Malaysia has re-opened its border to international travelers after nearly two years of COVID-19 pandemic-related closures as the nation is transitioning to endemic phase, beginning 1 April 2022, We have seen many foreigners are getting interested in putting their investment in Malaysia and some of them even considering immigrating to Malaysia.
On top of that, Malaysia has a wide range of tax incentives offered to companies, such as the investment tax allowance given to companies operating in specified sectors, such as in machinery. Malaysia has also signed tax treaties with many countries to help foreign investors avoid double taxation.
As a foreigner, there are several ways that you could invest a business in Malaysia, with or without your physical presence in Malaysia: -
Set-up a foreign company
Invest in a local company
Merely observe the market and research first - set up a Representative Office
1. Set-Up a Foreign Company
While you are still in home country, you can engage a corporate services firm to help you in setting up a company in Malaysia even without your physical presence. Contact us if you require our assistance also.
Types of Companies Available to Foreigners
Labuan Companies
A Labuan trading company is a company established in Labuan, Malaysia that carries on certain Labuan trading or non-trading activities.
3 Keys Benefits of a Labuan Company are: -
100% Foreign Ownership;
Tax rate of 3% on audited net profits for companies that carry out trading activities, and 0% for companies that carry out non-trading activities; and
Permitted to deal with Malaysians
This is in comparison to the tax rate of 24% for other types of companies in Malaysia. Moreover, unlike companies such as the Sendirian Berhad, there is no restriction on the sector in which the Labuan company can operate.
To qualify for the Labuan tax incentives, a Labuan company must have a registered office in Labuan with the requisite number of full-time employees, and an adequate amount of operating expenditure (see below).
The registered office may be a virtual office, hence no physical presence in Malaysia is required.
To set up a Labuan company, there must be at least 1 director and 1 shareholder. The director and shareholder can be an individual or corporate entity.
Private Limited Companies
Foreign investors can set up a company, also known as a Sendirian Berhad (Sdn Bhd), with 100% foreign ownership. This is a private company that is limited by shareholding. The Sdn Bhd is a separate legal entity from its owners, and can raise capital through shares.
You do not have to be physically present in Malaysia as long as the director and shareholder requirements are fulfilled. To set up a Sdn Bhd, the company must have:
At least 1 director ordinarily resident in Malaysia,
1 shareholder; and
1 promoter.
A promoter is someone who helps to start the company, such as by raising capital.
Unlike the Labuan company, the Sdn Bhd can operate only in specific sectors, which include:
Maritime
Petroleum, oil and gas
Education
Banking and finance
Agriculture
Tourism outbound and ticketing
2. Invest in a Local Company
You may also invest by subscribing the shares of a local company. Contact us to prepare for Share Sale & Purchase Agreement or Shareholders Agreement to protect your interest and investment in the company.
If you are planning to be physically present in Malaysia to run the company actively, Visa/pass requirements to be fulfilled before setting up a company in Malaysia.
Foreigners who are planning to be physically present in Malaysia to run their company may need to first fulfil certain visa/pass requirements. The type of visa required will depend on the type of company that is set up, refer to the following:-
Types of companies
Labuan company
Labuan Company owners can apply 2-year renewable multiple entry Work Permit for all directors and expatriates together with their spouse and children aged under 21 with an option to stay in Malaysia (West Malaysia or Labuan). This Permit will allow those who are not residing in Malaysia entry in and out of the country to facilitate activities like business meetings and opening of bank accounts.
Joint Venture Private Limited Company (Sdn Bhd)
Foreign investors can enter into a joint venture with a Malaysian partner to set up a Joint Venture Private Limited Company (Sdn Bhd), with the Malaysian partner having minimum 50% control.
To set up a Joint Venture Sdn Bhd, the company must have at least 1 director and 1 shareholder. At least 1 of the directors must ordinarily reside in Malaysia, such as being a Malaysian permanent resident or being on a Residence Pass-Talent (RP-T).
The Residence Pass-Talent (RP-T) allows skilled expatriates to obtain a 10-year renewable pass to work and reside in Malaysia. The conditions for eligibility are:
To be considered for the RP-T, applicants have to first fulfill the following criteria:
Has worked in Malaysia for at least 3 years minimum and consecutively at the time of application.
Holds a valid Employment Pass with more than 3 months validity during the submission/resubmission of the application.
Earns a basic monthly salary of RM15,000 which excludes any allowances and/or bonuses.
Has a Malaysian income tax file number and has paid income tax for the most recent 2 years (minimum) at the time of application.
Holds a PhD/Master's/Bachelor's Degree or Diploma in any discipline from a recognised university or a professional/competency certificate from a recognised professional institute.
Possesses at least 5 years of total work experience.
Above is the MINIMUM criteria required for RP-T approvals. However, the approval status of the application is subject to the discretion of the RP-T Panel.
