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The Ultimate Guide To
Employment in Malaysia

Employing in Malaysia: What You Need to Know

Malaysian employment law appears complex and confusing when looking from outside view although in some ways there are many similarities to other countries. However, there are key differences that one must be aware of for compliance with local laws. For this and many other reasons the following are only guidelines in the broadest sense, and professional legal services are recommended when employing in Malaysia.

Key Factors to Consider When Employing in Malaysia

There are several key areas to be aware of within Malaysia’s employment regulatory framework, especially for companies that plan to initiate a full local office and human resources department. These challenges can be mitigated by use of a locally sourced payroll provider who is familiar with all of the local laws and rules for both local employees as well as foreign nationals.

Employee Entitlements

Information Explanation
Time Off Work ?

An employee is entitled to paid annual leave of

  • Eight days for every twelve months of continuous service with the same employer if employee has been employed by that employer for a period of less than two years
  • Twelve days for every twelve months of continuous service with the same employer if employee has been employed by that employer for a period of two years or more but less than five years
  • Sixteen days for every twelve months of continuous service with the same employer if employee has been employed by that employer for a period of five years or more
Medical Leave ?

An employee is entitled to paid sick leave, where no hospitalization is necessary,

  • Fourteen days in the aggregate in each calendar year if the employee has been employed for less than two years
  • Eighteen days in the aggregate in each calendar year if the employee has been employed for two years or more but less than five years
  • Twenty-two days in the aggregate in each calendar year if the employee has been employed for five years or more
  • Sixty days in the aggregate in each calendar year if hospitalization is necessary, as may be certified by such registered medical practitioner or medical officer

Employment Termination in Malaysia

Information Explanation
Resignation / End of Service Payment ?

Monthly as event occurs.

Using Shield GEO EOR Services: How We Can Help You

Compliance with local employment requirements is just one of the issues foreign companies face when employing staff in Malaysia. For companies which intend to employ their staff directly through their incorporated Malaysian entity, professional legal advice is recommended. Shield GEO provides an alternative path for companies to outsource the employment of their staff in Malaysia.

As a Global Employer Organization (GEO), Shield GEO acts as the Employer of Record and ensures the employment is compliant with host country regulations regarding employment. In addition Shield GEO will handle payroll processing, tax and immigration. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Malaysia.

The Shield GEO solution is an attractive alternative where:

– the company is looking to employ staff quickly

– the company doesn’t have an appropriately incorporated entity in Malaysia

– the company wants to work within a defined budget

– the company wants to limit its initial commitment in Malaysia

– the company needs help with tax, employment, immigration and payroll compliance in Malaysia

Shield GEO can contract directly with the company to employ and payroll their staff in Malaysia. Shield GEO supplies local employment contracts for the staff, which ensure that local statutory requirements are met covering issues such as termination, probation periods, leave entitlements and statutory benefits.  Shield GEO is able to advise companies how to cover local employment regulations whilst still providing consistent global employment policies. Understand more about outsourced employment through Shield GEO.

A GEO EOR Solution vs DIY Employment in Malaysia

Companies entering Malaysia must make a decision whether to use their own resources for a Do-It-Yourself (DIY) approach, or to use a Global Employment Organization to handle payroll and employment responsibilities. A GEO or Malaysia Employer of Record solution makes it faster, easier and cheaper to deploy staff if they don’t have a Malaysian entity established to run payroll.

A DIY approach will be delayed until there is a properly incorporated entity ready to run payroll and can be a costly option. Shield GEO can deploy foreign staff in 4-6 weeks and local staff in 48 hours. Additionally Shield GEO is responsible for all compliance issues related to the employment.

Using Shield GEO Employer of Record Services in Malaysia

Payroll

Payroll Malaysia
Management Fee for Employer of Record Services / Monthly Payroll Costs

Contact us for a quote

Currency ?

Malaysian Ringgit (MYR)

Tax Amount
Grossed income Tax Rate (%)
RM 0 – 2,500 0
RM 2,501 – 5,000 1
RM 5,001 – 10,000 3
RM 10,001 – 20,000 3
RM 20,001 – 35,000 7
RM 35,001 – 50,000 12
RM 50,001 – 70,000 19
RM 70,001 – 100,000 24
RM 100,001 – 150,000 26
RM 150,001 – 250,000 26
RM 250,000+ 26
Tax Returns Supplied

An employee needs to file a tax return with Malaysian tax authorities and Shield GEO will assist in tax clearance matters.

