A Complete Guide to Doing Business in Malaysia
Located in the heart of South East Asia, Malaysia provides the investors with a dynamic and encouraging business environment and setting for advancement and profits.
The country is a federal constitutional monarchy made up of 13 states along with three federal territories in East Malaysia and Peninsular Malaysia. The Federal Capital of Malaysia is Kuala Lumpur and Putrajaya is its administrative capital. Malaysia is constantly gaining a foothold as one of the favourite investment hubs to do business and company registration in Malaysia. Its high rank in the World Bank’s Ease of Doing Business proves that setting up a new start-up in Malaysia is not very tough; however, it could be difficult without professional guidance on how to register a company in Malaysia.
Doing Business in Malaysia
The foremost step for company registration in Malaysia is to be sure and know “why you want to set up or start your business in Malaysia?” This is important as it enables you to sort out your goals and purpose and the reason why you want to go for company formation in Malaysia. Once you are sure of your aim and intention of setting up your business, then you should start ask yourself the following questions?
- Do you have any specific or special skill?
- How do you plan to fund your business?
- How much capital is required and how much do you have?
- What is the unique business idea you have?
- Have you done proper market research?
1. Decide the type of business
There are various types of business entities possible in Malaysia. Each type of business entity has its own compliance needs, tax structure etc.
- In case you are a local entrepreneur, then you could go for registering a company in Malaysia either a Sole Proprietor, Limited Liability Partnership (LLP), General Partnership or Company.
- In case you are not a local resident and you want to go for company registration in Malaysia for foreigner, then there are two business entities available: a locally incorporated company or a foreign-owned company. If you are a foreign investor, you could establish a sole proprietorship or partnership in Malaysia only if you have permanent residency (PR) in Malaysia. Other available options for foreign investors are to register a company in Malaysia as either a private limited company, a representative office or a Labuan company.
2. Naming your business or company
Your business would also require a name, which will also be part of the marketing strategy and your brand identity. For this, you should do a name check after shortlisting some business names. After that, you need to register the name you choose with SSM to get a final approval for company formation in Malaysia.
3. Decide a physical location or your company’s office
Similarly as an apt name, you also need a good location for your office or business.
4. Registered office addresses
Every business in Malaysia should mandatorily have a registered local official address.
5. Organise the incorporation documents
You would require the following documents:
- Memorandum and Article of Association or Constitution
- Statuary Declaration by a director or promoter before appointment
- Declaration of Compliance
- Company name’s approval letter from Suruhanaya Syarikat Malaysia (SSM) (one copy is required).
- Identity card of all the directors and the company secretary (one copy each).
6. Company incorporation process
Now, you have to submit your incorporation documents to the SSM within three months starting from the approval date of your company’s name by SSM. You now have to apply for a new name in case you fail to submit your incorporation documents within this time frame.
7. Payment of registration fees
The registration fee for a company is RM 1,000.
8. Issuance of a Certificate of Registration
You will get your new business or company’s registration certificate within an hour of when you pay the registration fee.
The Malaysian economy has a strong competitive advantage in manufacturing and processing primary products because of its abundant natural resources along with a best-in-class infrastructure of transport and telecommunications. The country also provides a relatively lower cost business environment, manpower with high skills, and comparatively lower cost of salaries for qualified executives and professionals. The climate, lifestyle, educational opportunities and the accessibility to multilingual professionals who are competent in English and some key Asian languages like Chinese, Malay, Indian, and Indonesian are the main advantages. Malaysia is also a top tourist destination providing very exclusive traditional attractions amalgamated with modern-day development. The country has also launched special taxation and other financial incentives to foster foreign investment specifically in the fields of research and development and other promoted activities like information and communications, manufacturing, healthcare, biotechnology, education, and industrial-related technology.
Malaysian government has many financing schemes to enable entrepreneurs and SMEs and also make them aware about how to start a business in Malaysia. Besides that, the Malaysian government are also offering various grants to assist new businesses to develop and expand. Some such grants for Malaysia company formation are as follows:
1. Ministry of Energy, Science, Technology, Environment & Climate Change (“MESTECC”)
- Bioeconomy Transformation Programme or BTP (offered by Malaysian Biotechnology Corporation or MBC)
- Business Growth Fund (offered by Malaysian Technology Development Corporation Sdn Bhd or MTDC)
- Commercialisation of Research and development Fund (offered by Malaysian Technology Development Corporation Sdn Bhd or MTDC)
2. Ministry of Finance or MOF
- Cradle Investment Program Catalyst or CIP 500 (offered by Cradle Fund Sdn Bhd)
- Cradle Investment Programme 300 or CIP300 (offered by Cradle Fund Sdn Bhd)
- Cradle Seed ventures Fund 1 or CSVF1 (offered by Cradle Fund Sdn Bhd)
3. Ministry of Communications and Multimedia or KKMM
- Creative Industry development Fund or CIDF-SKMM (offered by Suruhanjaya CommunicAsia dan Multimedia Malaysia or SKMM)
- Product Development and Commercialisation Fund or PCF (offered by Multimedia Development Corporation Sdn Bhd or MDeC)
You should keep in mind the principal taxes that Malaysia follows:
1. Taxes on income
- Income tax
- Petroleum income tax
2. Taxes on transactions
- Customs and excise duties
- Sales tax Service tax
- Entertainment duty
- Stamp duty
- Windfall profit levy
- Contract levy
The taxation system in Malaysia is territorial in scope where the income derived from sources in the country and income that is received in the country from outside is subject to taxes. Malaysia has already signed Tax Treaties with more than 68 nations. The principal statute is the Income Tax (IT) Act, 1967 which administers the taxation of income. However, if you are interested in company registration in Malaysia for foreigner, please note that effective from Year of Assessment (YA) 2009, the applicable income tax rate applicable for corporations is 25% and for individuals or consultants is on graduated rates which goes up to 26%. Effective YA 2004, any income received in the country by any individual, other than a resident company conducting the banking business, sea or air transport, or insurance for a year of assessment which is derived from sources outside of the country is exempted from tax. To revolutionise and streamline the system of tax administration, the assessment of income tax was amended to a current year basis of assessment from YA 2000. This self-assessment system was executed for companies in YA 2001 and, for partnerships, businesses, co-operatives and also the salaried group, in YA 2004. Another advantage is that there are no capital gains taxes in Malaysia other than Real Property Gains Tax which is assessed on realty transactions and the rates of tax of 5%, which the Real Property Gains Tax has been deferred by the Malaysian Government since 1 April 2007 had been re-established starting from 1 January 2010. There are also some direct tax legislations including import duty and also excise duty varying between 5% to 300% and sales tax and service tax varying between 5% to 10%.
Foreign corporations (something like Malaysian corporations) are also taxed on income derived or accruing in Malaysia. To determine if the business profits have been derived from Malaysia, it is important to determine if the foreign corporation or company is “trading within” Malaysia (taxable in that case) or “trading with” Malaysia (remains non-taxable). In case a double taxation agreement is in force with the home country of the foreign corporation, then the taxation of company’s profits derived by the foreign corporation is only limited to the profits that can be attributed to its permanent establishment which is located in Malaysia.
Regarding incomes like royalties, service fees or interest that cannot be attributed to a business which is carried on in the country, then the tax liability of the non-resident would be settled by way of the withholding tax that is deducted by the paying entity. For instance, a withholding tax rate of 10% is levied on amounts received by a foreigner or non-resident individual for offering any advice, guidance or services rendered inside Malaysia (not limited to technical services or management services), or the provision of services concerning the installation or functioning of any plant or apparatus.