Starting a business in Malaysia
To do business in Malaysia, one of the first things to consider is your business structure. Different regulations apply to different business entities and activities.
Here are three business entities to consider depending on the nature of your business:
Private Company Limited by Shares
A private company is a business entity with at least one member and a maximum of 50 members (excluding staff turned members).
When you set up a private company limited by shares, your company is limited to the amount of shares subscribed by the shareholders, who are the owners of the company.The company:
- Is the owner of all its properties.
- Has a Board of Directors to manage it, who may or may not be shareholders of the company.
- Has perpetual succession, unless you wind it down.
- Must appoint a statutory secretary.
Limited Liability Partnership
Choose to set up a limited liability partnership (LLP) in Malaysia, if you want protection for you and your business partners with limited liability. This is similar to the limited liability enjoyed by shareholders of a company.
In addition, you have the flexibility of making internal business regulations through partnership arrangements. Any debts and obligations of the LLP will be borne by the assets of the LLP and not that of its partners.
- Has the legal status of a body corporate. It can sue and be sued in its own name.
- Can hold assets and perform acts in its name like other legal entities.
- Offers you flexibility in terms of its formation, maintenance and termination.
- Must appoint a statutory compliance officer.
If you don’t want to incorporate as a local company in Malaysia, you can also do business there by registering as a foreign company.
You can register as a foreign company in Malaysia, so long as you are:
- A company, corporation, society, association or other body incorporated outside Malaysia.
- An unincorporated society, association, or other body which under the law of its place of origin may sue or be sued, or to hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia.
Do note that you will need to appoint a local agent if you are running your business in Malaysia as a foreign company.
How long does it take to register my business in Malaysia?
It takes up to a month to register, depending on your business structure:
Business Entity Processing Time to Register Your Business Private company Limited Liability Partnership About 10 working days Foreign company About 18 to 21 working days Deduction of additional wages for new employees – For all taxpayers 30% of the cost of a new employee.
Directors and shareholdersHow many directors do I need?
The number is different for private and public companies:
- A private company needs at least one director.
- A public company needs at least two directors.
- This is usually determined by your company’s Constitution.
Do I need a minimum number of resident directors?
Yes. For a private company, at least one of your directors must be staying in Malaysia or has his principal place of residence in Malaysia.
For a public company, you must have at least two resident directors.
Are there any restrictions on who I can appoint as a director?
A director in your company must be at least 18 years old and is not disqualified under Section 198 of the Malaysia Companies Act.
Can I appoint only foreigners as directors of my board?
Yes, your board can consist of foreigners only. However, at least one director must meet the residence requirement.
Can a company in Malaysia be wholly-owned by foreigners? Do I need a minimum percentage of local shareholders?
Yes, foreigners can have full ownership of a local company across most sectors, with the exception of a few such as education and logistics. Companies can check in with Enterprise Singapore or a consultant to find out more.
If your company requires approval from a Malaysian authority for your business activities, that authority will usually impose a minimum equity participation by Malaysian shareholders in your company.
How many shareholders do I need to set up a company?
It depends on your business structure:
- Private Company – at least one shareholder and a maximum of 50 (excluding staff turned members and joint shareholders counted as one).
- Public Company – at least two shareholders.
Business activitiesDo I need approval from the local authorities before my company operates?
The Local Council License for Foreigners or PBT is a license that is mandatory for all companies. You will need to obtain this from the local Government where your business will be situated and operating.
Common business activities that need prior government approval include:
- Banking and finance
Are there business activities which foreign companies cannot do?
The following sectors may be subject to certain foreign ownership requirements:
- Insurance and Islamic insurance
- Transportation services
- Professional services
- Wholesale and distribution services (supermarkets)
- Energy supply
- Security services
- Employment services
When must I apply for a licence?
You need a licence to carry out the following business activities:
- Activities under the Medical Device Act
- Activities under the Education Act 1996
- Activities under the Road Transport Act 1987
- Direct sales
Please note the above list of activities is not exhaustive. For details, please check in with the relevant Malaysian authorities.
Typically, do I apply for licences before or after setting up my company?
Licences are typically applied after setting up the company but the consultative process and preparation should start before company registration. With proper planning and a clear view of the authorities and processes required to obtain necessary licences, company can avoid unnecessary delays and pitfalls.
Do I renew my licences each year?
It depends on the type of licence you hold as they may be valid for different periods.
Should I display the business license prominently at my business location?
