are required to be audited every year and to convene a general meeting of shareholders at least once a year to approve the company’s financial report.

As a private limited company, Bhd cannot do without a corporate secretary who must:

• Have an official SSM licence and Malaysian citizenship or permanent residency;

• Reside permanently in Malaysia.

Partnership

A partnership can be formed by 2 to 20 participants. The main condition is that they should not be foreign entrepreneurs or corporate structures. In other words, partnership as a legal form of doing business is available only to citizens and permanent residents of Malaysia.

In a partnership, the founders are fully liable for the debts of their organisation. As a rule, this type of company is registered by start-up entrepreneurs, as partnerships have many advantages over standard corporate structures:

• Quick and easy opening procedure;

• No tax liability at the partnership level;

• Fewer formalities in the process of doing business;

• Minimal maintenance costs;

• Ease of Liquidation.

Limited liability partnership

A limited liability partnership in Malaysia is a unique type of organisation that combines the qualities of a limited liability company and an ordinary partnership.

Limited liability partnerships are usually registered by lawyers, chartered accountants and licensed corporate secretaries to carry out their professional practice. It is also a good option for registering promising start-ups, SMEs and venture capital companies in the country.

A limited liability partnership has a separate legal personality from its members and limits their liability to the amount of their contribution to the general assets of the firm.

A limited liability partnership pays taxes at the enterprise level. These entities are subject to simpler tax rules than corporations. If certain conditions are met, the partnership may qualify for tax incentives.

Two founders — natural or legal persons — are sufficient to register a limited liability partnership. In such enterprises the number of partners is not limited.

To formally register a limited liability partnership in Malaysia, a compliance officer is appointed to ensure that all the Registrar’s requirements for the organisation are met. This position is usually filled by one of the partners or a qualified corporate secretary. It is essential that the compliance officer be a citizen or permanent resident of Malaysia and reside in Malaysia.

Representative office of a foreign company

Entrepreneurs who have registered firms abroad can open a representative office in Malaysia to explore the market and business environment of a new country. Local representative offices of foreign corporations are not separate legal entities. The overseas parent company is responsible for all debts and liabilities of its representative office.

In Malaysia, a representative office of a foreign company cannot carry on any business activity that generates commercial profit, cannot sign contracts and carry out transactions in its own name.

Such a business may only engage in Malaysia in gathering and analysing information, seeking opportunities in a new market, planning commercial activities, developing new products, and coordinating the parent company’s employees in the jurisdiction.

Branch office of a foreign company

As with a representative office, a branch office cannot be a separate legal entity in Malaysia. It is an extension of the parent company located overseas. This foreign firm is responsible for all debts of its branch.

The scope of the branch office should be the same as that of the overseas parent company. A branch office is a good solution for those overseas entrepreneurs who plan to offer their goods or services in Malaysia on a short-term basis.

Each branch office of a foreign company must have an authorised agent who is an individual permanently resident in Malaysia. All branches must be registered with SSM.

How do Malaysian companies pay taxes?

For both resident and non-resident companies, the basis for corporate tax is income derived directly within Malaysia and from local sources. Resident companies are also subject to corporate tax on foreign income remitted into the country.

Corporate tax rates in Malaysia

Income tax on income from oil

Malaysia has a 38% tax on profits derived from the sale of oil. The effective corporate petroleum profit tax rate of 25% applies if the oil is extracted from unprofitable fields. There are no other taxes on oil revenues in Malaysia.

Sales tax

Sales tax is a one-tier tax levied in Malaysia on the sale of goods, whether produced directly in the country or imported from abroad. The rate of sales tax is ad valorem, i.e. it depends directly on the value of the product being sold. Most often, depending on the class of goods, the sales tax rate in Malaysia is 5% or 10%.

Special sales tax rates currently apply only to certain types of petroleum products.

Service tax

Service Tax or Service Tax is a fiscal charge levied in Malaysia on the cost of services provided by companies and sole traders. The rate of this tax is 8% for all taxable services except:

• Services involving the preparation or delivery of food and beverages;

• Telecommunication Services;

• The car park;

• Logistics.

The listed businesses in Malaysia are subject to a reduced service tax rate of 6 per cent.

In addition to the fiscal payments already listed, company owners pay taxes such as:

• Immovable property tax (calculated by local authorities from the market value of the property);

• Capital gains tax on the sale of real estate (the rate varies depending on several variables);

• Stamp duty when transferring ownership of immovable property, shares, interests in a company, securities, as well as when concluding service agreements or granting a loan;

• Welfare benefits if you will be hiring professionals directly in Malaysia.

You can find out more about all business taxes in Malaysia at a consultation with Imperial & Legal. Our specialists can also advise you on how to take advantage of all the tax legislation to optimise your tax costs.

Step-by-step instructions on how to register a company in Malaysia

Experienced entrepreneurs do not need to be convinced that despite the apparent ease of opening a company in another country, it is still better to seek professional advice for the best solution. Specialists of our company have thoroughly studied all the subtleties of corporate legislation in Malaysia, so the process of registering a new company with us is literally in a few short stages.

Step 1. First counselling

At this stage, our lawyers need to find out

• What kind of business do you need a company in Malaysia for?

• Where will the commercial activities be carried out?

• What will be the governance structure?

• How many founders will there be?

• How dividends will be distributed and more.

As a rule, already at the first consultation we select the most suitable legal form for company registration in Malaysia. For most foreign entrepreneurs who do not have business partners in their place of incorporation, a private limited company is a good option. In our registration algorithm we will consider this business structure as an example.

Step 2. Name verification and reservation

Next, you come up with a suitable name for your company and our staff will check it against the SSM website to see if it matches the names of companies and trade marks already registered in Malaysia.

If the name you come up with is original, Imperial & Legal can officially secure it for you for between 30 and 180 days by applying for this service from SSM.

There is another scenario where the name is assigned to your company in parallel with the application for registration. If you like to do everything for sure or fear that a name you like might go away, it is better to reserve it in advance.

Step 3. Preparation of the company’s constituent documents, collection of necessary information for company registration

We can offer you standard forms of memorandum and articles of association or draft these documents in accordance with your requirements and wishes.

To open a private limited company in Malaysia, you will need:

• A legal address within the country;

• At least one local director is an individual who is a permanent resident or a Malaysian citizen permanently residing in his/her home country;

• Local corporate secretary with SSM licence.

Legal address in Malaysia for business registration will be provided to you by our company.

By law, you have up to 30 days after receiving the certificate of incorporation to hire a corporate secretary. Our specialists will provide you with a secretary even at the preparation stage together with a reliable resident nominee director.

In addition, at this stage, with your help, we gather information and prepare supporting documents for the application for registration.

Step 4. Applying for company registration

When the preparation is complete, our consultant will send the company registration application form, upload additional documents and pay the fee.

By handling the process correctly, there is virtually no margin for error, so your application to open your private limited company in Malaysia will be approved by SSM within 7 working days, after which you will be provided with a certificate of incorporation.

Step 5. Further co-operation

In practice, our fruitful co-operation does not end after the businessman receives the state certificate of registration.

To maximise their benefits, entrepreneurs open bank accounts at their place of registration. In some cases, they may require additional permits and a commercial licence to carry out further activities.

Many foreign entrepreneurs, having assessed all the prospects of their trading business in this country, open an office in Malaysia and hire local employees.

Absolutely all companies registered in this wonderful country must register with the tax authorities and prepare and submit their first annual report and tax return.

Whichever of the above issues a foreign businessman decides to solve, his reliable assistants and consultants will be the specialists of Imperial & Legal!