The Guide to Corporate Establishment in Malaysia
By: Dezan Shira & Associates
Editor: Eugenia Lotova
As a country that has rapidly developed itself into a center for business, investing in Malaysia proves to be a reliable and uncomplicated process. It ranks in the top 10 percent of all countries in terms of ease of doing business, according to the World Bank Group. Malaysia also provides a stable, business friendly government, developed infrastructure, and ranks sixth in goods market efficiency.
Investors looking to get involved in ASEAN can establish a presence in Malaysia relatively easily, assuming they do their due diligence. In the case of uncertainty, it is important to resolve all issues with the appropriate authority or a business advisor to maintain compliance.
This article outlines the general steps required to set up a Representative Office (RO) and a Private Limited Company (Sdn Bhd), which allow foreign companies to establish a presence in Malaysia. The type of investment that is best suited for a company depends on the kind of operations meant to be conducted in the country.
Options for Investment
ROs are a suitable option for investors that hope to familiarize themselves with the Malaysian market. It is easier to set up an RO than a private limited company, but the allowable functions of the RO are heavily limited. In addition, Malaysian authorities must approve the registration of the office, which affects how quickly an RO can be established. ROs focus on research and development, planning business activities, and identifying business opportunities, without directly participating in commercial activity or profit generation. By utilizing a two-year license (at the minimum), a company can explore this market at a relatively low risk without having to comply with the numerous requirements involved in an Sdn Bhd.
Investors looking to do business in Malaysia will have much more flexibility and freedom if they incorporate a Private Limited Company rather than set up an RO. There are considerably fewer restrictions on the type of business they can conduct, such as participating in profit generating activities and buying real estate. Nonetheless, there are some staffing requirements, and while a 100 percent FOE trade license is difficult to obtain and requires the applicant to have a unique business idea in a controlled industry, an Sdn Bhd company has a major advantage: shareholders are only liable up to the capital amount they contribute.
Option 1: RO
An RO does not have to be incorporated or registered. It must be entirely funded by the parent company.
Step 1 – Staffing
The functions of an RO are meant to be limited in scope, so the staffing needs and allowances are generally small. The number of expatriate staff allowed to work at an RO is generally restricted to a single chief representative, however, there are exceptions based on the industry and time since establishment of the RO. Work permits for RO staff are issued for two years and are renewable.
Step 2 – Registration
ROs may be established for at least two years with a minimum annual proposed capital expenditure of RM300,000. To complete the registration process the following should be completed:
- RO application
- Identity Documents: copy of the passport, CV, and certified academic qualification of the expatriate applicant
- Commercial bank account: must be opened as part of the registration process
- Office: must be leased as part of the registration process
Step 3 – Compliance
Since the scope of an RO is small, there are few compliance requirements. The main area of compliance that should be observed is the submission of a semiannual report on activities. Companies should also check with relevant authorities to rule out any taxation obligations. This is of increasing importance for companies involved in e-commerce.
Option 2: Private Limited Company (Sdn Bhd)
Once can either incorporate a local company or register the foreign company when establishing an Sdn Bhd.
Step 1 – Name Approval
Companies attempting to invest in Malaysia must submit an application to gain approval for the company’s name. If registering a foreign company, the organization must have the same name as the company in home country. In order to obtain name approval, companies must submit Form 13A to the Companies Commission of Malaysia (SSM) and pay a fee of RM30 per proposed name.
Step 2 – Staffing
In order to successfully register a foreign company, the following staffing requirements must be met:
- 2 Directors: these individuals must be 18 years of age, be residing in Malaysia, and have no criminal convictions on their record. While the minimum number of directors is set at two, there is currently no maximum on the number of directors that a company may appoint.
- 2 Shareholders: these shareholders may be individual or corporate but may not exceed 50.
- 1 Company Secretary: must be licensed by the Malaysia Company Secretaries Association, and be a natural person residing in Malaysia. It is common for the office of the company secretary and the registered office of the company are usually one in the same.
- 1 Auditor: must be licensed to audit in Malaysia and is required to be appointed before the first Annual General Meeting (see compliance requirements below for more information).
Step 3 – Registration
Once a name has been approved, the company must submit certified copies of the following documents within three months from date of approval. The documents that are required will vary depending on the nature of the investment. Capital requirements: recommended authorized capital is RM100,000 and minimum paid-up capital is RM2* (this amount is different if the company is not 100 percent foreign-owned).
- Certificate of incorporation
- Certificate of registration
- Corporate Charter
- Form 79 (if member of local board of directors resides in Malaysia, this form must enumerate the individual’s responsibilities)
- Power of attorney: to be granted to a Malaysian national
- Form 80
- Form 13A Original
- Approval of company name: issued by the SSM
- Registration fees: vary depending on the nominal share capital
Step 4 – Licensing
Once a location for a new office has been established and a commercial bank account has been opened, in order to acquire work permits, one needs to apply for a local town council license and the appropriate trade license—often a whole, retail trade (WRT) license.
Step 5 – Compliance
All companies are required to hold an annual general meeting (AGM). The first one is to be held in the 18 months of the incorporation of the company or six months from the end of the financial year, whichever is earlier. After this, the AGM is to be held at least every 15 months or six months from the end of the financial year, whichever is earlier.
In order for foreign companies to maintain registration in Malaysia, the following documents must be submitted at the appropriate time:
- Annual return
- Balance sheet
- Assets and liabilities statement
- Audited profit and loss account
- Audited report
- Various taxes: depending on the revenue generated
Even in a country known for its ease of conducting business, establishing a presence in Malaysia can prove to be a complex task, particularly in the case of obtaining a WRT license. With decades of experience helping companies set up business operations in the region, the specialists at Dezan Shira & Associates are well placed to help companies overcome these challenges. For more information, please get in touch with our specialists at email@example.com.
Asia Briefing Ltd. is a subsidiary of Dezan Shira & Associates. Dezan Shira is a specialist foreign direct investment practice, providing corporate establishment, business advisory, tax advisory and compliance, accounting, payroll, due diligence and financial review services to multinationals investing in China, Hong Kong, India, Vietnam, Singapore and the rest of ASEAN. For further information, please email firstname.lastname@example.org or visit www.dezshira.com.
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