This is apart of our weekly series associated with the The Global Subsidiary Index. The series is designed to help businesses identify the best countries for establishing a subsidiary based on key operational factors. GEOS provides a data-driven ranking of jurisdictions worldwide, assessing across 40+ criteria to bring you insights into global expansion opportunities.
Each country on the index is scored on an overall score out of 100, with each individual criterion out of 5 or 10. Higher scores indicate a more favorable environment for businesses. By leveraging these insights, companies can make informed decisions on where to establish a legal presence.
Malaysia is growing fast. It’s outpacing much of Asia and bringing in giants like Nestlé, AWS, IBM, and Allianz.
Greater Kuala Lumpur is leading this growth. The hub generated $297.6 billion in Gross National Income and continues to draw foreign investment. FinTech, cybersecurity, and digital innovation are booming, backed by major trade agreements and a push for carbon neutrality by 2050.
With strong policies and a skilled workforce, Malaysia offers a prime opportunity for global businesses. But setting up in a new market comes with challenges. GEOS makes it easy with end-to-end entity setup, compliance management, and AI-powered support. If business expansion in Malaysia is your next move, GEOS has you covered. Here’s how to get started.
Why Should You Expand to Malaysia?
For companies expanding into Asia, Malaysia checks all the right boxes. Here’s why.
A Thriving Business Hub in Southeast Asia
Malaysia’s GEOS Global Subsidiary Index Score of 77.2 makes it a top choice for foreign businesses, while a Salary Benchmarking Score of 8/10 adds to its appeal. Companies can conveniently access skilled talent at lower costs than in North America and Western Europe.
Malaysia is also right in the middle of key markets. It acts as a bridge between China, the Middle East, Australia, and New Zealand. It also connects businesses to ASEAN’s 650 million people and a combined GDP of $3.2 trillion. Companies looking for a strong regional base can take advantage of these well-established connections.
Malaysia has made a name for itself as a growing economic force over the past few years. Exports climbed from $280 billion in 2019 to $370 billion in 2023, growing at a steady 7.6% CAGR.
The country continues to pull in foreign investment in electronics, semiconductors, and automotive manufacturing. With global demand for semiconductors and high-tech production on the rise, Malaysia is holding its own as a competitive manufacturing hub.
Southeast Asia’s electric vehicle (EV) market is also gaining momentum, and Malaysia is set to play a key role alongside Indonesia, Thailand, and Vietnam. As EV adoption grows, logistics providers have an opportunity to develop specialized services for battery production and component transportation. The government is also pouring money into ports, airports, and rail networks, cementing Malaysia’s spot as a regional trade hub.
The first platform dedicated to streamlining entity setup and management.
The country exports 10 million tons of metals annually, mostly to China, and 3 million tons of electronics, primarily to the U.S. Yet logistics outsourcing remains low at 7-8%, compared to 12-13% in other regions. This leaves plenty of room for logistics companies to step in and streamline supply chains as trade volumes rise.
Innovation
Malaysia’s startups are also making their mark, with several homegrown companies landing on the Forbes Asia 100 to Watch 2024 list. These businesses aren’t just growing—they’re expanding across the region:
Applecrumby: Sells baby products across Southeast Asia and China.
iMotorbike: Runs an online marketplace for used motorcycles in Malaysia and Vietnam.
LiveIn: Offers affordable housing for young professionals in multiple countries.
Paywatch: Provides early wage access and HR tools in Malaysia, South Korea, Indonesia, the Philippines, and Hong Kong.
In a competitive market, these startups are getting ahead by leveraging Malaysia’s strategic location and robust infrastructure.
Competitive Tax System & Malaysian Government Incentives
Malaysia keeps taxes business-friendly. The corporate tax rate is 24%, but SMEs pay just 17% on their first MYR 600,000 of taxable income. If a business makes over MYR 500,000 in taxable revenue, it must register for Sales and Services Tax (SST). Expansion efforts can benefit from these favorable tax conditions.
Employer costs are reasonable. Contributions to the Employees Provident Fund (EPF) and social security are competitive, earning Malaysia a 4/5 employer payroll cost score.
To attract businesses, Malaysia offers strong tax incentives:
Pioneer Status (PS) and Investment Tax Allowance (ITA): Companies in manufacturing, agriculture, tourism, and technical education can qualify for tax exemptions and capital expenditure deductions.