Employers Social Security and statutory contributions

Total social security rate for companies: 13.78%.

 

The employer contributes 1.78% of an employee’s remuneration to social security. In addition, the employer must contribute 12% to the national social security organization through an employee’s provident fund (EPF) scheme. The EPF provides retirement benefits to Malaysian employees.

Employees Social Security and statutory contributions

Total social security rate for employees: 11.51%

 

The employee contributes 0.51% and an additional 11% payable to the EPF.

Insurance requirements

An assignee needs to have adequate insurance cover which Shield GEO will assist with.

Can supply private health care

Yes, Shield GEO can organise private health insurance in Malaysia.

 

Work Permits

Work Permits
Can Sponsor Work Permit

Yes.

Work Permit cost

A foreign worker can enter Malaysia via Social Pass that  can last between one to three months depending on nationality of the worker. 

 

Work Permit processing time

The work permit processing time is between two to six weeks from when the application is submitted. Shield GEO will need the documents to be submitted and our local immigration expert will check the documents and start the work permit process.

 

Work Permit process

The work permit process begins with the applicant providing the necessary documents which a local expert immigration team will check and then upload to begin the application process.

The DP10 will be submitted to the immigration department.

The approval of an employment pass under the ESD system takes approximately 30 working days from the date of submission.

The DP11 will be submitted for the endorsement process which takes approximately seven working days.

These processing periods are subject to change at the discretion of the immigration department.

Can Work Permit be processed in country

The work permit is processed in Malaysia.

Switch Business Visa to Work Permit?

Yes an assignee can move from a business visa to a work permit.

Business Visas

Business Visas
Can do Business Visa

Yes

Business Visa Cost

Please contact us for a quote

Payroll and Tax in Malaysia

There are specific rules for payroll and taxation in Malaysia, depending upon whether your company employs foreign nationals or local Malaysian employees.  The primary concerns for a foreign company that needs to comply with tax laws in China are: individual income tax for employees in Malaysia, social security costs, payroll tax, goods and services tax (GST), withholding tax, business tax and permanent establishment concerns.

Your Payroll Options in Malaysia

Information Explanation
Remote Payroll ?

A remote payroll in Malaysia is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Malaysia.  One option for a non-resident company to payroll its employees (local and foreign) in Malaysia is to use a fully outsourced service like a GEO which will employ and payroll the staff on their behalf.

Local Payroll Administration ?

In some cases, a company will register their business in Malaysia under one of the forms available, but prefer to have another company administer its payroll.  This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll ?

Larger companies with a commitment to Malaysia may wish to run their own local payroll for all employees, foreign and local.  In order to accomplish this, they will have to complete incorporation, register the business and then hire the necessary staff.  There will be a need for in country human resources personnel who have the background needed to manage a Malaysian payroll, and can fulfill all tax, withholding, and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations.  The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Malaysian employment laws.

Fully Outsourced Payroll & Employment ?

Companies can outsource the employment and payroll of their staff in Malaysia to a GEO, like Shield GEO. This is possible for both foreign workers and Malaysian nationals. This is the easiest, fastest and safest way to payroll staff in Malaysia.

Shield GEO manages all aspects of payroll for workers in Malaysia, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Malaysia

Information Explanation
National Currency ?

Malaysian Ringgit (MYR)

Documentation Required for New Employees ?

Malaysians may work at will. Expatriates and foreign workers and are required to possess valid visas, work passes as well as employment passes prior to commencing work.

 

The Employment Act 1955 is the main legislation on labour matters in Malaysia. A Malaysia’s business environment is usually strike-free.

Tax Figures

Information Explanation
Corporate Income Tax ?

The standard corporate tax rate is 25%.

 

For companies capitalized at less than MYR 2.5 million the corporate tax rate is 20% on the first MYR 500,000, then subsequently 25%.

 

For petroleum, oil products, banking and insurance industries, different rates apply.

Income Tax Rate ?
Grossed income Tax Rate (%)
RM 0 – 2,500 0
RM 2,501 – 5,000 1
RM 5,001 – 10,000 3
RM 10,001 – 20,000 3
RM 20,001 – 35,000 7
RM 35,001 – 50,000 12
RM 50,001 – 70,000 19
RM 70,001 – 100,000 24
RM 100,001 – 150,000 26
RM 150,001 – 250,000 26
RM 250,000+ 26
Sales Tax ?

