Ideas & Insights

Our knowledge base of ideas and insights that demonstrates our understanding of your business challenges and requirement.

Doing Business in Malaysia

Chapter 1 Malaysia – An Introduction

1.1 Overview

Malaysia is a federal constitutional monarchy in Southeast Asia. It is made up of two distinct regions – Peninsular Malaysia and East Malaysia. Malaysia consists of thirteen States and three Federal territories. Eleven States consists of Perlis, Kedah, Penang, Perak, Selangor, Negeri Sembilan, Melaka, Johor, Pahang, Terengganu, Kelantan and two Federal Territory consists of Kuala Lumpur and Putrajaya located in Peninsular Malaysia and two states consists of Sabah and Sarawak and Federal Territory of Labuan located in East Malaysia.

1.2 Geography and Climate

Malaysia (3° 8′ 0″ N, 101° 42′ 0″ E) is located in the heart of South East Asia and close to the equator and has total land size of approximately 329,847km2. Peninsular Malaysia occupies only about 40% of the total land area. Malaysia has tropical rainforest climate with no distinctive seasons. Temperatures usually range from 23℃ to 32℃.

1.3 Population

Malaysia is a multi-cultural population country. Malaysia has approximately 28.33million population (based on 2010 census). The population is made up of Malays, Chinese, Indian, Indigenous people and others. The Malaysian Constitution guarantees freedom of worship for other religion while making Islam the state religion.

1.4 Government and Politics

Malaysia is a federal constitutional elective monarchy country, with a legal system based on English common law. The Supreme Head of State is Yang di- Pertuan Agong, commonly referred to as the king. The Yang di-Pertuan Agong is elected to a five year term from among the nine State Ruler by the Conference of Rulers and holds office for five years.

1.5 Language and Currency

The official language for Malaysia is Bahasa Malaysia, also known as Malay Language. English is widely used for business, commerce and industry and in the tourism industry. Apart from English, Mandarin and Tamil are the next commonly spoken.

The official currency of Malaysia is Malaysia Ringgit (MYR or RM). One Malaysia Ringgit = 100 cents. Larger establishments and major hotel readily accept foreign currency. Foreign currency also can exchange at licensed money changer or banks.

1.6 Transportation and Communication

Malaysia has one of the best developed transport and communication system in South East Asia.

Airport

Presently, there are 5 international airports and 15 domestic airports in Malaysia and 19 others aerodromes. Among all the international airport, Kuala Lumpur International Airport (KLIA) is the largest airport and has been awarded one of the best airports in the world. Presently, Malaysia has two major airline operators – Malaysia Airlines System and Air Asia. Malaysia Airline having received more than 100 awards in the past 10 years and Air Asia has been awarded “World’s Best Low Cost Airline”.

Ports

Malaysia has seven federal ports are under the jurisdiction of the Ministry of Transport. At present, Port Klang, Penang Port, Johor Port, Port of Tanjung Pelepas, Kuantan Port, Kemaman Port are located in Peninsular Malaysia and Bintulu Port in Sarawak. Bintulu Port also the only port which handles liquefied natural gas.

Road and Railway

Travel and transport by land in Peninsular Malaysia is well served by an extensive motorway. The Malaysian Highway Authority supervises and executes the design, construction, regulation, operation and maintenance of highway. Expressway link all major township and potential development areas.

Keretapi Tanah Melayu Berhad (KTM), which operates the train in Peninsular Malaysia. Its network runs the length and width of Peninsular Malaysia.

The Kuala Lumpur Sentral (KL Sentral) served as transportation hub integrating all major rail transport network.

Postal Services

Pos Malaysia is the exclusive provider of mail services in Malaysia.

Telecommunication

Malaysia has five telco’s and networks facilities providers support full range of services consists of voice, data and other advanced communication services. Malaysia is linked to the rest of the world through various satellite and fibre optic.

1.7 Utilities

Electricity

Malaysia enjoys ample supply of electricity throughout the country. The national utility company – Tenaga Nasional Berhad (TNB) supplies power to Peninsular Malaysia, while Sabah Electricity Sdn. Bhd. (SESB) and Sarawak Electricity Supply Corporation (SESCO) supply power to Sabah and Sarawak respectively.

Water

Malaysian enjoys a 24-hours supply of water and water is fully treated and reliable in safe in term of quantity and quality.

Chapter 2 Types of Business Organisation

2.1 Operating Structure

In Malaysia, business may be conducted in any one of the following forms:

  1. By an individual operating as a sole proprietor;
  2. By two or more (but not more than 20) persons in partnership
  3. By a locally incorporated company or by a foreign company registered under the provisions of the Companies Act 1965.

