Business Opportunities in Malaysia
Malaysia has an educated, ethnic, and culturally diverse population of 32 million that provides a cheap workforce. With a lower rate of corporate income taxes, developed infrastructure, and a flexible banking system, Malaysia is the 2nd most developed and competitive country in Southeast Asia. It ranked 12th globally in Ease of Doing Business in 2020 and ranks 24th among the global trading nations.
Currently ranked among the ten most attractive countries for foreign direct investment, Malaysia allows foreign investors to own companies with few sector-specific limitations. Hence, Malaysia provides entrepreneurs with an economically stable market to set up their businesses.
The following details regarding the offshore company registration process will help you start a company in Malaysia.
Benefits of Starting a Business in Malaysia
According to the Global Competitiveness Index of the World Economic Forum, Malaysia was ranked 27th in 2019. It also secured the 12th rank globally in World Bank Group’s Ease of Doing Business. As a result, Malaysia has drawn loads of foreign entrepreneurs to invest in the country. Advantages of doing business in Malaysia include:
- Lower corporate income tax
- Educated workforce
- Supportive government policies
- Developed infrastructure
- Flexible banking system
- Higher quality of life
Requirements for Starting a Business in Malaysia
To set up a business in Malaysia, entrepreneurs must comply with specific requirements and legislations set by the Suruhanjaya Syarikat Malaysia (SSM). Also referred to as the Commission of Malaysia, SSM is the statutory body that regulates all legal companies and businesses operating in Malaysia.
The major eligibility requirements to start a business in Malaysia are –
Entrepreneurs must get the correct visa/work pass to start a legal business in Malaysia.
- If any foreigner or non-resident wishes to start their own business in Malaysia, they need to obtain a 2-year Malaysia Work Permit (DP10) and a Wholesale Retail Trade License (WRT)
- If the entrepreneur starts a joint venture with a local Malaysian, they do not need to acquire a WRT license. This is applicable only if the local Malaysian partner owns more than 50% shares of the company.
- Entrepreneurs owning a company established in their native country for more than two years can apply for a work permit, spanning 2-5 years, to set up a regional or representative office in Malaysia
- Employers need to apply for the Malaysia DP10 work permit (2-year visa) for the foreigners they want to recruit
The next critical step in setting up a business in Malaysia is to set a name for your company. Entrepreneurs are advised not to come up with unorthodox names for their enterprises. They need to follow a few guidelines when naming their companies to get faster approval for the naming application:
- The name must use proper spelling and grammar
- Words that are not in Malay or English need to be appropriately explained
- It should not contain any vulgar terms or religious elements
- It should not be an acronym that can be confused with educational institutions or federal government agencies
To set up a business in Malaysia, entrepreneurs need to appoint at least one director with the following requirements:
- They need to be a natural Malaysian citizen
- They should be of legal age (18 years and above)
- They should not be disqualified under Section 198 of the Companies Act 2016
There are no restrictions on the total number of directors a company can have, and directors do not necessarily have to be shareholders.
All enterprises in Malaysia must have at least one shareholder. A shareholder can be an individual (aged 18 years and above) or a corporate body. There can be unlimited shareholders for an enterprise; however, a private limited company cannot have more than 50 shareholders.
All business entities in Malaysia need to appoint a company secretary, who can be any one of the following professionals:
- A chartered secretary registered with MAICSA (Malaysian Institute of Chartered Secretaries and Administrators)
- A chartered accountant registered with the MIA (Malaysian Institute of Accountants)
- A licensed secretary licensed by the SSM
- A lawyer registered with the Malaysian Bar
A beneficial owner is the ultimate proprietor of any business entity and exercises effective control over the whole enterprise. They may not be an official shareholder of the company. According to a guideline issued by the SSM in March 2020, all newly registered companies are to declare the name(s) of their beneficial owner(s) within 30 days of appointing a company secretary.
All business entities must have a registered office address for the government to send all official documents and formal communication. It has to be an authorized address and not P.O boxes.
All businesses established in Malaysia need to acquire general licenses to do business. The entities need to apply for the following licenses immediately after incorporation:
- Company registration
- Company and employee’s income tax registration
- Employees provident fund (EFP)
- Social security organization (PERKESO)
- Human resources development fund (HRDF)
- Business premise and signboard licenses
Paid-up capital refers to the total amount of funds of a shareholder. Setting up a new private limited company in Malaysia requires a minimum paid-up capital of 1 MYR. The total amount of paid-up capital can be increased at any time after the company is incorporated. However, entrepreneurs need to meet the following paid-up capital requirements according to the nature of their business entity:
- An entire foreigner or non-resident-owned company is required to set up a minimum authorized paid-up capital of 1 million MYR.
- A company formed with a joint venture with a local Malaysian needs to have a paid-up capital of 350,000 MYR under Immigration regulations.