The Goods and Services Tax is 6%.

 

As of 1 April 2015, the Sales and Services Tax was replaced by a Goods and Services Tax. There are products that are exempt from the GST, including agricultural products, livestock, exported goods and certain services.

Withholding Tax ?

Dividends: No withholding tax applies to dividends paid to non-residents.

 

Interest: A withholding tax of 15% applies to interest paid to non-residents, which may be reduced under a tax treaty.

 

Royalties: A withholding tax of 10% applies to royalties and technical service fees, which may be reduced under a tax treaty.

 

Rental or installation fee tax: A 10% withholding tax applies to income received by non-residents from rental of movable property or installation fees from services rendered in Malaysia. These may be reduced under a tax treaty.

Other Tax ?

Capital tax: Capital duty is levied at rates from MYR 1,000 to MYR 70,000.

 

Real estate tax: Varying rates apply to real property taxes depending on state.

 

Stamp duty: Levied between 1% and 3% of the value of property transfers, plus 0.3% on share transaction documents.

 

Customs and excise duties: Most dutiable goods have import duties from 5% to 30%.

 

 

Payments

Information Explanation
Frequency of Salary Payment ?

Monthly payroll.

Invoice / Payslips required ?

Available monthly on web-site, pdf or paper

Malaysia Immigration and Work Permits

Foreign workers must comply with Malaysian laws to attain proper visas and work permits. Malaysian companies are expected to sponsor employees and secure their working rights which may pose to be a problem for companies beginning to enter the Malaysian market.

An Employer of Record Solution can help eliminate the administrative burden, requiring just a 15 to 30 minute commitment from the company every month to gather payroll input.

Your Options

Have your own Company?

For an employer to sponsor an employee for work in Malaysia, there are a number of requirements that must be met. Employers should be aware of restrictions on hiring foreign employees, such as limiting hiring to manufacturing, construction, plantation, agricultural and services sectors. Employment of foreign workers are also subject to quota requirements from the Ministry of Home Affairs. The employee must hold a relevant work permit and visa to enter Malaysia.

Sponsorship Process:

1 Application for foreign worker quota approval

The employer must first obtain approval from the Local Centre of Approval at the Ministry of Home Affairs to hire foreign workers to work for Malaysian subsidiaries. Only companies operating in manufacturing, construction, agriculture, plantation and services industries may be approved to hire foreign workers. This application may be done through the Foreign Worker One-Stop Approval Centre.

Once the application has been submitted, an interview takes place with the employer or authorized representative from the Ministry for the company’s particular sector. If the application is successful, payment must be lodged within 48 hours from the time of approval, where a conditional letter of approval is provided to the employer to allow hiring of foreign workers.

Documents required by Employer:

  • Application form for foreign workers quota
  • Photo or brochure for company site
  • Original payment form
  • Receipt for levy
  • Additional documents required according to sector

Cost:

  • RM410 – RM1,850 Depending on sector

2 Obtain approval of expatriate status

Not all foreign employees may be qualified to work in Malaysia. Employers should be aware that only certain positions are available for foreign workers, which are generally highly skilled technical or managerial positions that cannot be filled by Malaysian workers. These include:

  • Key Posts: Top managerial post for foreign companies operating in Malaysia.
  • Executive Posts: Professional or middle managerial positions.
  • Non-Executive Posts: Highly skilled, technical positions that require experience.

Once these expatriates have been identified to have satisfied the prerequisites, the following documents should be submitted by the employer to the Immigration Department of Malaysia (Jabatan Imigresen Malaysia):

Documents required by Employer:

  • Original Employment Contract stamped with a revenue stamp
  • Application form DP10 attached to the original Employment Contract
  • Undertaking Letter stating company will pay salaries and tax revenues according to contract
  • Any regulatory compliance documents or certificates
  • Expatriate income tax receipts

Approximately three months after the issuance of the employment pass, an inspection will be held with the sponsor to confirm the details of the arrangement with the expatriate. Expatriates with monthly wages of more than RM8000 are automatically approved.

Cost: From RM105

Time: 1 day

3 Application for the Employment Pass

Once the quota approval and expatriate check has been conducted, the employer may issue a limited supply of Employment Passes to foreign employees to fill key positions in their company. Employment Passes may come in different forms depending on nature and length of employment, however the application procedures are similar.

