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Easy But Complicated : Setting Up A Business in Malaysia (Part 1)

A guru once said that life is hard but not complicated. Doing business in Malaysia is just the opposite according to the survey released this year by the World Bank Group.

In 2016 out of 183 countries surveyed, Malaysia is ranked 18th easiest in the world for doing business. Australia is  at 13th place, Singapore is in first place, and New Zealand is third.

For first timers to the country the web of bureaucracy and the seeming lack of consistency and transparency can at times prove challenging. Still, for investors who do their requisite homework and engage with the right people, setting up business in Malaysia is often rewarding and relatively pain-free.

A. The Business Entity

The most common business entities in Malaysia are:

1) Sole Proprietorship (commonly called an “enterprise”)
2) Partnership of 2 or more person (commonly called a “firm”)
3) Private Limited Company (Sendirian Berhad or Sdn Bhd)
4) Public Limited Company (Berhad or Bhd)

Although not expressly stated, the Registrar of Business (ROB), which regulates the setting up of unincorporated business entities, in practice does not allow the setting up of sole proprietorships or partnerships by foreigners.

B. Setting up a Presence

Foreigners can choose one of 3 ways to set up a presence in Malaysia:

i) Representative or Regional Office (Rep Office)

A foreign company may establish a rep office in Malaysia to perform certain limited activities for its head office or principal. A rep office does not have to be incorporated as a company in Malaysia. However, a rep office is not allowed to have any business transaction or to derive income from its operation in Malaysia

The permissible activities are as follows:
a. planning or coordinating of business activities;
b. gathering and analysis of information or undertaking feasibility studies pertaining to investment and business opportunities in Malaysia and in this region;
c. identifying sources of raw materials, components or other industrial products;
d. research and product development;
e. as a coordination centre for the corporation’s affiliates, subsidiaries, agents in the region;and
f. other activities which will not result directly in actual commercial transactions.
A rep office is allowed to bring in expatriates into the country for managerial and technical posts depending on the size of its operational expenditure, purpose and function.

The application for permission to set up a representative office must be obtained from the government: the Ministry of Trade and Industry MITI (for trading businesses), Malaysia Investment Development Authority MIDA (for investment in manufacturing and services), Bank Negara Malaysia (for foreign banks) and Ministry of Tourism (for travel related services).

ii) Branch of a Foreign Company (Branch Office)

Instead of registering a fresh local company in Malaysia, the foreign investor may choose to incorporate his existing company here as a branch office.

The procedures for a branch office involve more paperwork than those for a locally incorporated company. The certificate of incorporation, memorandum and articles of association and particulars of directors of the foreign company must be lodged (Form 79) as must a power of attorney appointing persons residing in Malaysia as agent together with a statutory declaration by the agent of the foreign company (form 80).

The disadvantage of setting up a branch office is the higher cost of registration as the fees are based on the share capital of the foreign parent company overseas in foreign currency converted to Ringgit (MYR) at the prevailing exchange rate.

NOMINAL SHARE CAPITAL (MYR equivalent) FEES (MYR)
Up to 100,000———————————————— 1,000
100,001 – 500,000—————————————– 3,000
500,001 -1 million——————————————- 5,000
1,000,001 – 5 million————————————– 8,000
5,000,001 – 10 million———————————— 10,000
10,000,001 – 25 million——————————— 20,000
25,000,001 – 50 million——————————— 40,000
50,000,001 – 100 million——————————- 50,000
100,000,001 and above——————————— 70,000

iii) Locally incorporated Company (Sdn Bhd)

Foreigners wishing to incorporate a Sdn Bhd can either buy a ready made company off the shelf or (if choice of name is important and they have an extra 2 or 3 weeks of time to spare) incorporate one from scratch.

The requirements are:

(a) a starting minimum authorized capital of RM100,000
(b) a starting minimum paid up capital of RM2
(c) at least 2 directors (not necessarily Malaysian citizens or PR) who are ordinarily resident here
(d) at least 2 shareholders (who can also be the directors)

THIS CONTENT SHOULD NOT BE CONSTRUED AS LEGAL ADVICE.

Kerk Boon Leng