Types of business entities in Malaysia

CLA Consultants assists our multi-national Clients’ with Malaysia company set up including choosing the optimum corporate structure and entity. There are several ways of doing business in Malaysia, the most common being the setting up of a limited liability company (also known as Sendirian Berhad or “Sdn. Bhd.”). Foreign companies can also register a branch in Malaysia, or a representative office.

The Malaysia Limited liability company (SDN BHD)

A private limited liability company (also known as Sendirian Berhad or “Sdn. Bhd.”) is the most popular type of Malaysia subsidiary. Companies can incorporate this type of subsidiary with 1 shareholder and 1 director. The subsidiary can be registered with 100% foreign ownership. If needed, CLA Consultants can provide our Clients with nominee services for resident director in Malaysia
After incorporation of the company, CLA Consultants will register the company with the Inland Revenue Department for corporate tax and employer registration. If needed, we can also register the company for GST
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
A subsidiary and a private limited company (Sdn. Bhd.) are quite similar. However, setting up a subsidiary can be difficult and rigorous compared to incorporating a private limited company (Sdn. Bhd.). More documents are needed such as board of resolution from parent company to approve the incorporation of a subsidiary company, memorandum of appointment or power of attorney authorising the person residing in Malaysia to accept the notices on behalf of the parent company, statutory declaration by the agent of the parent company, company particulars of parent company certified by the appointed company secretary.

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 section.

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; and
For our readers interested to read more about this tax exempt strategy, CLA Consultants has prepared a specific section on such business entity; and
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.

Steps for incorporating business in Malaysia through a Labuan company

Pre-incorporation procedure

Consultation: Following a face-to-face meeting or conference call, CLA Consultants Group and the Client agree on: i) specific business activity and license requirements ii) target company names and their availability, and iii) share capital requirements;
Reserve name: Once formally engaged, our dedicated Labuan relationship manager will conclude a business name search with the Labuan Companies Registrar (IBFC) and reserve several options in order of preference. If available, we file the name reservation and settle the RM50 reservation fee;

Incorporation procedure

Document preparation: Our team prepares i) Memorandum and Articles of Incorporation ii) Declaration of compliance Form 6 and iii) director/shareholder consent Form 24. In addition, we prefill all other required forms and email them to our Client for e-signature. The Government fee for form submission is RM6,000;
Company Incorporation: We submit signed documents to IBFC to complete incorporation of the new company. The company is registered within eight business days, after which we email the Certificate of Incorporation (COI) to our Client;

Post-incorporation procedure

Tax registration: Following company formation, CLA Consultants Group registers our Client’s company for tax, completing and submitting Form CP600C to the Inland Revenue Board;
Corporate bank account opening: Once above is completed, we open a local Malaysian corporate bank account with our Client’s preferred local or international bank. Thereafter, CLA Consultants Group and our Client agree upon and courier the original corporate bank account forms to the company’s agent in Labuan. We work with internationally recognised banks including Standard Chartered, DBS and local banks such as Maybank and CIMB. Immediately after bank account opening, our Client deposits the initial share capital of the company;
Internet banking activation: Having received the corporate bank account number, we request the bank to activate internet banking and issue tokens to the company directors. This process is typically completed within one business week;
Support services: If required, our team can offer support services including i) securing employee visas ii) locating office premises iii) registering trademarks
Engagement completion: The Labuan company incorporation engagement is considered complete. We courier a company kit to our Client, including original corporate documents, unopened bank correspondences and a Client feedback survey.

Other considerations

A Labuan company can lease office premises in Kuala Lumpur and/or Iskandar Malaysia, Johor Bahru;
As per the LBATA Amendments 2019, a Labuan company can now issue sales invoices to Malaysia customers and conduct sales in Malaysian Ringgit. Moreover, all other global income can be booked into the Labuan company;
All Labuan trading companies dealing with Malaysia resident companies are subject to 17% corporate tax on chargeable income below RM500,000 and 24% for income above this threshold;
All Labuan companies can secure Malaysia employment visas for staff;
To curb tax evasion and other harmful tax practices, since January 2019 Labuan companies have been subject to new economic substance requirements. Companies operating in certain sectors must now hire full-time employees, and meet minimum annual operating expenditure requirements in Labuan;
Companies which do not meet substance requirements are liable to pay a tax rate of 24% on taxable profits, as per the Income Tax Act 1967. Companies operating under the regulations of the Labuan Business Activity Tax Act 1990 are taxed at 3% of audited profits.
All Labuan companies must always secure and maintain an office space in Labuan, if they plan to hire expatriate staff;
In addition to the annual Labuan Government fees, an annual fee of RM7,500 will be payable to the Malaysia Government.

