SETTING UP BUSINESS IN MALAYSIA
General Aspects
Malaysia is strategically located in Southeast Asia and serves as a natural gateway to the ASEAN market of more than 680 million people. The country comprises Peninsular Malaysia and the states of Sabah and Sarawak on the island of Borneo, covering approximately 330,803 square kilometres.With a population of approximately 33 million, Malaysia is a diverse and multicultural society. Bahasa Malaysia is the official language; however, English is widely used in business, legal, and professional
environments, making communication with international investors seamless. The currency is the Malaysian Ringgit (MYR). Malaysia operates under a constitutional monarchy with a parliamentary democracy. Its legal system is based on English common law, offering familiarity and certainty for foreign investors. Malaysia is a member of ASEAN, the World Trade Organization (WTO), and has entered into numerous bilateral and multilateral free trade agreements, enhancing its attractiveness as a regional business platform.
Legal Forms of Business Entities
Legal form Feature
Partnership The following partnership structures are available under Malaysian law:
• Conventional Partnership – Governed by the Partnership Act 1961; partners have unlimited liability.
• Limited Liability Partnership (LLP) – Governed by the Limited Liability Partnerships Act 2012; offers limited liability protection while maintaining operational flexibility.
Private Limited Company Private Company Limited by Shares (Sdn. Bhd.) – The most commonly adopted structure for domestic and foreign investors.
Shareholders’ liability is limited to their share capital.
Public Company Public Company (Berhad / Bhd.) – Suitable for larger enterprises and companies intending to list on Bursa Malaysia.
Branch Office Branch Office – A foreign company may register a branch in Malaysia, subject to regulatory requirements.
Remarks
For foreign investors seeking liability protection while maintaining structural flexibility, the LLP is generally more suitable than a conventional partnership. However, for larger investments, regulated industries, or capital-raising objectives, incorporation of a private limited company (Sdn Bhd) may be more appropriate. Sector-specific restrictions and immigration considerations should always be reviewed before structuring.
A Sdn. Bhd. is generally the preferred structure for foreign investors due to its limited liability protection, stronger corporate governance framework, higher banking credibility, and suitability for investment holding, joint ventures, and scalable operations. Foreign shareholding is generally permitted, subject to sector-specific regulations and licensing requirements.
This structure is generally suitable for established businesses seeking capital market access, institutional funding, or regional expansion. Foreign participation is permitted, subject to industry-specific regulations and securities compliance requirements.
A branch structure may be suitable for foreign corporations seeking to extend existing operations into Malaysia without incorporating a separate subsidiary. However, the parent company retains full liability for the branch’s obligations. This structure is commonly used for project-based activities, regional representation, or continuity of an established foreign business, subject to sector-specific approvals and tax considerations.
Regional office Representative or Regional Office – Permitted for liaison and non-commercial activities only.
This structure is suitable for foreign companies exploring the Malaysian market or managing regional operations without establishing a taxable presence. It is subject to approval by relevant authorities and must comply with specific operational restrictions.
Corporations
Corporate entities are governed by the Companies Act 2016. A private company must appoint at least one director who ordinarily resides in Malaysia and a licensed company secretary. There is no statutory minimum paid-up capital requirement, although practical considerations may apply depending on the nature of business and licensing conditions.
Organizational Questions
Topic Feature
Registration Authority Incorporation and corporate registrations are administered by the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia –SSM).
Key Incorporation Requirement
General requirements include: Name approval
At least one resident director (for companies)
Registered office address in Malaysia
Appointment of a licensed company secretary
Issuance of shares
Foreign Ownership Policy
Malaysia generally allows full foreign equity participation, subject to sector-specific regulations.
Remarks
All Malaysian entities must be registered with SSM before commencing business. Digital incorporation is standard practice, and documentation must comply with the Companies Act 2016. Professional local coordination is advisable to ensure proper structuring from the outset.
Malaysia permits 100% foreign ownership in many sectors. However, foreign investors should assess whether nominee or local director arrangements are commercially and regulatorily appropriate, particularly where licensing or substance requirements apply.