Reinvestment Allowance: Businesses running for at least 36 months can deduct 60% of capital expenses against 70% of taxable income for up to 15 years.
Malaysia’s special economic zones (SEZs) offer tax breaks and business-friendly policies.
Iskandar Malaysia SEZ (Johor): A key hub for healthcare, education, tourism, and agro-processing. A new Malaysia-Singapore SEZ plans to attract 50 projects in five years, create 100,000 jobs, and add $26 billion per year to Malaysia’s economy by 2030.
Northern & East Coast Economic Regions: Offer up to 100% income tax exemptions for 15 years and investment tax allowances on capital spending.
Malaysia pushes for innovation and sustainability with tax incentives.
Malaysia Digital (MD): Tax breaks and incentives for businesses in AI, blockchain, cybersecurity, and automation.
Green Technology Incentives: Tax exemptions and capital allowances of up to 100% for renewable energy, waste management, and EV charging infrastructure.
Malaysia makes growth easier with smart tax policies and incentives. It’s a strong choice for businesses looking to expand in Southeast Asia.
Skilled Workforce & Favorable Labor Market
Malaysia has a skilled, English-speaking workforce with strengths in IT, finance, and engineering. The labor market is young and growing, with around 2.5 million workers between 25 and 29 years old. Government initiatives, led by the Malaysia Digital Economy Corporation (MDEC), focus on digital upskilling and job creation, strengthening Malaysia’s role in the digital economy.
Global companies are drawn to Malaysia’s multilingual and tech-savvy workforce. High-demand roles include cloud architects, data scientists, and network specialists. Investments in cloud computing, AI, and semiconductor manufacturing continue to create more opportunities, making the country a competitive hub for tech talent.
While labor laws are business-friendly, companies must comply with key regulations, including:
Employment Act 1955: Governs wages, working conditions, and termination.
Industrial Relations Act 1967: Covers trade unions and dispute resolution.
Occupational Safety and Health Act 1994: Ensures workplace safety.
Personal Data Protection Act 2010: Regulates employee data protection.
Employment contracts are required for jobs lasting over a month. They must outline job scope, pay, working hours, and leave entitlements. Employees are entitled to benefits like annual leave, maternity leave, and overtime pay. Employers must also contribute to EPF, SOCSO, and EIS.
Understanding Business Structures
What is a Legal Entity?
A legal entity is a company or organization that has legal rights and responsibilities, separate from its owners. This means it can enter into contracts, sue or be sued, and file tax returns in its own name. Legal entities are designed to protect personal assets from business liabilities and regulatory penalties. Different types of legal entities offer varying levels of protection and tax obligations, making it crucial to choose the right one for your business needs.
How to Set Up a Business in Malaysia
Choosing the Right Legal Structure
Picking the right business structure in Malaysia is important. Each type has different rules for taxes, liability, and compliance. The best choice depends on your business goals and risk level. Collaborating with a larger, more established business can also provide access to additional resources and expertise, facilitating quicker growth.
Factors to Consider When Choosing a Business Structure
When selecting a business structure, several factors come into play, including personal liability, taxation, and control over the business. For instance, a sole proprietorship offers complete control but does not protect personal assets from business debts. In contrast, a limited liability company (LLC) combines the benefits of a corporation and a partnership, shielding owners from personal liability in most cases. A partnership agreement can be an excellent choice for businesses with multiple owners, professional groups, or those looking to test a business idea. Each structure has its advantages and drawbacks, so it’s essential to consider your business goals and risk tolerance when making a decision.
Private Limited Liability Company (Sdn. Bhd.)
This is the most common option for foreign businesses. As a private company, it offers limited liability, so owners’ personal assets are protected. A Sdn. Bhd. can have 1 to 50 shareholders, and foreign investors can own 100% in most industries. This structure is great for businesses looking to grow and attract investment. It also limits financial risk, making it the safest option for foreign companies.
Sole Proprietorship
Sole proprietorships are the simplest business structure. It’s owned by one person and easy to register. Setup takes about an hour at Suruhanjaya Syarikat Malaysia (SSM). However, the owner is personally responsible for all debts. It’s a good choice for freelancers, traders, and small business owners. But if the business runs into financial trouble, the owner’s personal assets are at risk.
