Business entities in Malaysia in 2021
Healy Consultants will be pleased to assist our Clients with Malaysia company setup. There are several ways of doing business in Malaysia, the most common being the setting up of a limited liability company. Foreign companies can also register a branch in Malaysia, or a representative office if they plan to run only marketing operations in this country.
The Malaysia Limited liability company (SDN BHD)
- The Malaysia limited liability company (locally known as a Sendirian Berhad or SDN BHD) is the type of business entity most commonly formed by foreign entrepreneurs starting a business in Malaysia. Malaysian business setup requires: i) two shareholders ii) a minimum investment of USD2 (MYR2) iii) one resident company secretary and iv) one director. While there is no restriction on the nationality of the director, he/she must be ordinarily residing the country. If needed, Healy Consultants can provide our Clients with nominee services for resident director in Malaysia;
- After incorporation of the company, Healy Consultants will assist our Clients to register the company with the Inland Revenue Department for corporate tax and employer registration. If needed, we can also register the company for GST. All Malaysian companies must submit audited financial statements every year;
- Our Clients may also wish to apply for various licenses in Malaysia, the most common being the Wholesale Retail Trade license (WRT). This license requires a paid up capital of US$1,000,000 and the approval process takes up to 2 months. Once secured, our Clients will be able to engage in various operations including i) retail and wholesale trade; and ii) restaurant and franchise business;
- Best uses: a Malaysian company is an adequate business vehicle to trade with Malaysian customers and to hire staff in the mainland.
The Malaysia free zone company (EPZ company)
- Foreigners willing to start export-oriented manufacturing and service businesses can register their entity in an export processing zone. While there is no official minimum paid-up capital requirement, the free zone authority w take such amount as a criterion to assess the application so we usually recommend our Clients to invest a minimum of US$125,000. We can also provide nominee services for our Clients unable to appoint the one resident director required for all newly registered Malaysian company;
- For further information on the different export processing zones available in Malaysia and their tax benefits and requirements, please visit our Malaysia free zone page;
- Best uses: thanks to the tax incentives provided by the Malaysian Government, a Malaysian EPZ company is an attractive vehicle to manufacture products re-exported overseas.
The Malaysia international trading company (Labuan company)
- For entrepreneurs only planning to trade with overseas customers, the Malaysia regulations provide an attractive legally tax exempt business vehicle: the Labuan company, registered with the Labuan International Business and Financial Center. Unlike mainland Malaysia companies, such entity does not require the appointment of resident director;
- For our readers interested to read more about this tax exempt strategy, Healy Consultants has prepared a specific section on such business entity;
- Best uses: A Labuan company i) enjoy 3% corporation tax on annual net profits but ii) must submit financial statements to independent statutory annual audit. Under some conditions, it can also be a good entity to open a marketing office in Labuan, Kuala Lumpur or Johor Bahru.
The Bumiputera company
- Entrepreneurs establishing a limited liability company in Malaysia can apply for Bumiputera status if at least 30% of the shares are held by native Malay individuals or other Bumiputera corporations. If this requirement is met, the company is then eligible for special grants, discounts, and incentives such as cheaper business licenses, special bank agreements, native reservation of land, and discounts when purchasing or renting land.
- Best uses: a Bumiputera company is usually formed when our Clients have Malay joint venture partners. Healy Consultants will then clarify with them to tax benefits available thanks to the presence of such Malay shareholder(s).
The Malaysia Limited Liability Partnership
- A limited liability partnership can be registered in Malaysia by a minimum of i) two partners, who both can be foreigners and are not required to be living in Malaysia and ii) one resident compliance officer. There is no minimum contribution to form such entity in Malaysia and all partners can benefit from limited liability, in accordance with the Malaysia Limited Liability Partnership Act of 2012;
- While the limited liability partnership can sign contracts and issue invoices in its own names, such entity is tax transparent and is henceforth not required to submit financial statements to the Companies Commission of Malaysia: only an annual return must be filed annually. However, the partners are required to declare the earnings channeled through the partnership in their personal income tax statements
- Best uses: a Malaysian limited liability partnership is a good vehicle for specific projects to be completed by our Client in cooperation with a Malaysian or foreign company. The partners can be indeed individuals, but also corporates.
The Malaysia branch office
- Another option available foreign corporations is the registration of a branch office in Malaysia. Company law dictates that all branch offices must conduct business within the scope set by the parent company. However, this office can engage in business activities, which involve trade, invoicing, and signing contracts. The foreign company will also have to appoint two resident representatives in Malaysia;
- A branch office requires the appointment of an agent who is originally residing in Malaysia. There is no minimum paid up capital requirement for the branch registration.