The employer submits an application to the Immigration Department attached with a letter that justifies why the post may only be held by a foreigner and not a local, along with prerequisites, qualifications, and experience required for that position. The potential benefits to the company the foreign employee will bring to the company and economy is also attached.

Once this has been approved, the letter of approval is attached to the application for the Employment Pass.

Documents required by Employer:

  • Application form DP11
  • Particulars of applicant company
  • Details of employment structure
  • Copy of stamped employment contract
  • Job description for position
  • Memorandum and Articles of Association
  • Copy of necessary approval from Malaysian agencies depending on sector

Documents required by Employee:

  • Copy of each foreign employee’s passport
  • Resume and copy of academic qualifications of the foreigner
  • Three recent passport-sized photographs of employee
  • Copy of foreigner’s passport
  • Cover letter from employer confirming approval of post and employment

Cost: RM360 – RM1, 800 per year depending on sector

Time: 6 weeks

4 Application for Visa with Reference approval

Employers must apply for Visa with Reference (VDR) approval to the Immigration Department of Malasyia, which can be done at the Immigration Department counters or online via e-Services system. Once the employer has been approved, it is sent to the Malaysian consulate in the foreign worker’s home country which will be used in the visa application process of the employee.

Documents required from Employer:

  • Application letter
  • Form of certificate of visa applications by reference IM.12 and IM.38
  • Letter of approval from the Ministry of Home Affairs (Kementerian Dalam Negeri, KDN) confirming quota
  • Original receipts levy
  • Application form for VDR new foreign workers
  • Copy of foreign workers’ passport
  • Latest passport photo of the foreign workers
  • Stamped personal security bond, including deposits, insurance guarantee or bank guarantee
  • Medical report approved by Ministry of Health
  • Foreign Worker Compensation Scheme (Insurance)

Time: 1 – 2 months

5 Application for visa

The employee must now apply for a visa depending on the status of the work. Depending on the country of the employee and the type of position to be held, the employee must apply for a Visa Without Reference or a Visa with Reference. For the employee, an employment visa should be applied for with the Malaysian consulate or embassy in their home country.

Documents required by Employee:

  • Passport valid for six months
  • Completed visa application form IM.47
  • Two recent passport photos
  • Letter from Employer with company letterhead
  • Notarized Company Business Registration documents
  • Letter of Invitation from Malaysia from sponsor
  • Copy of medical report
  • Immigration Security Clearance (ISC) verification document
  • If requested: confirmed flight ticket, travelers checks, bank statements

Cost: RM500 – RM1, 600 depending on country

Time: 2 working days

6 Medical examination

The employee may be required to go through medical screening in their home country to perform a health check. This only applies to certain countries and for certain roles. The clinic or health center must be registered and approved by FOMEMA, which administers pre-screening medical health checks for foreign workers prior to their entry into Malaysia.

7 Arrival procedures

Once the employee has received approval for both the visa and work permit, they may travel to Malaysia only via airport as the port of entry. The employer is required to notify the nearest Director General office of the details regarding the employment of a foreign employee within fourteen days of commencement of employment of an expatriate.

Once these steps have been taken, the foreign employee may legally commence employment with the company.

The renewal of the work permit and annual medical check-up by FOMEMA, along with the fees levied, are payable by the employer to the Immigration Department for Foreign Workers.

Cost: RM595 – RM2, 035 depending on sector and nationality of employee.

Use the Shield GEO Employer of Record Solution?

The work permit process begins with the applicant providing the necessary documents which a local expert immigration team will check and then upload to begin the application process.

The DP11 will be submitted to the immigration department.

The approval of an employment pass under the ESD system takes approximately 30 working days from the date of submission.

The DP10 will be submitted for the endorsement process which takes approximately seven working days.

These processing periods are subject to change at the discretion of the immigration department.

Types of visas in Malaysia

Category Description of Visa
Single Entry Visa

This visa is issued to foreign nationals who require a visa to enter Malaysia for the purposes of a social visit, or for business purposes that require only one entry into the country. This visa therefore covers both the Tourist and Business Visa as they are functionally similar.

The Single Entry Visa must be used within 3 months of its issue, and allows periods of stay of up to 30 days, subject to the discretion of immigration officers at the port of entry.