Newly formed business entities in Malaysia are entitled to a tax exemption of 5 years. The corporate tax rate in Malaysia is generally 24%. However, corporations with income not exceeding 2,500,000 MYR per year are considered Small and Medium-sized Enterprises (SMEs) and enjoy some tax exemption. SMEs are taxed at 20% on the first 500,000 MYR and 24% on the ensuing balance.
Types of Business Structures in Malaysia
Entrepreneurs looking to invest and set up companies in Malaysia must evaluate their business objectives. They also need to assess the duration of their presence in Malaysia before deciding on the kind of business entity to set up.
There are mainly five main types of business entities in Malaysia. Each of the different entities has its types of liability, audit requirements, taxation rate, and scope of activities:
- Sole proprietorship
- Limited Liability Partnership (LLP)
- Private Limited Company (Sdn. Bhd.)
- Public Limited Company (Berhad)
Company Registration Process
After entrepreneurs have completed the preparatory stage and met all the requirements, they need to register their business authority with the SSM.
Following is the process for registering a company in Malaysia:
- Fill out Form 13A and register the company name with the SSM
- Incorporating the company
- Notice of registration
- Certificate of incorporation
The following documents are required for the incorporation:
- Constitution (optional)
- Declaration by a director before their appointment
- Declaration of compliance
- Copy of identity card(s) of every director(s)
The post-registration process is the final step that involves fulfilling the specific obligations and requirements of the entrepreneurs after successfully registering their company with SSM. The criteria to fulfill in this stage are:
- Opening a corporate account with a local bank
- Getting the required business licenses (general, industry-specific, and activity-specific licenses)
- Appointing auditors for the company
- Finding out the required tax obligations
- Registering for employee provident fund
Are Foreigners in Malaysia on Certain Passes Allowed to Start a Business in Malaysia?
Foreigners or non-residents looking to start a business in Malaysia need to get the required work permits. The Malaysian government restricts the operations of wholly foreign-owned companies if there is no local Malaysian participation. The government protects the interest of local businesses by permitting only ‘unique’ businesses or manufacturing businesses that are benefiting the economy.
- If any foreigner or non-resident wishes to start their own business in Malaysia, they need to obtain a 2-year Malaysia Work Permit (DP10) and a Wholesale Retail Trade License (WRT). Such business entities must have a steep paid-up capital of MYR 1 million to MYR 2.5 million. Entrepreneurs also need to have a minimum share of MYR 500,000 to apply for the key position of shareholders or director.
- If the entrepreneur forms a joint venture with a local Malaysian, they are not required to acquire a WRT license. This is applicable only if the local Malaysian partner owns more than 50% shares of the company. The paid-up capital mandated under Immigration regulations to render such an enterprise eligible to apply for a work permit for foreigners is MYR 350,000.
How Much Does it Cost to Incorporate a Company in Malaysia?
The Malaysia New Companies Act 2016 requires locals to pay a flat registration fee of MYR 1,000 to SSM for incorporating their company and registering online. However, the rates are different for foreign-owned companies. To determine the fees required for registration, entrepreneurs need to convert the nominal share capital of their company to MYR at the prevailing exchange rate.
The entrepreneur needs to pay a flat registration fee of MYR 1,000 to SSM if their company does not stipulate any share capital.
Government Assistance for Foreign-owned Businesses
Malaysia proposes a broad range of tax incentives, specifically for manufacturing projects under the Promotion of Investments Act 1986 and the Income Tax Act 1967. However, all corporations have to hire local Malaysians and contribute to the national economy to get government assistance.
- Foreign technology companies incorporated in Malaysia with paid-up share capital of at least MYR 50,000 are entitled to a Global Tech Fund (GTF). Malaysia Digital Economy Corporation (MDEC) will provide funding that amounts to up to 30% of the approved total project, subject to an undisclosed ceiling limit.
- Companies rendering R&D services in Malaysia will be entitled to an investment tax allowance (ITA) of 100% of qualifying capital expenditure incurred within the first decade.
- Hotels and tourism projects are entitled to the 60% investment tax allowance on qualifying capital expenditure or 70% tax exemption on statutory income for five years.
How Can Multiplier Help?
Setting up a new business can pose quite a challenge in a new country. Each country has a specific set of tax laws and other legislations that entrepreneurs need to meet while setting up their businesses. Failing to meet these regulations might get their business proposals rejected by the federal government. Hence, outsourcing this task is a safe way to start a new business in a new country. Entrepreneurs can seek help from the in-house expert team of Multiplier that is well-versed with the local regulations, registration process, and taxation of the nation they aim to set up their business.
Multiplier’s Professional Employer Organization (PEO) services will eliminate the hassles of company registration and you can easily set up a global support team in Malaysia. Furthermore, our platform assists you in managing payroll, offering benefits, ESOPs and maintaining compliance with the local and international laws while handling an international team. For more information about our service, contact our team.