Partnership Agreement
A partnership works like a sole proprietorship but has 2 to 20 owners. Profits and losses are shared based on an agreement. It’s a common setup for law firms, accounting firms, and consultancies. This structure allows businesses to pool resources and skills, but each partner is personally liable. If one partner makes a mistake, everyone shares the risk.
Public Limited Company (Berhad)
A Berhad (Bhd.) is a public company listed on Bursa Malaysia. It can raise money by selling shares. Owners have limited liability, so personal assets are protected. However, this structure comes with strict regulations. Well-known companies like Nestlé and TM follow this model. A Berhad is best for businesses that want to expand and attract investors, but it requires more paperwork and reporting.
Branch Office
Foreign companies can open a branch office in Malaysia instead of setting up a separate company. This lets them operate locally while staying part of the parent business. However, the parent company is fully responsible for all debts and legal issues. It’s an easy way to expand into Malaysia, but it carries more risk than a Sdn. Bhd.
Cooperative (Koperasi)
A cooperative is owned by its members. It needs at least 50 active members and is run under the Cooperative Act 1993. Profits are shared as dividends, and members vote on key decisions. This structure works best for businesses focused on community and shared ownership. But it relies on strong member participation to stay active.
Each structure has its pros and cons. If you want full foreign ownership with low risk, go for a Sdn. Bhd. If you’re starting small, a sole proprietorship or partnership is simpler but riskier. If you’re looking to grow fast, a Berhad might be worth the effort. The right choice depends on your goals, resources, and long-term plans.
Incorporation & Compliance Essentials
Setting up a business in Malaysia comes with legal and regulatory steps. Compliance is key, and policies can change, so staying updated is important. Limited liability companies (LLCs) are a prevalent form of business entity in various jurisdictions, facilitating international business transactions.
Company Registration
All businesses must register with the Companies Commission of Malaysia (SSM). The process usually takes one to three months, depending on approvals. Many foreign investors choose a Private Limited Company (Sdn. Bhd.) because it offers limited liability and allows full foreign ownership in most industries. This structure is particularly advantageous for franchisees who can effectively market in their local market, thereby boosting brand awareness and customer engagement.
Local Director Requirement
A Sdn. Bhd. must have at least one Malaysia-resident director. This person must be a Malaysian citizen or a foreigner with a valid work visa. If a company doesn’t have a local director, it must appoint a nominee or meet residency requirements before registering.
Political Risk
Malaysia has a political risk score of 3/5. The Malaysian government is stable, but policies can shift. The unity government, formed in 2022, has a four-year window for reforms before the next election in 2028.
The main challenge is political complexity. The 19-party coalition could lead to policy shifts, but for now, the Malaysian government is focused on economic growth. If reforms hold, Malaysia will remain a strong option for businesses looking to expand into new markets.
The Malaysian government is cutting subsidies to ease financial strain. The RON95 gasoline subsidy, which made up 60% of subsidies in 2023, is being phased out. This could raise business costs but is meant to strengthen the economy long-term.
Foreign investment is picking up. Malaysia is benefiting from the China Plus One strategy and has attracted $24 billion in data-related investments since 2021. With a growing tech and manufacturing sector, it’s becoming a prime spot for expansion.
GDP jumped 5.9% in Q2 2024, and domestic spending now makes up 60% of GDP. The Fiscal Responsibility Act aims to cut the fiscal deficit, creating a more predictable business environment.
Malaysia also ranks 57th out of 180 countries in the Corruption Perceptions Index. The country is improving, but bribery and corruption remain risks. Businesses should have strong anti-corruption policies and follow Malaysia’s laws and international agreements.
Employer Contributions & Compliance
Employers must contribute to several mandatory funds:
Employees Provident Fund (EPF) for retirement
Social Security Organization (SOCSO) for worker protection
Employment Insurance System (EIS) for job loss support
Both pension and union complexity scores are 4/5, meaning compliance can be tricky. Employers must track wage contributions, follow labor laws, and provide worker benefits to avoid penalties.
Taxation and Accounting
Tax Classification
For federal tax purposes, the Internal Revenue Service (IRS) classifies entities differently based on their profit orientation. For-profit entities are generally considered “taxable organizations,” while nonprofit entities are classified as “tax-exempt organizations.” The tax classification of a business entity significantly impacts its tax burden and accounting requirements. For example, a limited liability company (LLC) can choose to be taxed as a C corporation, S corporation, or nonprofit, depending on its specific circumstances. Consulting with a business counselor or attorney is crucial to determine the best tax classification for your business, ensuring you meet all regulatory requirements while optimizing your tax obligations.