Work permit considerations

To be eligible for a Malaysia work permit, an expatriate employee of a Labuan company must be: i) Top management (Managing Director, Principal Officer) ii) Chief Executive Officer, Chief Financial Officer, Chief Operating Officer iii) Middle management (Manager, Assistant Manager) iv) Professional (Accountant, Lawyer, Consultant, Underwriter) v) Technical expert (IT Specialist, other specialist related to Labuan trading activity);
The employer must have a valid address in Malaysia;
The applicant must have the technical and academic qualification, professional certificate or relevant working experience related to the position applied.

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.

The Malaysia branch office

Setting up a branch is more appropriate for a foreign company which plans to operate in Malaysia on a short-term basis and is not carrying out wholesale or trade retail businesses. A branch does not have a separate legal personality, so its liabilities are those of its parent company. The branch office can engage in business activities, which involve trade, invoicing, and signing contracts.
A branch of a foreign company is required to have at least 1 person resident in Malaysia to be the authorised agent in Malaysia. A branch of a foreign company in Malaysia must keep the records of its Malaysian operations in Malaysia. The appointed agent shall be answerable for the acts, matters and things, as are required to be done by the foreign company under the Companies Act 2016; and be personally liable for all penalties imposed on the foreign company for any contravention of the Companies Act 2016.
Branch registration can be done by filing the required documentation with Suruhanjaya Syarikat Malaysia (SSM).
The required supporting documents include: A certified copy of the certificate of incorporation or registration of the foreign company in its place of origin, a certified copy of its charter/statute/memorandum and articles of association, or other instruments constituting or defining its constitution, memorandum duly executed by the foreign company stating the powers of the local directors, where the foreign company has directors resident in Malaysia who are members of the local board of the directors, memorandum of appointment for the appointment of the agent in Malaysia, which must be verified by statutory declaration and stamped, memorandum of appointment, or power of attorney, under the seal of the foreign company, executed so as to be binding on the company, stating the name and address of one or more persons resident in Malaysia (not including a foreign company), authorised to accept on its behalf service of process, and any notices required to be served on the company, following registration by the CCM.
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.

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, because it is not a permanent business setup in Malaysia; and
The establishment of a representative is suitable for foreign investors who wish to explore the business environment in Malaysia before making investment decisions, e.g. market research, feasibility studies, promotional and liaison work on behalf of its principal entity. The proposed operational expenditure of a representative must be at least RM300,000 per annum. The representative office should be financed by funds emanating from sources outside Malaysia; and
The procedure to establish a representative office is fast and relatively straightforward. An application with the required supporting documentation must be submitted to the Malaysian Investment Development Authority (MIDA) which will issue authorisation if the legal requirements are met. The process generally takes an average of six weeks and when issued the authorisation is usually valid for two years depending on the merits of the application; and
Employees are generally limited to one expatriate, who is subject to income tax at the usual rates in Malaysia. Application may be made to MIDA for additional work permits for other expat employees, should additional employees be required.
Permissible activities for a representative/regional office include i) planning or co-ordinating business activities and ii) undertaking research and product development and iii) other activities that will not result directly in actual commercial transactions.
Under the guidelines issued by MIDA, a representative/regional office is not allowed to i) engage in any form of commercial activity and ii) lease warehousing facilities and iii) sign business contracts for a fee and iv) participate in the daily management of any entity within its corporate group in Malaysia.

Contact us

For more info on company registration, please contact our expert directly:

Mr. Petar Chakarov
Senior Manager, Sales & Business Development
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