Requirements for the Single Entry Visa:

– Completed visa form IM.47
– Valid passport or travel document
– 2 recent color ID photos
– Covering letter stating purpose of visit
– Return flight ticket confirmation
– Bank statement from the last three months
– A No Objection Letter from an employer if working

Processing time: 3 – 4 working days

Processing fee: RM 6 – 50 depending on country

Multiple Entry Visa

This visa is issued to foreign nationals who is planning on entering Malaysia for the purposes of business or government-to-government matters.

The Multiple Entry Visa is valid for a period of three to twelve months from the date of issue. This visa permits stays for up to 30 days, while extensions are not allowed. The Multiple Entry Visa is appropriate for Chinese and Indian nationals entering Malaysia for the purposes of a social visit as well.

Requirements for the Single Entry Visa:

– Completed visa form IM.47
– Valid passport or travel document
– 2 recent color ID photos
– Covering letter stating purpose of visit
– Return flight ticket confirmation
– Bank statement from the last three months
– A No Objection Letter from an employer if working

Processing time: 3 – 4 working days

Processing fee: RM 6 – 50 depending on country

Transit Visa

This is issued to foreign nationals who require a visa to enter Malaysia in order to transit to other countries. Those who are transiting to other destinations without leaving the port of entry are not required to obtain a transit visa.

The visa is valid for a maximum duration of 120 hours.

Setting up a company in Malaysia

When setting up a company you may want to consider these factors:

  1. Business factors

    • The industry and type of business
    • Nationality of the headquarters/individual(s) and
    • Presence of existing trade agreements or relationships
  2. Cultural factors

    Understanding local culture is always important. Malaysia has a distinct “ multi–ethnic, multicultural, and multilingual society”, in particular with nods towards the “tri-culture” of Malay, Chinese and Indian influences. In addition, there are two distinct geographical regions; Peninsular Malaysia (where Kuala Lumpur is located) and East Malaysia, which retain some cultural differences.

  3. Language

    Languages may be an influence. Malay is the official language, however due to the significant influence of Chinese and Indian groups, various Chinese and Indian languages are likely to be encountered depending on who you are doing business with. English is relatively common in Malaysia, in part due to its colonial history, and historical use of English in schools and government. It is currently listed as a ‘recognized’ language, and it is not uncommon for business to be conducted in English. However, sometimes locals speaking English may actually use “Manglish”, which is a colloquial form of English with heavy Malay, Chinese, and Tamil influences.

  4. MyCoID

    MyCoID is a system portal that provides business services in one place, from business name searches to stamping company documents. It is located at: http://www.ssm-mycoid.com.my/. It offers ‘package’ services which may enable you to submit multiple stages of the registration process in one step, and at a reduced rate. Registration steps and processing times have been recorded as if each was done manually and separately. Effective use of the MyCoID system may be able to reduce time and costs.

Your Options

This article provides a general guideline for foreign businesses on entering Malaysia for business purposes. In particular it looks at common pathways to establishing a business presence in Malaysia, generally through a representative office, branch office or subsidiary company (or local equivalents). In addition various economic, tax and regulatory facts are provided throughout as a source of useful information to assist those who will enter the Malaysian economy. The guide also looks at some immigration requirements such as obtaining the appropriate visa status.

Data is based on research done at the time of writing this article, June 2015, or closest available dates.

Malaysia is a federal constitutional monarchy located in Southeast Asia. While the majority of the population (around 50%) are Malay, there is also a significant Chinese and Indian population in Malaysia.

Population: 30,000,000

Capital: Kuala Lumpur (KL)

Language: Bahasa Malaysia, English (recognized)

Timezone: UTC+8

Calling Code: +60

Currency: Ringgit/RN (International code: MYR) | 1USD = 3.73MYR

Nominal GDP: $375.633 billion ($12,127.20 per capita)

Internet domain: .my

PwC ranks Malaysia as having grown to become a popular regional hub for expansion into the ASEAN (Association of Southeast Asian Nations) region, supported by its central geographic location and multi-lingual mix of Malay, Indian and Chinese populace.

There are three types of business forms available to foreign companies in Malaysia.  Each of these business forms has distinct advantages and disadvantages, as well as differing scope of business activities, registration requirements and capital requirements.  In most cases it will depend on the degree of commitment a company has to Malaysia and the planned business activity.

Company

A.  Requirements/Restrictions

A company with share capital may be incorporated as a private company (‘Sendirian Berhad’ or ‘Sdn. Bhd.’) or a public company (‘Berhad’ or ‘Bhd’).