Regulatory & Licensing Approvals
Depending on business activity, approvals may be required from authorities such as:
Malaysian Investment Development Authority (MIDA)
Ministry of Investment, Trade and Industry (MITI)
Bank Negara Malaysia (BNM)
Securities Commission Malaysia (SC)
Relevant local municipal authorities
Industries such as financial services, telecommunications, education, and distributive trade may impose equity conditions, licensing requirements, or prior approvals. Early regulatory mapping is recommended before capital commitment.
Sector-specific compliance, capital requirements, and operational licensing must be assessed prior to commencement of operations. Regulatory clearance timelines may affect transaction structuring and investment scheduling.
Employment
Topic Feature
Employment Legislation
Working Hours
Employment relationships are primarily governed by the Employment Act 1955 (as amended), which sets out minimum employment standards and statutory protections.
Remarks
Recent amendments expanded coverage to a broader category of employees. Foreign investors should ensure employment contracts and HR policies align with statutory minimum standards to mitigate labour disputes and compliance exposure.
Maximum working hours are capped at 45 hours per week, subject to overtime provisions and prescribed limits. Companies should structure work schedules and overtime policies carefully, particularly in manufacturing and service sectors where extended hours are common. Non-compliance may result in penalties or employee claims.
Statutory Contributions Mandatory employer and employee contributions include:
Employees Provident Fund (EPF)
Social Security Organisation (SOCSO) Employment Insurance System (EIS)
Leave & Termination Statutory minimum leave entitlements apply, including annual leave, sick leave, and public holidays. Termination procedures must comply with notice requirements and principles of just cause and excuse.
Employment of Foreign Nationals Foreign nationals must obtain the appropriate work pass or employment visa issued by the Immigration Department prior to commencing work in Malaysia.
Workforce Strength Malaysia offers a skilled, multilingual workforce, particularly in manufacturing, shared services, finance, technology, and digital sectors.
These contributions are compulsory for eligible employees and form a significant component of employment cost planning. Proper payroll structuring and timely remittance are essential to avoid statutory penalties.
Employers must document performance management and disciplinary processes carefully. Industrial relations disputes may be referred to the Industrial Court if termination is challenged.
Work pass approvals may be subject to minimum salary thresholds, sectoral requirements, and quota considerations. Early immigration planning is advisable when structuring cross-border assignments.
Malaysia remains a competitive ASEAN hub for regional operations and shared services centres, supported by language capability, infrastructure, and cost efficiency relative to developed markets.
Taxation
In Malaysia, business taxation is primarily administered at the federal level by the Inland Revenue Board of Malaysia. Companies such as Sdn. Bhd. and Berhad are subject to corporate income tax (generally 24%), while partnerships are tax transparent and sole proprietorships are taxed under the individual’s personal income tax regime. Malaysia does not impose a municipal profit-based tax on business operations. In addition to income tax, businesses may be subject to indirect taxes such as Sales and Service Tax (SST), withholding tax on certain cross-border payments, Real Property Gains Tax where applicable, and local authority fees. The overall framework is centrally administered and relatively streamlined.
Tax Feature
Corporate Income Tax Corporate income tax is administered by the Inland Revenue Board of Malaysia (LHDN).
Standard corporate income tax rate: 24%
Preferential rates available for qualifying SMEs, subject to statutory thresholds
Malaysia applies a territorial tax system, generally taxing income accruing in or derived from Malaysia
Remarks
Malaysia remains regionally competitive from a corporate tax perspective. Careful structuring is required to assess the treatment of foreign-sourced income, group arrangements, and tax incentives. SME preferential rates may be available where ownership and paid-up capital conditions are satisfied.
Indirect Taxes (SST & Digital Service Tax)
Malaysia operates a Sales and Service Tax (SST) regime.
Service tax generally imposed at 6% (or 8% for prescribed services)
Sales tax applies to taxable goods at prescribed rates
A Digital Service Tax applies to foreign service providers supplying digital services to Malaysian consumers, subject to registration thresholds
Withholding Tax Payments to non-residents (e.g., royalties, interest, technical fees, and certain services) may be subject to withholding tax in Malaysia.
Malaysia has an extensive network of Double Taxation Agreements (DTAs) to mitigate double taxation risks.
Businesses must assess whether their services fall within prescribed taxable categories. Cross-border digital service providers may trigger registration obligations even without physical presence in Malaysia. Early tax mapping is recommended for e-commerce, SaaS, and technology-related operations.