Yes, under the law, you need to display your business licence in a conspicuous place at your business location.
Share capital and capital contributionWhat is the minimum share capital or investment capital I need to set up a company?
The minimum is one share (at any issue price) for a private company and two shares (at any issue price) for a public company.
Do I need approval from the local authorities to increase my share capital or investment capital?
What is the typical share capital requirement for an investment holding and trading company?
The issued and paid-up capital is RM 1 million (equivalent to S$321,200) if you are a local trading company where the majority of your equity is owned by foreigners.
What is the common unit issue price per share?
You can issue your shares at any price.
Can I issue shares in a currency other than Malaysian Ringgit?
You can only issue shares in Malaysian Ringgit.
Any restrictions on bringing capital out of Malaysia?
There are no restrictions.
Do I need a separate bank account to receive capital?
It is not necessary. You can receive capital contribution in any of your company’s bank accounts.
How long does it take to set up a corporate bank account?
It varies from bank to bank. It’s best to check with the bank you plan to transact with.
Do I need to keep a minimum amount as capital in the bank account at all times? Or can my company use the entire amount for business activities?
No, you don’t need to keep a minimum capital amount in your bank account.
Can RSM recommend and help my company open bank accounts in Malaysia?
Yes, they can.
What is the current corporate tax rate?
The corporate tax rate is 24%. However, if you are an SME, you will enjoy a lower tax rate of 17% for the first RM 600,000 (approximately S$160,600) of chargeable income.
Are there any tax incentives for my company in Malaysia?
These tax incentives might apply to you:
- Pioneer Status
- Investment Tax Allowance
- Reinvestment Allowance
- Principal Hub
- Incentive for Research and Development
- MSC Malaysia Status
- Special Economic Region Tax Incentives (e.g. Northern Corridor Economic Region, East Coast Economic Region)
- Halal Park Incentives (HALMAS)
- Green Incentives
- Automation Capital Allowance (for companies that have operated for a minimum of 3 years)
Any special grants for foreign companies or for specific industries which the local government encourages?
There are no special grants for fully foreign-owned companies. However, there are grants for companies in specific industries, for example, assembly or manufacture of hybrid and electric vehicles.
Special treatment is given to transactions involving Designated Areas (Labuan, Langkawi, Tioman and Pangkor) and Special Areas (free zones, licensed warehouses, licensed manufacturing warehouses and the Joint Development Area).
When and how do I pay corporate tax? Is this paid annually or monthly?
You generally need to pay corporate tax over a 12-month instalment scheme. The amount is based on an estimate of the tax payable and the monthly payment is due on or before the 15th of each month.
Any balance of tax payable, or the difference between the final tax liability and the estimated tax payable, must be paid within seven months after the end of each financial year.
Do I need to pay tax when I send dividends back to Singapore?
No, you will not be taxed on the repatriation of dividends.
What are the withholding tax rates on interest, dividends and royalties?
It is 15% on interest and 10% on royalties. Dividends are not subject to withholding tax.
The rate of tax also depends on the Double Taxation Agreement (“DTA”) which Malaysia has signed with Singapore.
Any value-added tax or goods & services tax in Malaysia? If so, what is the current rate?
Malaysia started collecting a Sales and Service Tax on taxable goods and services from 1 September 2018. The sales tax and service tax are 10% and 6% respectively.
Are there any tax treaties between Malaysia and Singapore?
Yes, there is a tax treaty between Malaysia and Singapore to avoid double taxation of income.
What basic employment benefits must I give to my employees?
This depends on the terms of employment you and your employees agreed on.
Do I need to pay taxes or social security contributions for employees?
Yes, you must contribute to the Employees Provident Fund and their social security contribution.
Although personal income tax is borne by the employee, you must deduct the monthly personal income tax payable by your employees on behalf of the Inland Revenue Board of Malaysia.
If I send a Singaporean employee to work in Malaysia for less than a year, does the employee need a work pass?
Yes, your employee must have a valid Employment Pass issued by the Malaysia Immigration Department.
There are two types of passes:
- Professional Visit Pass, valid for between six to 12 months.
- Employment Pass, valid for between 12 to 24 months.
It takes about four to six weeks to process the application.
Must I have a physical office in Malaysia? Can I use another business’ address or a virtual office address?
You need to have a physical office. When applying for a licence, you will be asked to show your tenancy agreement to support your application.
It is also common practice to use the corporate secretary address to register a company then provide an address update later.