Paid-up capital requirements
There is no minimum paid-up capital to set up a Labuan company.
The minimum paid-up capital for an Sdn Bhd depends on whether it is 100% foreign-owned. 100% foreign-owned Sdn Bhd companies must have a minimum paid-up capital of RM 500,000 for advisory and consultancy businesses, and a minimum paid-up capital of RM 1 million for import, export, restaurant and trading businesses.
The Joint Venture Sdn Bhd has a minimum paid-up capital of RM 350,000 with an authorised capital of RM 500,000.
3. Merely Observe The Market & Conduct Research in Malaysia - Set Up A Representative Office
This is often the fastest and most cost-effective way for foreign investors to have a legal entity and study the local market before determining viable opportunities by setting up a Representative Office (RO) in Malaysia. However, do bear in mind that the RO is prohibited from earning any revenue and is limited to mainly market research, information gathering, and developing trade contracts in Malaysia.
Foreign businesses should also know that the RO is a non-trading entity and is thus not governed by the regulations under the Companies Act 2016. The RO is not permitted to earn any revenue in Malaysia.
How do you set up a representative office in Malaysia?
Most applications (excluding tourism, banking, and finance) are submitted to the Malaysian Investment Development Authority (MIDA).
Applications for ROs in banking and finance must be submitted to the Central Bank of Malaysia, and RO applications for tourism services must be submitted to the country’s Ministry of Tourism.
What are the required documents for setting up the representative office in Malaysia?
All documents must be certified by the notary and must be in the English language.
The required documents include:
Company profile of the parent company;
A completed application form stating the purpose of establishment, the activities of the proposed RO, the benefits the RO will bring to Malaysia, and the estimated cash flow and human resources requirements;
Copy of the parent company’s certificate of incorporation;
A copy of the parent company’s latest annual reports and audited accounts from the last two years;
Tenancy agreement for their business address in Malaysia;
Copy of passport for the approved expatriate;
Copy of their resume;
Copies of employment testimonials; and
One passport-size recent photo.
What are the permissible activities of a representative office in Malaysia?
The RO can undertake any of the following activities:
Gathering information on investment opportunities in Malaysia and the region;
Identifying components, sources of raw materials, or suppliers;
Undertake market research and development;
Act as a coordination center for the parent company’s affiliates, agents, and subsidiaries in the region; and
Other activities that do not result in commercial transactions.
What activities are representative offices not permitted to do in Malaysia?
In addition to commercial activities, ROs are also prohibited from:
Signing business contracts;
Participate in the daily operations of any subsidiaries or branches in Malaysia; and
Lease warehousing facilities.
What is the duration of the RO?
A company can establish the RO for a minimum of two years, which can be considered for extension depending on the company’s commitment to operating expenditure and based on the merits of each case.
What is the operational expenditure to set up an RO in Malaysia?
The ROs operational expenditure must be at least RM300,000 (US$63,000) per annum. Further, the RO needs to be financed from sources outside of Malaysia.
What Happens After Setting Up a Company in Malaysia?
Bank account
It is important that you open a bank account to keep personal and business finances separate.
It should also be noted that if you are not in Malaysia, it may be difficult for you to open a bank account. You will likely need to be present in Malaysia under a tourist visa, business visa or work permit to open a bank account there. Otherwise, you may wish to employ a corporate services firm to help with this.
Licences
Depending on the industry that your company is in, you may need to apply for licences to operate. Industries which require licences include food and beverage, land transportation services and tour operation. You may chat with us to enquire which type of licences required for your business.
Registration as a taxpayer
The company will need to register as a taxpayer with the Inland Revenue Board of Malaysia. Documents to be submitted include the:
Certificate of incorporation (Form 9)
Information of managers, company secretary and shareholders (Form 49)
List of shareholders (Form 24)
Registration with Employees’ Provident Fund
The company must register with the Employees’ Provident Fund within 7 days of hiring its first employee. This is done by submitting certified copies of the application Form KWSP 1, Form 49 to provide details of your directors and members, a certified copy of the identity card of one of the directors, a copy of the first month’s paycheck either in cheque or bank draft, and a copy of the Certificate of Registration from the SSM.
Annual audits
The Sdn Bhd and Joint Venture Sdn Bhd must prepare annual audited financial statements.
For Labuan companies, audited financial statements must be prepared if the company is a trading company.
Holding of Annual General Meeting (AGM)
A company must hold its first AGM within 18 months of incorporation, with subsequent AGMs held once every calendar year and not more than 15 months after the last AGM.
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If you are considering setting up a company in Malaysia, it is recommended that you engage a corporate services firm and law firm to assist you on the matter. This allows you to get advice from professionals who are familiar with Malaysia’s local laws and practices for setting up a company here.
Contact us for a complimentary legal consultation today.
By Angel Yap
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