Malaysia has been positioning itself at the forefront of Southeast Asia’s bustling startup ecosystem, with a focus on becoming a regional hub. According to a recent KPMG survey, Kuala Lumpur ranks as the 9th top city in the Asia Pacific, and outside of Silicon Valley, San Francisco as a leading technology innovation hub over the next four years. Plus, Malaysia ranked 12th for Ease of Doing Business globally by the World Bank Group in 2020.
However, it can be sometimes difficult to understand the tedious process of company registration in Malaysia, especially for international entrepreneurs owing to factors like the plights of opening a bank account as a foreigner and difficulty to understand government documents as it is mostly documented in Malay. This should not stop startups and SMEs from setting up camp here.
To help get potential business owners started, here’s a step-by-step guide on how to incorporate a business in Malaysia:
There are some important fundamentals that a potential business owner must understand before company formation in Malaysia. After the revision of the Companies Act 1965 to the Companies Act 2016, foreign investors are now able to solely own a Company (becoming a director and shareholder) without the need to appoint a local nominee director. This is applicable across the country in most industries except for strategic sectors for the national interest, such as water, telecommunication, and ports.
There are mainly five different types of business entities available for foreign-owned companies in Malaysia.
|Private Limited (Sdn. Bhd.)||This is the most preferred business entity among foreigners as they get 100 % ownership with an initial paid-up capital of just MYR 1 (which can be increased gradually if needed) and the Territorial corporate tax structure where the Company will be taxed is based on their Malaysian-sourced income regardless of resident or non-resident company. Other benefits of this entity are that the business owner can easily open a corporate bank account without the need to be physically present in Malaysia and they can venture into almost all types of businesses as long as they meet the paid-up capital requirements.||No local nominee director is needed as long as the business owner has a valid local residential address.If the owner does not have a local address, then it is a must to have at least one director and shareholder with a legitimate local residential addressThe business owner doesn’t have to be based in Malaysia immediately to run the company.|
|Public Limited Company (Berhad)||A public limited Company (Berhad) is almost similar to Sdn. Bhd. Except, this type of entity is mostly suitable for those bigger businesses. Those who wish to expand their business by venturing into a public listed Company are normally those who are already part of a public listed Company in their home country.||For incorporation in Malaysia as a Berhad, it is a must to have at least two directors residing in Malaysia or have a principal place of residence in Malaysia.Holding annual general meetings and filing audited reports is compulsoryTo use Malaysia Financial Reporting Standard (MFRS) or International Financial Reporting Standard (IFRS) depending on the MoA|
|Subsidiary Company||Another way for company formation in Malaysia for foreigners is to set up subsidiary companies. A subsidiary is an independent legal entity from the parent company.||Identification documents (NRIC/Passport) copies of all stakeholders involvedProof of residential addressCompany particulars of parent Company certified by the appointed Company SecretaryBoard of resolution from parent Company to approve the incorporation of a subsidiary CompanyMoA or power of attorney authorising the person residing in Malaysia to accept notices on behalf of the parent CompanyStatutory declaration by the agent of the parent Company|
|Branch Office||An extension of the parent company, a branch office is not a separate legal entity.||A branch office must file its parent company’s audited financial report.Their profits are taxable at 24% (subject to tax adjustments).|
|Representative Office||This entity is not to run a business but for ground research. The Malaysian government gives around 2 to 5 years for potential investors to operate a representative office to gauge if Malaysia is the right place for them to stay and start their business. For this, foreign ex-pats and their dependents are entitled to a three-year visa.||Easy compliance and less operational costs,|
Based on the type of entity, once all documents are ready and requirements are met, company registration can be done with the Companies Commission of Malaysia (SSM) for MYR 1,060. An appointed licensed Company Secretary can easily do this online without the need for business owners to come down to Malaysia.
After incorporation, foreign-owned companies can easily open corporate bank accounts. They are advised to engage international banks such as OCBC, HSBC, and UOB. These banks normally request an initial deposit ranging between MYR 50,000 and MYR 80,000 – the amount depends on the business scale and sometimes the packages companies opt for. From applying for an account to fulfilling the KYC – everything can be easily done online.
Getting a business license
Companies planning to rent office spaces must apply for a business premise license and a signboard license from respective state authorities. The cost of the license depends on the area of the office space. Business owners are required to submit floor plans to the City Hall for an initial easement.
Meeting annual compliance
Under the Companies Act 2016, compliance requirements have been eased considerably. However, it is important to understand that after incorporation in Malaysia, to maintain a private limited company the following annual compliance requirements must be met:
With so many intricate details and legal requirements, it can come across as a bit overwhelming to deal with company incorporation in Malaysia. One simple misstep or error can result in a delay in approval for company registration.
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