Financial & Banking Considerations
Malaysia’s financial infrastructure is growing. Digital banking is expanding, cybersecurity is getting stronger, and financial access is improving. Banks are in a strong position, with solid asset quality to handle challenges.
Credit growth hit 6% in 2024, driven by rising corporate demand and major infrastructure projects. Islamic finance and sustainable practices continue to gain traction. These efforts keep the sector strong and support economic growth.
On top of that, Malaysia keeps tax and accounting simple, with a Tax & Accounting Score of 10/10 for easy ongoing compliance. Businesses expanding here can take advantage of strong tax incentives, especially in the Forest City Special Financial Zone (SFZ):
0% corporate tax for family offices and 5% corporate tax for fintech and financial services.
Tax deductions for relocation costs and withholding tax exemptions for banking and capital markets.
More tax breaks are coming under the New Investment Incentive Framework (Q3 2025). NIMP 2030 supports reinvestment with 100% investment tax allowances. E-invoicing becomes mandatory by mid-2025, and Malaysia is adopting the OECD Global Minimum Tax. These updates make compliance smooth and keep Malaysia a strong choice for expansion.
Things To Consider When Expanding into Malaysia
Malaysia is a great place to do business, but a little planning goes a long way. Immigration, costs, and compliance all play a role in a smooth expansion.
Immigration & Work Permits for Foreign Employees
Malaysia has a structured work visa system, but employers must sponsor foreign hires. With an Immigration Complexity Score of 4/5, the process takes time and approval from immigration authorities.
The Employment Pass (EP) lets expatriates work for up to 60 months, depending on their contract. Before the pass is issued, the Expatriate Committee (EC) or other relevant authorities must approve the position.
Cost of Living & Office Space
Kuala Lumpur is famous for good reason. The city skyline is defined by the iconic Petronas Twin Towers— 88 stories high and still the tallest twin buildings in the world. It’s a symbol of modern Malaysia and a major draw for global business.
But while Kuala Lumpur has plenty to offer, it’s not the only option. Malaysia has several other cities that businesses should seriously consider when expanding or setting up operations.
Kuala Lumpur is the country’s business hub, with top infrastructure and access to skilled talent. A strong choice for finance, tech, and corporate offices.
Penang is a growing tech and manufacturing center. Demand for engineering and IT talent is rising 30% per year (2023–2026).
Johor, which is close to Singapore, offers lower costs while keeping access to skilled workers. A great pick for logistics, manufacturing, and regional trade.
Selangor is a key industrial zone with affordable office space and strong transport links. A smart choice for production and supply chain businesses.
Regulatory & Compliance Risks
Businesses must follow ownership rules, tax laws, and data regulations:
Foreign Ownership Restrictions: Some industries, like retail and telecommunications, require local partners.
Personal Data Protection Act (PDPA): Companies handling customer data need to follow strict privacy laws.
GST/SST Compliance: Businesses must meet Sales and Services Tax (SST) requirements to avoid fines.
How GEOS Simplifies Your Business Expansion into Malaysia
The right market is just the first step. Planning is what gets you there. GEOS makes it simple by handling everything from company registration to compliance.
End-to-End Entity Setup & Compliance Management
Starting a business in Malaysia involves multiple steps. GEOS takes care of it all, from incorporation to tax compliance. Businesses that need a local director or representative can rely on GEOS to meet local directorship requirements, making expansion easier.
AI-Powered Global Expansion Support
GEOS offers more than just setup services. Meet Geovanna, an AI-powered compliance assistant that helps businesses stay on track. Geovanna monitors regulatory changes, manages deadlines, and simplifies compliance, reducing risks and saving time.
Is Malaysia the Right Fit for Your Business?
The right location can make all the difference. With a GEOS Global Subsidiary Index Score of 77.2, Malaysia offers a strong entry point into Southeast Asia’s growing economy. It provides a business-friendly environment, solid infrastructure, and access to skilled talent—key advantages for companies looking to expand.
Make your move with confidence. GEOS has your back. Get in touch today.
This article does not constitute legal advice.
About the Author
Shane George
Based in Toronto, Shane has spent his career scaling international revenue teams. As a Co-Founder of GEOS, he’s now focused on helping clients set up their own fully owned foreign subsidiaries along with the appropriate employment infrastructure.
