Malaysia Company Incorporation Guide

Introduction

Malaysia is growing in popularity as a destination for companies expanding globally. Malaysia offers a central location with access to not only the Malaysia population of 32 million but the entire Southeast Asia population of 650 million. Malaysia has a more attractive business landscape than its neighbors that caters to foreign companies establishing operations.  Companies who have chosen Malaysia as the next location on their global expansion journey will need to manage the process of establishing a local company. This Malaysia company incorporation guide serves as an introduction to common considerations and steps.

Company Types

Company Types

Foreign companies planning to establish a presence in Malaysia can choose between multiple entity types based on their plans.

Free Zone Company (EPZ)

Foreigners willing to start export-oriented manufacturing and service businesses can register their entity in an export processing zone. While there is no official minimum paid-up capital requirement, the free zone authority w take such amount as a criterion to assess the application so we usually recommend our Clients to invest a minimum of US$125,000

Best Use: thanks to the tax incentives provided by the Malaysian Government, a Malaysian EPZ company is an attractive vehicle to manufacture products re-exported overseas.

International Trading Company (Labuan)

For entrepreneurs only planning to trade with overseas customers, the Malaysia regulations provide an attractive legally tax exempt business vehicle: the Labuan company, registered with the Labuan International Business and Financial Center. Unlike mainland Malaysia companies, such entity does not require the appointment of resident director

Best Use: a Labuan company is a legally tax exempt way to trade with overseas customers. Under some conditions, it can also be a good entity to open a marketing office in Labuan, Kuala Lumpur or Johor Bahru.

Bumiputera Company

Entrepreneurs establishing a limited liability company in Malaysia can apply for Bumiputera status if at least 30% of the shares are held by native Malay individuals or other Bumiputera corporations. If this requirement is met, the company is then eligible for special grants, discounts, and incentives such as cheaper business licenses, special bank agreements, native reservation of land, and discounts when purchasing or renting land

Best uses: a Bumiputera company is usually formed when our Clients have Malay joint venture partners.

Limited Liability Partnership

A limited liability partnership can be registered in Malaysia by a minimum of two partners, who both can be foreigners and are not required to be living in Malaysia and one resident compliance officer. There is no minimum contribution to form such entity in Malaysia and all partners can benefit from limited liability, in accordance with the Malaysia Limited Liability Partnership Act of 2012. While the limited liability partnership can sign contracts and issue invoices in its own names, such entity is tax transparent and is henceforth not required to submit financial statements to the only an annual return must be filed annually. However, the partners are required to declare the earnings channeled through the partnership in their personal income tax statements.

Best uses: a Malaysian limited liability partnership is a good vehicle for specific projects to be completed by our Client in cooperation with a Malaysian or foreign company. The partners can be indeed individuals, but also corporates.

Branch Office

Another option available foreign corporations is the registration of a branch office in Malaysia. Company law dictates that all branch offices must conduct business within the scope set by the parent company. However, this office can engage in business activities, which involve trade, invoicing, and signing contracts. The foreign company will also have to appoint two resident representatives in Malaysia

Best uses: a Malaysian branch is usually not recommended, unless the industry of operations of the business is regulated and subject to license(s) and/or higher paid-up capital requirements.

Representative Office

A representative office is an appropriate way for a team to explore the Malaysian market. This business entity is not subject to corporate tax but it also cannot generate revenue, so cannot be involved in any form of trading, business or commerical activity. Instead, it can be used for representing the head office with support activities, such as market research and product development, planning or coordination, brand building and after-sales support.

It basically allows foreign companies to have a presence in Malaysia for two to five years to explore and analyse opportunities, undertake feasibilty studies, and decide whether Malaysia is the right place for you to set up your business.

Expatriates can be employed in a regional or representative office, but the number allowed depends on the functions and activities of the office. The set-up of this office is not required to be incorporated under the Malaysia Companies Act 1965, but its proposed expenditure must be at least RM300,000 per annum.

Incorporation Requirements

Paid Up Capital: Depending on the entity type and need for immigration a standard paid up capital requirement is RM 1.

Foreign Percentage Ownership: 100% ownership is allowable. 

Local Director: A local Malaysia Director is required. 

Corporate Secretary: A corporate secretary is required and must be a citizen and resident of Malaysia.

Office:  Must have a registered office in Malaysia. Corporate records are generally required to be kept and  maintained at the registered office. The provision of a local registered address by a law firm for third party service provider is allowed.

Complete Legal Paperwork

In order to register a company a legal firm, corporate secretary or corporate service provider will assist with the preparation of company incorporation paperwork. This will include articles of incorporation, constitution, first AGM meeting, share certificate, member consent forms, consent to act as director and other legal documents to support the incorporation. The provider will then continue to manage any new company resolutions that are required over the course of the company lifecycle.

Company Incorporation

Upon execution of legal paperwork, the service provider engaged will provide a copy of the official certificate of incorporation issued by the Companies Commission of Malaysia (SSM). In Malaysia, SSM maintains a system of corporate records via an online platform called the My CoID 2016 that can be accessed by directors or your corporate secretary. The Companies Registration System profile will include a company number which is used for a number of the following registrations.

File Mandatory Registrations

Once the company has completed the legal paperwork, registered the company and is provided a company registration number then they can begin the process of registering with the required agencies. In Malaysia these include: 

EPF (employee provident fund) KWSP

SOSCO- (social security contributions- Perkeso

EIS- (employment insurance system)- Perkeso

MTD- (monthly tax deduction)

IRD- Inland Revenue Department

Setup Bank Account

The final step is to decide the bank to work with. Malaysia has a developing banking infrastructure that startups and hyper growth companies must navigate. The process of establishing a bank account can be an unexpectedly long process that many companies do not sufficiently plan for. This can include extensive application documents, notarized director documents, KYC documentation and in person signatures. Common local banks in Malaysia include Maybank (local), CIMB (Local), Public Bank Berhad (local), RHB Bank (Local), UOB (Singapore), OCBC (Singapore), HSBC (HK).

This article does not constitute legal advice.