There are many reasons why businesses in Singapore may want to start a company in Malaysia. Whether it’s exploring a new market, increasing manufacturing capacity, or shifting production to a lower-cost country, Singapore business owners may be eyeing expansion into neighbouring Malaysia.
News of Singapore and Malaysia working together to strengthen ties, including introducing a special economic zone and possibly passport-free travel, could also hint at growing business opportunities.
Before you start a business in Malaysia, there are a few things you must know such as the different business structures, legal and regulatory requirements, types of industry that are allowed (or prohibited), and your banking and taxes and HR requirements.
Types Of Business Structures (And Requirements)
You can decide either to incorporate a local company or register as a foreign company.
Depending on the nature of your business, it can take nearly a month to incorporate your Malaysian business.
Private Company Limited By Shares
A Private Company Limited By Shares is one of the most common kinds of business structure in Malaysia. It is similar to Private Limited Companies in Singapore.
A Private Company Limited By Shares is owned by at least one shareholder and managed by a board of directors appointed by the owner. It’s possible to have a fully foreign board of directors but there should be at least one resident director.
The company is limited by shares, meaning the shareholder’s liabilities ie. debt or other obligations are limited to the original investment amount or shares.
The number of members of a Private Company Limited By Shares is limited to 50 members, excluding employees in the employment of the company. You must also appoint a secretary who is based in Malaysia to manage company documents and procedures in a manner that is aligned to regulations set by the government.
Limited Liability Partnership (LLP)
A Limited Liability Partnership (LLP) is a type of company that protects partners from liability, where debt and obligations are borne by assets of the company and not the partners.
You must appoint a statutory compliance officer who will be responsible for submitting documents on behalf of the partners or the LLP.
Foreign Company
If you don’t want to incorporate a local company, you can still do business by registering as a foreign company in Malaysia.
- You can register as a foreign company in Malaysia as:
- A company, corporation, society, association or other body incorporated outside Malaysia.
- An unincorporated society, association, or other body which under the law of its place of origin may sue or be sued, or to hold property in the name of the secretary or other officer of the body or association duly appointed for that purpose and which does not have its head office or principal place of business in Malaysia.
You must also appoint a local agent who will ensure that the company complies with government regulations.
Read Also: Sole-Proprietorship/Partnership Vs Sdn Bhd: What’s The Difference?
Limitations To Starting A Company In Malaysia As A Foreigner
You typically have to apply for licences only after setting up your business in Malaysia. Nevertheless, you can start the consultative process and preparations much earlier – even before registering your company. This will give you a clearer view of the process and necessary licences, and help you avoid delays.
Common business activities that require prior government approval include:
- Banking and finance
- Education
- Aviation
As a foreign business owner, you can have full ownership of a local company except for a few sectors which require participation of local shareholders.
The following is a list of sectors that may have requirements specific to foreign business owners:
- Insurance and Islamic insurance
- Petroleum
- Education
- Healthcare
- Transportation services
- Water
- Professional services
- Wholesale and distribution services (supermarkets)
- Energy supply
- Security services
- Employment services
Read Also: VDR, VP(TE) And EP: Guide To Hiring Foreign Workers For Your Company In Malaysia
Applying For Relevant Licences To Do Business In Malaysia
You will need to apply for required licences with licensing authorities and display them in your premises before your company begins operating. There are a few types of licences ranging from General licences to Sector Industry Specific licenses and Activity Specific licenses.
General licences are required by any businesses, consisting of the following:
- Company Registration
- Company and Employees Income Tax Registration
- Employees Provident Fund (EPF)
- Social Security Organisation (PERKESO)
- Human Resources Development Fund (HRDF)
- Business Premise Licenses and Signboard Licenses
Besides, you will also need to apply for business premise and signboard licences from state authorities.
Depending on your company’s industry and business activities, you may need to apply additional licences. Business in sectors such as manufacturing, construction, oil exploration, telecommunications and media broadcasting may have further licencing requirements.
Opening A Business Bank Account In Malaysia
As a foreigner, you can open a business account in Malaysia. The terms for opening a business account vary for different banks.
You may be asked to furnish documents including identity card/passport (if foreigner), certificate of business registration, letter of introduction and mandate letter.
The bank may also require you to put down a minimum initial deposit for account opening.
Paying Taxes In Malaysia
For a start, Singapore businesses enjoy a tax treaty that avoids double taxation of income. While Malaysian businesses pay corporate tax rate of 24%, the tax rate for small-to-medium enterprises (SMEs) is 17% on the first RM600,000 (S$169,965.40) as of time of writing.
You can pay your estimated tax amount in monthly instalments spanning a 12-month period. You will need to pay the remaining tax, if any, within seven months after the end of a financial year.
No further taxes on sending dividends back to Singapore. However, there is a withholding tax of 15% on interest income, and 10% on royalties.
The Malaysian government charges Sales and Service Tax (SST). The Sales Tax rates range from 5 to 10% or any other rate prescribed by the government while the Service Tax rate generally stands at 6%.
Hiring And Setting Up Office In Malaysia
As a Singapore business owner, you will need to have a physical office in which the address of the office is to be furnished during licence application.
You may also use the corporate secretary’s office address first to register your company.
If you’re hiring local employees, you will need to make compulsory contributions to the EPF and SOCSO. You also need to collect their monthly personal income tax payable on behalf of the Inland Revenue Board of Malaysia.
For those who are hiring foreign employees, you will need to apply for suitable work passes such as the Employment Pass (EP) and Professional Visit Pass.
Read Also: How Much Does It Cost To Set Up A Company In Southeast Asia?
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