- Branch registration can be done by filing the required documentation with Suruhanjaya Syarikat Malaysia (SSM), including i) certificate of incorporation and ii) constitution of the parent company. Healy Consultants Group PLC assists our Clients with the submission of quality branch registration application package to ensure successful approval of the branch office;
- Additionally, the branch office is required to comply with a number of reporting requirements under the Companies Act 2016 including i) notifying the SSM when changing share capital and corporate structure, ii) filing annual balance sheets and audited accounts of the parent and branch company, iii) filing annual return within one month of the AGM and iv) keeping account records for a minimum of 7 years in Malaysia.
- Best uses: a Malaysian branch is usually not recommended, unless the industry of operations of the business is regulated and subject to license(s) and/or higher paid-up capital requirements.
The Malaysia representative office
- This Malaysia business setup is only allowed to engage in business activities including market research and promoting the business of the parent company. Consequently, a representative office cannot sign contracts or conduct business in Malaysia;
- Best uses: a Malaysian representative office is recommended only if our Client plans to have only marketing operations in Malaysia, and no trading or productive operations.
Table of comparison between Malaysia business entities
Summary Fast solution LLC Limited Liability Partnership Branch office Trust Best use of company? Close a customer
Public listing/ holding company How soon can you invoice Clients/sign sales contracts? 2 weeks 5 weeks 6 weeks 1 month How soon can you hire staff? 2 weeks 5 weeks 6 weeks 1 month How soon can you sign a lease agreement? 2 weeks 5 weeks 6 weeks 1 month How long to supply corporate bank account numbers? 1 month 3 months 3 months 2 months How long to supply company registration/tax numbers? 2 weeks 5 weeks 6 weeks 1 month Corporate tax rate on annual net profits? 24% 19% 25% 0% Limited liability entity? Yes Yes No Yes Government grants available? Yes Yes Yes No Government approval required for foreign owners? No No No No Resident director/partner/manager/ required? Yes, 1 No Yes, 1 No Minimum paid up share capital? US$2 US$2 None US$34,000 Can bid for Government contracts? Yes No Yes No Corporate bank account location? SCB KL CIMB KL OCBC KL Maybank Can secure trade finance? Yes Yes Yes No GST payable on sales to local customers? 6% 6% 6% 0% Average total business set up engagement costs? US$27,130 US$13,080 US$17,450 US$16,650 Average total engagement period? 3 months 4 months 4 months 4 months Accounting and tax considerations Fast solution LLC Limited Liability Partnership Branch office Trust Statutory corporate tax payable? 24% 19% 25% 0% Legally tax exempt if properly structured? No No No Yes Group HQ tax incentives? Yes No No No Must file an annual tax return? Yes Yes Yes No Must file annual financial statements? Yes Yes Yes Yes Must appoint an auditor? Yes Yes Yes Yes Access to double taxation treaties? Yes Yes Yes No Withholding tax on payments to foreign shareholders? 0% 0% 0% 0% Company Registration Fast solution LLC Limited Liability Partnership Branch office Trust Resident director/partner/manager/ required? Yes, 1 No Yes, 1 No Minimum number of shareholders/partners? 2 2 Parent company 1 Maximum shareholding for foreigners? 100% 100% 100% None Minimum statutory paid up share capital? US$2 US$2 None None Security deposit to be kept with Government? No No No Yes, US$22,700 Shelf companies available? Yes No No No Time to incorporate a new entity? 2 weeks 5 weeks 6 weeks 1 month Can easily convert to a PLC? Yes No No No Public register of shareholders and directors? Yes Yes Yes No Can have preference shareholders? Yes Yes No No Business Considerations Fast solution LLC Limited Liability Partnership Branch office Trust Good entity for trademark registration? Yes No No No Can secure an import and export license? Yes Yes Yes No Can be wholly foreign owned? Yes Yes Yes Yes The entity will likely be regulated by? SSM SSM SSM SSM Monthly GST reporting to the Government? Yes Yes Yes No Maximum number of staff allowed? No limit No limit No limit No limit Expatriate to local staff ratio? None None None None Can secure residence visa for business owner? Yes Yes Yes No Sponsorship by a local citizen required? No Our Client needs to travel to Malaysia for business set up? No Temporary physical office solutions available? Yes You need a local resident as bank signatory? No Minimum number of directors/managers? 1 Must sign an office lease agreement? No Shareholders & directors documents to be attested/translated? No Each foreign director needs a personal income tax number? No Foreign director needs a residence visa? Yes Other useful information What will be included in my customer sales invoice? (click link) This country has signed free trade agreements? Yes This country is a member of WIPO/TRIPS? Yes This country is a member of the ICSID? Yes Average customs duties suffered? 8% Government foreign investment approval required? No Average monthly office rental? (US$ per sq m) 30 Minimum statutory monthly salary? US$226 Average monthly US$ salary for local skilled employees? US$700 US$ deposit interest rate? (1 year average) 3.43% Overseas remittance currency controls? None Banking considerations Multi-currency bank accounts available? Yes Corporate visa debit cards available? Yes Quality of e-banking platform? Excellent Crowd funding available in this country? Yes