A company requires a minimum of two shareholders (‘subscribers to the shares of the company’) and a minimum of two directors, and a company secretary. The secretary must be an individual who either is a member of a professional body prescribed by the Minister of Domestic Trade Cooperative and Consumerism or licensed by the Companies Commission of Malaysia (SSM). At least one director and the company secretary must be residents of Malaysia. An article comparing Singapore to Malaysia notes that foreign investors in Malaysia are required to apply for foreign investment committee approval when taking more than 30% shareholding in a Malaysian company.

Every company must have a registered office in Malaysia to which all communications and notices may be addressed. A Company must have the office within 14 days after the date of company registration. It seems that it is acceptable to use a ‘virtual office’, e.g. leasing an office address service from another company that will receive mail for the company, solely for the purpose of meeting this requirement.

B.  Advantages/Disadvantages

Like most private company structures, the shareholders liability is limited to the amount of capital they invested into the business. The company will also be its own legal entity, meaning its debts and liabilities will not directly affect any foreign parent company.

Naturally a full company requires a larger investment to register and must needs to engage Company Secretary, Auditors, Tax Agent & Accounting Clerk to meet the yearly submission requirements.

C.  Registration Steps

1.  Application of Name Search

A name search must be conducted to determine whether the proposed name of the company is available. To do so you must submit Form 13A CA (Request For Availability Of Name), according to the SSM. If there are no conflicts or problems, the proposed name shall be reserved for three months.

It may be a good idea to do a preliminary name search online directly first, which can be done at www.ssm-einfo.my.

Time: 1-2 days

Cost: MYR 30.00

2.  Lodge Incorporation Documents

Incorporation Documents must be submitted to the SSM within 3 months from the date of approval of the company’s name. As stated by the SSM, the following documents are required:

  • Memorandum and Article of Association

Listing the directors, secretaries and subscribers to the company’s shares, who must all sign the Memorandum and Articles of Association in front of a witness.

For a private company, the articles of association must also contain the following stipulations:

(i) Restriction on the right to transfer the company’s shares;

(ii) Limitation on the number of members to not exceed fifty;

(iii) Prohibition to any invitation to the public to subscribe the shares/debentures of the company; and

(iv) Prohibition on public invitation to deposit money with the company.

  • Statutory Declaration By Directors and Shareholders (Form 48A)

The director or promoter declares under oath that he/She is not a bankrupt; and has not been convicted and imprisoned for any prescribed offences.

  • Declaration of Compliance (Form 6)

This states that all the requirements of the CA have been complied with. It must be signed by the company secretary who handles the registration and is named in the Memorandum and Articles of Association.

  • Original copy of Form 13A.
  • A copy of the letter from SSM approving the name of the company.
  • A copy of the Malaysian identity card or passport of each director and company secretary.
  • Residential address of all directors & shareholders

The original copies of the Memorandum and Article of association must be stamped at the SSM (note: according to the Doing Business Project, the stamps had to be done at the Inland Revenue Board (IRB) up until April 01, 2010, but since then the SSM has taken over the duty. Some online sources still reference the IRB however).

Although some sources suggest that a registration can be started and completed within a few days, others suggest that companies founded by foreigners can take about one week to process and then on approval the SSM will issue the Certificate of Incorporation (Form 9) within 1 working day.

Time: 8 days

Cost:

  • Stamp costs 200RM (RM100 for Memorandum and RM100 for Articles), a second set can be stamped at RM10 each.
  • The registration fee depends on the share capital:
AUTHORISED SHARE CAPITAL (RM) FEES (RM)
Up to 400,000 1,000
400,001 – 500,000 3,000
500,001 – 1 million 5,000
1,000,001 – 5 million 8,000
5,000,001 – 10 million 10,000
10,000,001 – 25 million 20,000
25,000,001 – 50 million 40,000
50,000,001 – 100 million 50,000
100,000,001 and above 70,000

3.  Register an Office

Every company must have a registered office in Malaysia to which all communications and notices may be addressed. A company must have its registered office situated in Malaysia within 14 days from the date of company registration.

The company secretary’s office can be nominated as a registered office so long as the secretary is present at the registered office during business hours.

It is also possible to use the services of a virtual office as your registered office.

Time: n/a (no registration process)

Cost: n/a

4.  Open Commercial Bank Account

There are a variety of commercial banks in Malaysia as well as foreign banks such as Barclays, HSBC or Deutsche Bank).