All sole proprietorships and partnerships in Malaysia must be registered with the Companies Commission of Malaysia (SSM) under the Registration of Businesses Act 1956. In the case of partnership, partners are both jointly and severally liable for the debts and obligations of the partnership should its assets insufficient. Formal partnership deeds may be drawn up governing the rights and obligations of each partner but this is not obligatory.

In practice, only Malaysians who are residents in Malaysia are allowed to register a sole proprietorship or partnership.

2.2 Company Structure

Companies in Malaysia are regulated by The Companies Act 2016. The Act stipulates that a person that a person must register a company with SSM prior commence of any business activity. There are three types of companies:-

  1. A company limited by shares – personal liability of its members is limited to the amount of their shares and the number of shares taken or agreed to be taken by them. Company limited by shares can be either private (Sendirian Berhad or Sdn. Bhd.) or Public (Berhad or Bhd.)
  2. A company limited by guarantee – members guarantee to meet liability up to an amount nominated in the Constitution in the event of the company being wound up.
  3. An unlimited company – where there is no limit to the members’ liability

2.2.1 Company Limited by Shares

This is the most common company structure in Malaysia. Company having a share capital may be incorporated as a private company in accordance to the provision of the Company Act 2016.

  1. Restricts the right to transfer its shares.
  2. Limit the number of its members to fifty (50), excluding employees in the employment of the company or its subsidiary and some former employees of the company or its subsidiary.
  3. Prohibits any invitation to the public to subscribe for its shares and debentures.
  4. Prohibits any invitation to the public to deposit money with the company.

A public company can be formed or alternatively, a private company can be converted into a public company subject to Section 41 (2) of the Companies Act 2016. Such company can offer shares to the public provided:-

  1. It has registered a prospectus with the Securities Commission.
  2. It has lodged a copy of the prospectus with the SSM on or before the date of the issue.

A public company can apply to have its shares quoted on the Bursa Malaysia, subject to compliance with the requirements set by Bursa Malaysia.

2.2.2 Branch of Foreign Company

Foreign company shall register with SSM if they desiring to conduct business in Malaysia. Every foreign company must lodge with SSM for registration, and using prescribed form for notice of the situation of its registered office within one month.

2.2.3 Representative Office

Foreign Corporation may also apply to MIDA for setting up a representative office. In general, representative office serves as a promotional and liaison office of the parent company.

2.3 Basic Requirements and Procedures for Company Incorporation (Private Company)

Generally, principal requirements for company incorporation as follow:-

  1. Obtaining approved name by Companies Commission of Malaysia.
  2. At least One director, who has principal or only place of residence within Malaysia.
  3. Having minimum One or more shareholders and can be natural or corporate company.
  4. Having Registered office in Malaysia.
  5. Constitution is optional and can be adopted anytime up to decision of the Board.
  6. Company Secretary is optional at the point of Company Incorporation. Within 30 days after Incorporation, at least one company secretary must be appointed.

2.4 Stamp Duty

one-off stamp duty upon the incorporation of company.

2.5 Company Administration

2.5.1 Director

Company must have at least One director. Director must be natural person, 18 years of age and above. The duties and responsibilities of director are set out in the Companies Act 2016 and so modified by the Constitution of the Company.

2.5.2 Company Secretary

Company must appoint a company secretary. Company secretary must be a natural person, 18 years of age and above and a member of professional body approved under the Companies Act 2016.

2.5.3 Registered Office

A company must have a registered office. Under the Companies Act 2016, all books, registers and documents required to be kept at the registered office.

2.5.4 Auditor

Every company requires appointing an approved auditor licensed by Ministry of Finance and approved under Companies Act 2016.

2.5.5 Statutory Filing (Annual Return) and Financial Reporting

The Companies Act 2016 de-couples the filing requirement of Audited Financial Statements and Annual Returns.

The Audited Financial Statements are required to be lodged with Companies Commission of Malaysia as follows:

  1. In the case of private company, within 30 days after the audited financial statements have been circulated to members; and
  2. In the case of Public Companies, within 30 days after the audited financial statements have been tabled at the Annual General Meeting.

The Annual Returns are required to be lodged with Companies Commission of Malaysia within 30 days of the anniversary of a company’s incorporation date.

Chapter 3 Immigration Procedure

3.1 Passport Requirement

All persons entering Malaysia must possess valid national passport or other internationally recognised travel documents valid for travel to Malaysia. These travelling documents must be valid for at least six months beyond the date of entry into Malaysia.

3.2 Visa Requirements

There are certain countries require visa enter into Malaysia. Please refer to APPENDIX II.

For national of Israel, visas and prior approval from Malaysia’s Ministry of Internal Security are required.

