A Beginner's Guide to Starting a Company in Malaysia as a Foreigner
Starting a business venture in Malaysia can be both exciting and challenging. Malaysia is known for its favourable business environment, ranking 12th globally, which makes it an attractive destination for foreign entrepreneurs.
However, foreign business owners need to fulfil certain legal and administrative requirements to establish their presence in this promising market.
Can Foreigners Start a Business in Malaysia?
Yes, they can, but with specific considerations. Malaysia encourages foreign investment and trading by participating in international trade agreements, such as the ASEAN Free Trade Area.
While the government is welcoming to foreign investors, certain restrictions apply, including the types of business entities and sectors open to foreigners.
Types of Foreign Business Entities in Malaysia
Before venturing into the Malaysian business landscape, you must select the most suitable business structure. As a foreign entrepreneur, you have several options:
1. Branch Office (Foreign Company)
A branch office is essentially an extension of a foreign parent company. The parent company takes responsibility for any debts incurred by the branch office in Malaysia. However, the branch office’s activities must align with those of the foreign parent company. Setting up a branch office necessitates the involvement of at least one Malaysian resident agent.
2. Representative Office
For foreign companies looking to explore the Malaysian market and understand the local business environment, establishing a representative office is an option. It’s important to note that a representative office does not possess legal standing in Malaysia, and the parent company remains responsible for its debts and liabilities. Representative offices are limited to promotional, market research, and liaison activities.
3. Private Limited Company
A private limited company is a common choice for foreign investors. Foreigners can own 100% of the company, with some exceptions, such as certain industries like agriculture, banking, education, and oil and gas, which may require 50% Malaysian ownership.
4. Sole Proprietorship
Setting up a sole proprietorship is the simplest option, but foreign entrepreneurs must have permanent resident status in Malaysia.
Partnerships, similar to sole proprietorships, require that all partners be Malaysians or have permanent resident status.
6. Limited Liability Partnership (LLP)
An LLP combines elements of both a partnership and a company, offering a separate legal entity. Foreigners can establish an LLP in Malaysia without residing in the country. However, the compliance officer for the LLP must be a permanent resident, citizen, or someone residing in Malaysia.
The Registration Process
Once you’ve determined the right business structure, you must proceed with registering your company with the Companies Commission of Malaysia (SSM). Foreigners may also engage the service of an accounting firm in Malaysia to carry out this process on their behalf. This process involves several key steps:
Step 1: Name Search and Reservation
Initiate the process by searching for an available business name that complies with SSM’s guidelines and does not conflict with existing businesses.
Step 2: Business Registration
Submit the necessary documents and information, including the Memorandum and Articles of Association, business plan, passport, and visa to the SSM. The registration fees and timeline depend on your chosen business structure and the method of registration.
Step 3: Licences and Permits
Depending on your business’s nature, you may need additional licences and permits from government agencies, such as the Ministry of Trade and Industry or the local council. Ensure you obtain the required permits for your specific business activities.
Step 4: Tax Registration
Register your business with the Inland Revenue Board (LHDN) and acquire a tax identification number. Comply with Malaysia’s tax laws, including filing annual tax returns and paying corporate tax and goods and services tax (GST).
Starting a business in Malaysia as a foreigner may pose challenges such as language barriers, cultural differences, securing financing, and finding local partners or staff.
To overcome these hurdles and ensure compliance with the legal and regulatory framework, seek professional advice and support from local experts, including lawyers, accountants that offer accounting services in Malaysia, and business consultants.
Industries for Foreign Investments in Malaysia with Incentives
Malaysia offers a range of industries for foreign investors, each with its own set of incentives. The following are just some of the examples.
1. Manufacturing Sector
Offers a five-year partial exemption from income tax, with taxation on only 30% of statutory income. You can carry forward unabsorbed capital allowances and losses.
Investment Tax Allowance
Provides a 60% allowance on qualifying capital expenditure within five years, offsettable against 70% of statutory income. Any unutilized allowance can be carried forward.
2. Agricultural Sector
Incentives for Food Production
Offers tax deduction equivalent to investment made in subsidiary companies engaged in food production activities. Subsidiaries can enjoy full tax exemption on statutory income.
Incentives for Production of Halal Products
Encourages investments in halal food production, offering a 100% investment tax allowance on qualifying capital expenditure within five years.
3. Biotechnology Industry
- Exemption of 100% statutory income for new businesses or expansion projects for five years.
- Concessionary tax rate of 20% on statutory income from qualifying activities for ten years.
- Exemption from import duty and sales tax on raw materials, components, machinery, and equipment.
- Double deductions on expenditures incurred for research and development and export promotion.
What to Do After Setting Up a Company in Malaysia as a Foreigner
After successfully establishing your company in Malaysia, you will need to adhere to local regulations. Here are the key steps:
Opening a Corporate Bank Account
Once your company is incorporated, you can open a corporate bank account. Many banks now facilitate online communication with clients, but be aware of specific regulations regarding certain nationalities.
In most cases, businesses need to apply for licences, including business premise and signboard licences. Licensing requirements may vary based on your industry, so ensure compliance to operate smoothly.
Registration of EPF and SOCSO
When hiring local employees, you must register with the Employees Provident Fund (EPF) and the Social Security Organisation (SOCSO) to provide employee benefits and social security protection.
Application of Work Visa – Employment Pass
Depending on your employment needs, apply for the appropriate work visa, such as the Malaysia Employment Pass, to ensure legal employment for foreign staff.
Starting a business in Malaysia as a foreigner can be a rewarding venture, but it demands meticulous planning, regulatory compliance, and comprehensive market research.
Expert services such as accounting services in Malaysia can assist foreigners in overcoming the challenges by offering professional guidance for the successful setup of a business in Malaysia. Some of these professional services also include China Desk and Japan Desk services.