Cross-border payments require careful review of withholding obligations and applicable treaty relief. Failure to withhold may result in penalties and non-deductibility of expenses. Advance treaty planning is advisable when structuring intra-group service arrangements or IP licensing models.
Personal income tax is administered by the Inland Revenue Board of Malaysia (LHDN).
Malaysia applies a territorial tax system, whereby income accruing in or derived from Malaysia is generally taxable.
Foreign individuals working in Malaysia are generally taxed on Malaysian-sourced employment income. The tax exposure depends significantly on tax residency status and duration of stay.
Tax Residency Status An individual is generally regarded as a Malaysian tax resident if physically present in Malaysia for 183 days or more in a calendar year (subject to specific continuity rules).
Tax Rates Resident individuals: Progressive tax rates (ranging up to 30% based on chargeable income brackets).
Non-resident individuals: Flat tax rate (currently 30%) on Malaysiansourced income.
Tax residency determines the applicable tax rate and eligibility for personal reliefs. Short-term assignments below 183 days may trigger non-resident treatment, which can materially affect effective tax cost.
Assignment structuring (e.g., timing of arrival/departure, contract design, split payroll arrangements) should be carefully reviewed to optimise tax efficiency and avoid unintended non-resident exposure.
Personal Income Tax
Employment Income & Benefits-in-Kind
Double Taxation Agreements (DTAs)
Immigration & Compliance
Investment Incentives
Taxable employment income includes salary, bonuses, allowances, benefits-in-kind, stock options, and certain perquisites derived from Malaysian employment.
Expatriate packages (housing, relocation benefits, school fees, tax equalisation policies) should be reviewed to determine taxable components. Employer payroll compliance and monthly tax deductions are mandatory where applicable.
Malaysia maintains an extensive network of Double Taxation Agreements to mitigate double taxation.
Foreign executives may be able to rely on treaty provisions (e.g., short-term employment exemption rules) depending on duration of stay and employer structure. Treaty analysis is essential for cross-border secondments.
Foreign nationals must obtain the appropriate work pass or employment visa before commencing employment in Malaysia.
Immigration approval does not automatically determine tax residency. Payroll registration, tax file opening, and annual filing obligations must be managed separately to ensure full compliance.
Malaysia offers various fiscal incentives to promote strategic industries and foreign direct investment. These may include:
• Pioneer Status
• Investment Tax Allowance
• Reinvestment Allowance
• Principal Hub incentives
• Incentives for digital economy and high-technology sectors
Eligibility is subject to conditions and approval by the relevant authorities.
Conclusion
Malaysia offers a stable legal framework, competitive operating costs, and strong connectivity within ASEAN. Its strategic geographic position, developed infrastructure, and proinvestment policies make it an attractive jurisdiction for regional headquarters, manufacturing bases, digital platforms, and cross-border operations.
Foreign investors considering entry into the ASEAN market may find Malaysia to be a balanced and efficient jurisdiction for establishing and expanding their operations.
This guide has been prepared by CGL GROUP, an independent member of Antea
CGL Group
No. 6A-1, 6A-2 & 6B-2, Jalan Dinar C U3/C, Seksyen U3, Taman Subang Perdana, 40150
Shah Alam Selangor Darul Ehsan, Malaysia
Tel.: +6011 2893 3487
Mail: ys@crafting-growth.com
Web: www.crafting-growth.com
Antea members in Malaysia:
SHAH ALAM
Contact Partner: Ms Chan Yi Shuang
Tel.: +6011 2893 3487
Mail: ys@crafting-growth.com
Web: www.crafting-growth.com
Mallorca, 260 àtic
08008 – Barcelona
Tel.: + 34 93 215 59 89
Fax: + 34 93 487 28 76
Email: info@antea-int.com www.antea-int.com
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This publication is intended as general guide only. Accordingly, we recommend that readers seek appropriate professional advice regarding any particular problems that they encounter. This information should not be relied on as a substitute for such an advice. While all reasonable attempts have been made to ensure that the information contained herein is accurate, not Antea Alliance of Independent Firms neither its members accepts no responsibility for any errors or omission it may contain whether caused by negligence or otherwise, or forany losses, however caused, sustained by any person that relies upon it.