Do you want to start a business in Malaysia as a foreigner? If YES, here is a complete guide plus legal requirements for starting a profitable business in Malaysia with no money.
Okay, having provided an in-depth analysis of the 50 best small business opportunities in Malaysia and a series of industry-specific sample business plan templates; we will now analyze in detail the legal requirements, market feasibility and every other thing it takes to start a business in Malaysia. So put on your entrepreneurial hat and let’s proceed.
Why Start a Business in Malaysia?
Malaysia is fast gaining traction as one of the favorite investment destinations to do business. Ranked at number 24 in the 2018 World Bank’s Ease of Doing Business, Malaysia is a favorable ground for investors intending to enter the market.
Whether you live in Malaysia or you are a foreigner who intends to migrate to Malaysia in order to take advantage of the rich business opportunities, we have provided you a step by step procedure on how you can set up a business entity in this country of pristine beaches and tourism haven.
Starting a Profitable Business in Malaysia as a Foreigner – A Complete Guide
- Determine if you are allowed to set up a business in the industry
The first step to take when you intend starting a business in Malaysia, if you are a foreigner, is to first of all determine of you will be allowed to start a business in that sector. While Malaysia has liberalized restrictions to foreign participation in many sectors over the past decade, certain specific industries are still limited or protected due to national policy reasons.
Examples of industries which involve specific licenses and conditions include oil and gas services, bonded warehousing and freight, land transportation services, wholesale and retail trade, tour operators, F&B restaurant/cafes, franchise etc. These areas are typically restricted for a non citizen. It is important to determine at the outset whether the business activity you wish to carry on in Malaysia is subject to:
- Any specific licenses or conditions,
- Any restrictions on foreign equity ownership,
- Any minimum paid up capital requirements, or
- Any requirements for Bumiputera (ie Malay) directors or local equity ownership.
The above are not exhaustive and may always not be easy to determine, as a single business activity may require multiple licenses and approvals. You must research properly into this area so that you will be able to plan your corporate structure, working capital and it will also give you a realistic timeframe on the actual date of commencement of your business.
- Decide the business type
There are several types of business entities available in Malaysia. Every business entity has its own compliance requirements, tax structure etc. There are equally business entities that are meant for citizens and those for foreigners.
a. If you are a local entrepreneur: You can opt to register your company as either a Sole Proprietor, or Limited Liability Partnership (LLP), or General Partnership and Company as they are the common business entities available in Malaysia.
- A sole proprietorship/ partnership: This is the easiest and cheapest way to establish a business in Malaysia, and it is owned and run by one person, with no legal distinction between the owner and business. This means that it is subject to income tax of the owner, rather than corporate tax. However, there is nearly zero protection to the business owner, so it’s advisable to incorporate an LLC instead.
b. If you are a foreign entrepreneur: There are two common business entities for foreign investors: a locally incorporated company or foreign-owned company. Foreign investors can setup a sole proprietorship or partnerships in Malaysia with the condition that they have permanent residency (“PR”) in Malaysia.
Apart from the options mentioned, foreign investors can also choose to register their business as either a private limited company, or a Labuan company, or a representative office. International businesses in the manufacturing or services sector can typically do business in Malaysia without restriction, as the government wants to encourage export growth, knowledge-transfer, and job creation in this sector.
- A private limited company: Foreigners are allowed to register a Sendirian Berhan in Malaysia with 100% foreign ownership, depending on the business. This is the local equivalent of a private limited company or LLC, and is the most common vehicle for investing in the country.
100% foreign ownership is permitted for companies in most industries, and the Malaysian Investment Development Authority (MIDA) maintains a detailed list of businesses open to foreign investment in Malaysia.
One law regarding this business entity is that two of the company’s directors must be permanent residents in Malaysia, and a private limited company must have between two and 50 members. The company must also have a minimum of two shareholders.
You can register as a private limited company through the Companies Commission of Malaysia (SSM).