For nationals of Republic of Serbia and the Republic of Montenegro, visas and prior approval from Malaysia’s Ministry of Home Affair are required.

Chapter 4 Labour Force

4.1 Manpower

Malaysia offers investor youth labour force which is diligent, disciplined, educated and trainable labour force. Youth who enter into the labour market would have undergone at least 11 years (min 6 years for primary school and min 5 years for secondary school).

4.2 Manpower Development

For the purpose of satisfy the country’s technological and economic development needs. The national vocational Training Council (NVCT), under the Ministry of Human Resource was established in 1989. Presently, NVCT has changed its name to Department of Skills Development (DSD).

4.3 Labour Cost

With effective 1sts January 2013, Malaysia implemented minimum wages. Currently minimum wages for peninsular Malaysia is RM900 and for East Malaysia is RM800.

4.4 Employment of Expatriate

Foreigners are welcome to take up employment in Malaysia. However they are only allowed to take up employment in the area where there is shortage of trained Malaysians to do the job.

The Malaysian Government has issued the following new guidelines on the employment of expatriate to further improve Malaysia’s investment environment: –

  1. Manufacturing companies with foreign paid-up capital of US$2 million and above:
    1. Automatic approval is given for up to 10 expatriate posts, including five key posts.
    2. Expatriates can be employed for up to a maximum 10 years for executive posts, and five years for non-executive posts.
  2. Manufacturing companies with foreign paid-up capital of more than US$200,000 but less than US$2 million:
    1. Automatic approval is given for up to five expatriate posts, including at least one key post.
    2. Expatriate can be employed for up to a maximum 10 years for executive posts, and five years for non-executive posts.
  3. Manufacturing companies with foreign paid-up capital of less than US$200,000 will be considered for both key posts and time posts based on current guidelines. They are:

    1. Key posts can be considered where the foreign paid-up capital is at least RM500,000. This amount, however, is only a guideline and the number of key posts allowed depends on the merits of each case.
    2. Time posts can be considered for up to 10 years for executive posts that require professional qualifications and practical experience, and five years for non-executive posts that require technical skills and experience. For these posts, Malaysians must be trained to eventually take over the posts.

For Malaysian-owned manufacturing companies, approval for the employment of expatriates for technical posts, including R & D posts, will be given as requested.

4.5 Employment of Foreign Workers

Foreign workers can be employed in the manufacturing, construction, plantation, agriculture, services and domestic help sector. Services sector consists of fourteen sub sectors (restaurant, launderette, welfare homes, cleaning services, wholesale/ retail, goldsmith, barber, metal/ scrap/recycle activities, cargo handling, hotel, caddy in golf club, textile and spa/ reflexology).

4.6 Labour Standard

There are Acts and Ordinances are in place to maintain the industrial harmony. Please refer to APPENDIX III.

Chapter 5 Taxation

5.1 Corporate Taxation

Malaysia’s taxes regulated by self-assessment system for corporate and individual taxpayer, taxes are also assessed on current year basis. Taxation system consists of direct taxation and indirect taxation.

Direct taxes:-

  1. Income Tax;
  2. Real Property Gains Tax (RPGT)
  3. Petroleum Income Tax
  4. Stamp Duty

Indirect Taxes:-

  1. Excise Duty
  2. Import and Export Duty
  3. Sales Tax (Abolished on 31 Mar 15)
  4. Service Tax (Abolished on 31 Mar 15)
  5. GST (Effective on 1 Apr 15)

With effect from year of assessment 2017, the corporate tax for resident companies will taxed 24% while income tax for small and medium enterprises (defined as company having paid-up capital of less than RM2.5 million) are taxed at preferential rate of 18% (YA2016: 19%) on their first RM500,000 chargeable income. For non-resident company/branch, the tax rate is at 24%. For Oil and Gas Company the tax rate is 38%.

With effective 1st April 2015, Malaysia government introduce Goods and Services Tax at rate of 6%.

Besides that, Malaysian Government also offered wide range of tax incentives to attract foreign investor. Please refer to APPENDIX IV.

To encourage foreign investment, Malaysia has concluded Investment Guarantee Agreement (IGAs) with most of the countries in the world. Please refer to APPENDIX V.

Malaysia has entered into Double Taxation Agreement with the countries listed in APPENDIX VI.

With effect from 1 January 2014, the RPGT rates for the disposal of real property and shares in real property companies are as per APPENDIX VII.

5.2 Personal Income Tax

Resident individual subject to income tax at graduated tax rates after deduction of personal relief. Please refer to APPENDIX VII for resident individual tax rates and Personal Relief APPENDIX VIII. For non-resident individual, are taxed at a flat rate of 28%.

 

Note:
For APPENDIX please refer to PDF

Download PDF