Generally the process is said to be relatively straightforward. Both residents and non-residents of Malaysia are able to open bank accounts, and customers will be required to provide proof of identity and some company documentation. The Expat Forums mentioned that a letter of reference from a current bank could also be helpful in the application process (though this may be more the case for individuals).

The exact procedure will depend on the commercial bank. However, an example provided by HSBC provides a guideline, with the following documents required for subsidiary companies incorporated in Malaysia:

  • Form 24 (Allotment of shares);
  • Form 49 (List of directorship);
  • Form 8 or 9 (Certificate of incorporation of public or private company)
  • Memorandum and articles of association;
  • Form 23 (Certificate of commencement of business) – only for public company/trading license for companies in East Malaysia;
  • Board resolution (BR) for account of a limited company
  • Identity documents of the directors and signatories of the company;
  • Identity documents of the principal shareholders/ultimate beneficial owners of the company.

Time: 1 day/instant

Cost: 1000-5000 (initial deposit requirement)

5.  Register for Goods and Service Tax (GST) with the tax department

GST registration (formerly the sales tax, until April 2015) is mandatory if the annual company turnover exceeds MYR500,000  (approximately U.S. $173,000). NBC reports that GST generally stands at 6%. Foreign businesses that make a taxable supply over the threshold in Malaysia are required to register for the GST. However, exports of goods and services are not subject to GST, according to international tax site, GST.com.

To register you have to complete registration form GST-01. The application can be lodged electronically at www.gst.customs.gov.my and then click “Register for GST”, or in person at a Customs office registration kiosk, or by post to:

  • GST Processing Center
  • Royal Malaysian Customs Department
  • 22, Jalan SS 6/3
  • Kelana Jaya
  • 47301 Petaling Jaya
  • Selangor

According to the Malaysian customs website, documents required include:

  • identification number (usually business registration number as provided by SSM)
  • industry code according to the Malaysia Standard Industrial Classifications (MSIC) 2008 code
  • bank account number (for refunds) and a copy of bank statement
  • percentage on the value of all your supply according to Taxable supply, Local zero rated supply, Export, and Exempt supply.
  • date when company has or will exceed the threshold

Foreign businesses that register for the GST must also nominate who their a local agent is that will deal with all tax related matters

Other company documents are only required upon specific request by Customs.

Upon successful application, you will receive an approval letter which includes a GST registration number and official date of registration.

Strangely, official and many other sources do not mention any processing time. It is implied that the process is either instant or very fast.

Time: 1-3 days (estimation)

Cost: No charges

6.  Register for Payroll Tax

An employer is required to notify the Malaysian Inland Revenue Board (IRB) to register for payroll tax. According to a Malaysian Business guide by KMPG via Form CP22 of the commencement of employment of its employees in Malaysia within one month of the date of commencement of employment, and declare the total remuneration paid to employees for employment performed in Malaysia.

The registration can be completed in person or online at: http://ekl.hasil.gov.my

Generally a copy of the Incorporation Certificate, Register of Directors, Managers and Secretaries, Memorandum and Articles of Association will be required.

Time: 4-5 days

Cost: no charge

7.  Register with Social Security Office (SOCSO)

Employers must be registered with the social security office (SOCSO). Registration of the employer requires submission of Form 1 which can be done online using the MyCoID system (http://www.ssm-mycoid.com.my/web2/), or done in person at SOCSO directly. Whenever they employ an employee who is eligible for social security, they must register the employee with SOCSO each time.

Form 1 (Employers’ Registration Form) may be downloaded at the following link: http://www.perkeso.gov.my

Form 2 (Registration Form for Employees) may be downloaded at http://www.perkeso.gov.my

Registration in person can be done by the employer or employer’s representative – an authorization letter (Surat Akuan Majikan) from the employer is needed if registration is done by the employer’s representative. A sample of an authorization letter can be found at: http://www.perkeso.gov.my/images/dokumen/contoh_surat_akuan_majikan.pdf

Time: 1 day (estimate – no official processing/registration time is reported by SOCSO)

Cost: No known charges

Branch Office

A foreign company may establish a branch office in Malaysia by registering with the SSM. A branch office requires a resident agent. The process for establishing a branch office is similar to a subsidiary company.

A.  Requirements/Restrictions

Upon registration of a branch, evidence has to be provided of the legal existence of the parent. The branch must have the same name as the parent company.