- A Labuan company: Labuan is emerging as a regional offshore centre with a low tax jurisdiction. Labuan companies can rent properties in Malaysia but they are not allowed to make sales in the country, so they are unsuitable for international businesses hoping to sell to Malaysian customers.
However, setting up a Labuan company is useful for entrepreneurs establishing a financial services, distribution or international trading business. A Labuan company is also useful for regional distribution enterprises, as imports and exports to and from Labuan are exempt from duty.
Foreigners can own 100% of the company and incorporation is fast and affordable. Expatriates are able to apply for a two-year multiple entry Employment Pass as soon as the company has been incorporated. You can register as a Labuan company through the Labuan International Business and Financial Centre (IBFC).
Having settled the business entity that would be most suitable for the business you have in mind, you now have to look into finding a name for your business. Every business needs a name. A good business is more than just a brand name – it is also part of your marketing strategy and brand identity.
Run a name check after you have handpicked the business name. You should then complete Request For Availability Of Name form and submit to Suruhanjaya Syarikat Malaysia (“SSM”); and you need to pay a fee at RM30.00 for each name applied for. After the name check, register the name with SSM to get approval from the Company Formation in Malaysia.
- Open a Bank Account
Opening of an individual or company bank account locally (and preferably near the intended business premise) is one of the first things that needs to be done in order to effect payments, share issuance, deposits, and fees which usually require local currency.
Enquiring in advance with local or international banks on the exact documentation, requirements and time needed to open a bank account will be prudent, bearing in mind the anti-money laundering compliance checks and the “know your customer” requirements that all banks need to satisfy before approving the new bank account.
Whether in the form of a rented or purchased premises, virtual office, service office or even a permanent residential address, a physical premise or mailing address within Malaysia is usually required in other applications for bank account, company formation, licences and work permits etc.
Foreigners may consider subscribing to virtual offices or renting service offices or co-working spaces, which are often located at prestigious business locations, for a quick and affordable ‘temporary business address’ prior to committing to a longer term tenancy or property purchase.
Note that some corporate secretarial service providers may be able to provide the use of their existing business address as a temporary registered and/or business address.
- Register your office address
In Malaysia, every business must have a legally registered local office address. Once you have picked out a location for your business, you have to proceed to get it registered. Without doing this, your business registration process would not be complete.
7. Secure Immigration Permits and Visas (if you are a foreigner)
While there is an array of possibilities for foreigners to enter and stay in Malaysia, different types of work permits and visas may apply depending on the type of activity to be undertaken and the length of stay in Malaysia. Examples include:
- visitor (single entry or multiple entry visas),
- spouse (spousal visa / long term social visit pass),
- migration (under the Malaysia My Second Home programme),
- employee (types of employment passes may vary depend on skill set and salary),
- short term contract and engagements (professional visit pass),
- a shareholder or director of a newly incorporated company (work permit),
- or when setting up a regional office / representative office where a company has already been established in the home company (work permit).
The specific requirements and procedures to obtain the correct work permits or visa may be confusing to many foreigners, not to mention the actual submissions and communications with the immigration department. Different work permits may also have different requirements in respect of minimum paid up share capital on the applicant company.
It would also be prudent to anticipate the number of work permits/visas one’s business will require if it intends to hire expatriates as employees. Certain government incentives such as obtaining Multimedia Super Corridor (MSC) status should be considered which may make it easier for the company to hire of foreigners/expatriates.
8. Prepare the incorporation documents
When you have gotten your office address and visas sorted out, the next step to take is to start gathering your incorporation documents. Note that all these documents must be ready before you can think of going ahead with incorporation. The documents you need for this purpose include;
- Memorandum and Article of Association / Constitution
- Statuary Declaration By A Director Or Promoter Before Appointment
- Declaration of Compliance
- Company name’s approval letter from SSM (one copy).
- Identity card of every director and company secretary (one copy each).
