Opening a manufacturing company in Malaysia

Malaysia manufacturing companyMalaysia’s manufacturing sector has continued to attract investment with foreign capital accounting for at least 60% of the total number of investments approved by the Malaysian Investment Development Authority (MIDA). To setup a manufacturing establishment in Malaysia, Healy Consultants assists our Clients by i) incorporation of a fully foreign owned subsidiary ii) obtaining the necessary government licenses iii) securing an office space and industrial space iv) hiring of qualified foreign or local labour and iv) locating agents and suppliers for raw materials.

  • Advantages of setting up manufacturing operations in Malaysia

    1. Malaysia is one of the leading manufacturing destinations in the ASEAN region because:
      • Malaysia’s manufacturing industry is a crucial driver of the country’s economy, constituting at least 25% of the country’s GDP. The sector registered a sales value growth of 22.2% in the second quarter of 2017 to reach approximately US$15 billion;
      • Malaysia has established itself as a major hub for solar equipment manufacturing, attracting leading global companies from over 40 global jurisdictions. The country is also among the leading manufacturers of photovoltaics equipment in the world;
      • Malaysia exhibits significantly low business operations costs compared to its regional neighbours. For instance, the average wages in manufacturing sector in Singapore is US$3,250 compared to a monthly average of US$600 in Malaysia;
      • Malaysia also offers an educated, productive and young workforce which is convenient for manufacturing businesses. The country’s median age is 27 years, lower than most of the ASEAN countries, and a high literacy rate of 94%;
      • Malaysia was ranked as the world’s best manufacturing destination in 2015 by Cushman & Wakefield, evaluating jurisdictions on at least 30 sub-categories based on risks, manufacturing conditions and costs.

    2. The Malaysian Government offers multiple incentives to manufacturing companies including:
      • Manufacturing companies engaged in the production of promoted goods or activities may qualify for i) 100% tax exemption for 5years and ii) Investment Tax Allowance of 60% on the qualifying capital expenditure under the Pioneer Status;
      • Companies investing in the Automotive industry will enjoy i) 100% pioneer status or income tax allowance for a period of 10 years ii) exemption of up to 50% on excise duty iii) Research and Development (R&D) grants and customized training;
      • Qualifying companies can be entitled to i) a reinvestment allowance of 60% of qualifying capital expenditure and ii) a possibility of offsetting the reinvestment allowance against 100% of its statutory income;
      • Companies headquartered in Malaysia enjoy i) reduced corporate income tax rate over a period of 10 years ii) exemption from customs duty on imported components, raw material and selected finished products and iii) flexibilities on foreign exchange administration.

    3. Other available tax incentives and considerations for manufacturing companies in Malaysia include:
      • Under the Promotion of Investment Act 1986 a manufacturing company may be entitled to a 60% allowance on the company’s expenditures on plant, factory, machinery and other equipment used on approved projects over a period of 5 years;
      • Company granted Pioneer Status may enjoy exemption from corporate income tax on 70% of its income for a period of 5 years starting from when the company’s production level reaches 30% of the company’s total capacity;
      • Eligibility for incentives is dependent on the type of product or activities a company is involved in. Qualifying products and activities are termed as promoted products or promoted activities;
      • Manufacturing companies seeking to enjoy these incentives must first submit an application through the Malaysian Investment Development Authority (MIDA) and obtain the government approval.

  • Disadvantages of setting up manufacturing operations in Malaysia

    Our Clients establishing manufacturing companies in Malaysia will face challenges operating their business because:

    • Malaysia has a shortage of local labour and relies mostly on imported cheap labour from the neighbouring countries including Bangladesh and Indonesia among other ASEAN countries;
    • Manufacturing companies looking to maximize on cheap labour will have to endure the strenuous process and costs of applying for work permits for multiple foreign migrant workers;
    • Starting a business in Malaysia and subsequent application licenses and permits can be a long and tedious process spanning at least 3 to 4 months especially for foreign investors;
    • Certain approvals including i) for exemptions from customs duty ii) status of Research and Development (R&D) iii) expatriate posts and iv) approval of manufacturing licenses may take up to 6 months from the date of submission of application;
    • The minimum paid up capital required for foreign owned manufacturing companies looking to hire expatriates is set at MYR500,000 (approx. US$125,000). The number of expatriate posts will be considered by MIDA based on the merits of each case.
  • Malaysia labour considerations

    • The Malaysian employments laws are contained in the i) Industrial Relations Act 1967 ii) the Employment Act 1955 and iii) the Employment (Termination and Lay-off Benefits) Regulations 1980;
    • The maximum weekly working hours in Malaysia is set at 48 hours over a six-day working week. The minimum wage for peninsular Malaysia increased by 11.1% to US$250 per month with effect from 1st July 2016 and US$230 for the rest of the country;
    • Respectively, the minimum hourly wage in Malaysia was set at US$1 for peninsular Malaysia and US$1.2 for Sabah, Sarawak and Labuan FT. Employees working overtime are entitled to additional 50% of hourly pay for overtime work;
    • All employers in Malaysia are required to contribute to Malaysia’s Employee Provident Fund (EPF) an amount equivalent to 11% of the employee’s monthly remuneration to the relevant tax authority;
    • Malaysia does not have in place a maximum length of probation period for workers. Also, summary dismissal of employees due to redundancy is permitted by law;
    • All applications for employment of foreign workers must be submitted to MIDA and companies are required to meet specific requirements based on i) type of business activity ii) nationality of the to-be employees and iii) applicable quotas and levy.

Contact us

For additional information on our business registration services in Malaysia, please email us at email@healyconsultants.com. Alternatively please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi
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