9. Incorporate your company
You need to submit the Incorporation Documents to SSM within the three months from the approval date of the company’s name by SSM. You will need to apply for a new name search if you fail to lodge your incorporation documents to SMM within 3 months.
The Companies Commission of Malaysia (SSM) serves as an agency to incorporate companies and register businesses in Malaysia. In order to register your company, you will need to follow these steps.
A name search must be conducted to determine whether the proposed name of your company is available for registration. The name should be the same as the one registered in your company’s country of origin. To apply for the name search, you will need to submit a completed Form 13A of the CA (Request for Availability of Name) to SSM, and pay a RM30 fee for each name applied.
After you have received approval of your company’s name, you then have three months to submit the following registration documents.
- A certified copy of the certificate of incorporation or registration of the foreign company.
- A certified copy of the foreign company’s charter, statute, or Memorandum and Articles of Association, or other instrument defining its constitution.
- Form 79 (Return by Foreign Company Giving Particulars of Directors and Changes of Particulars).
- A memorandum of appointment or power of attorney authorising the person(s) residing in Malaysia to accept on behalf of the foreign company any notices required to be served.
- Form 80 (Statutory Declaration by Agent of Foreign Company).
- The original copy of Form 13A and a copy of the letter from SSM approving the name of the foreign company.
A certificate of registration will then be issued by SSM if you have met all these requirements.
10. Pay registration fees
Once you have gotten your company incorporated, you now have to think of ways to pay your registration fee. The Company registration fee is RM1,000.
11. Issuance of a Certificate of Registration
You will get your new business Registration Certificate within one hour after the registration fee has been paid.
12. Sort out tax registration
Tax implications and compliance requirements should never be an after-thought. At the early stage of deciding on the type of business vehicle to use, due consideration should be given to the different income tax rates, allowable tax deductions, availability of tax incentives, burden of tax filings and compliance, that may vary depending on whether one uses a private limited company, limited liability partnership, partnership or sole proprietor.
The main types of taxes that most businesses will contend with are income tax, withholding tax, real property gains tax, stamp duty, goods and services tax (GST).
Leaving GST registration as an afterthought may result in missed opportunities to claim valuable input tax credits on big ticket setup costs incurred. Similarly, knowing which pre-operational and pre-commencement of business costs that are tax deductible against Malaysian income tax may give you instant tax savings for your business.
13. Hire employees
Malaysia offers a sizeable pool of educated and skilled human resources, at relatively affordable wages, many with the ability to speak multiple languages or dialects (mainly English, Malay, Chinese, Tamil, Cantonese, Hokkien). There is also a high mobility of talent from smaller cities in Malaysia who are hungry for the opportunity of better career prospects.
Every business owner should be mindful of its obligations as an employer with regard to employee related statutory deductions and contributions (such as Employees’ Provident Fund, Social Security Organization, Human Resources Development Fund and Monthly Tax Deductions), prior to hiring its first employees.
14. Seek Local Professional Advice
While it is not impossible to get things done by one’s self, certain critical applications, filings or submissions may be challenging without engaging local service providers, agents or runners familiar with the nuances and idiosyncrasies of the system.
Examples of critical steps that may be challenging to accomplish without the assistance of such services providers include procuring business premise and signboard licenses from municipal councils, work visas and permits from the immigration department, filing of documents with the state land offices for property related dealings, tax related registrations and filings etc.
Malaysia’s national language (Bahasa Malaysia) is the default language used at government offices and for official documents, often without English translations being readily available. Foreigners may also experience difficulty in getting accurate information or updated documents online or through telephone enquiries, and may often find that certain processes are best done ‘over the counter’.
Therefore, shortlisting and engaging professional services such as accountants, auditors, tax agents, corporate secretaries, lawyers, work permit and visa agents, intellectual property agents, property agents etc, is a critical first step. These professionals will also be able connect you with other service professionals or specialists, which will save invaluable time, money and ultimately, frustration.