While the government generally allows branch offices, PwC’s Malaysian business guide says that apparently wholesale and retail trade branch offices are not allowed.

B.  Advantages/Disadvantages

PwC’s business guide also reports that the repatriation of capital and profits is generally more freely transferred back to the home country, and the winding up of a branch office is more straightforward than a subsidiary company.

However, the parent company is fully liable for the liabilities of the branch, and representatives may be held jointly and severally liable for tax debts. The financial statements of the parent must be lodged at the Companies Registry. The branches obligations are the same as the parent, including filing VAT returns, employee returns and corporation tax returns, so there are few savings in administering a branch. Another disadvantage of setting up a branch office is the higher cost of registration – because the fees are based on the full share capital of the foreign parent company overseas, in foreign currency converted to MYR.

Banks and clients may also prefer dealing with a Malaysian subsidiary company rather than a foreign branch.

A branch may therefore be adequate for low cost projects, but not beneficial for substantial projects.

C.  Registration steps

1. Appoint Resident Agent

A branch of a non-resident company must appoint a resident individual or a company to represent it in its dealings with the tax authorities. The representatives may be held jointly and severally liable for the tax debts of the permanent establishments of non-resident entities, which they represent.

Time: n/a

Cost: n/a

2.  Register Branch at the SSM

According to a report on branch formation by Euro-Firma, evidence has to be provided of the existence of the parent, certified copies of the Articles, the names of the directors, the share capital, the registered office, and the names of the representatives who will act for the company.

Documents will need to be translated to Malay.  The following documents are required:

  • Memorandum and Article of Association

Listing the directors, secretaries and subscribers to the company’s shares, who must all sign the Memorandum and Articles of Association in front of a witness.

For a private company, the articles of association must also contain the following stipulations:

(i) Restriction on the right  to transfer the company’s shares;

(ii) Limitation on the number of members to not exceed fifty;

(iii) Prohibition to any invitation to the public to subscribe the shares/debentures of the company; and

(iv) Prohibition on public invitation to deposit money with the company.

  • Statutory Declaration By Directors and Shareholders (Form 48A)

The director or promoter declares under oath that he/She is not a bankrupt; and has not been convicted and imprisoned for any prescribed offences.

  • Declaration of Compliance (Form 6)

This states that all the requirements of the CA have been complied with. It must be signed by the company secretary who handles the registration and is named in the Memorandum and Articles of Association.

  • Original copy of Form 13A.
  • A copy of the letter from SSM approving the name of the company.
  • A copy of the Malaysian identity card or passport of each director and company secretary.
  • Residential address of all directors & shareholders

The original copy of the Memorandum and Article of association must be stamped at the SSM (note: the stamps had to be done at the Inland Revenue Board (IRB) up until April 01, 2010, but since then the SSM has taken over the duty. Some online sources still reference the IRB however).

Although some sources suggest that a registration can be started and completed within a few days, others suggest that companies founded by foreigners can take about one week to process and then on approval the SSM will issue the Certificate of Incorporation (Form 9) within 1 working day.

Time: 8 days

Cost:

  • Stamp costs 200RM (RM100 for Memorandum and RM100 for Articles), a second set can be stamped at RM10 each.
  • The registration fee depends on the share capital:
AUTHORISED SHARE CAPITAL (RM) FEES (RM)
Up to 400,000 1,000
400,001 – 500,000 3,000
500,001 – 1 million 5,000
1,000,001 – 5 million 8,000
5,000,001 – 10 million 10,000
10,000,001 – 25 million 20,000
25,000,001 – 50 million 40,000
50,000,001 – 100 million 50,000
100,000,001 and above 70,000

3.  Register an Office

Every company must have a registered office in Malaysia to which all communications and notices may be addressed. A company must have its registered office situated in Malaysia within 14 days from the date of company registration.

The company secretary’s office can be nominated as a registered office so long as the secretary is present at the registered office during business hours.

It is also possible to use the services of a virtual office as your registered office.

Time: n/a (no registration process)

Cost: n/a

4.  Open Commercial Bank Account

There are a variety of commercial banks in Malaysia as well as foreign banks such as Barclays or Deutsche Bank).

Generally the process is said to be relatively straightforward. Both residents and non-residents of Malaysia are able to open bank accounts, and customers will be required to provide proof of identity and some company documentation. The Expat Forums mentioned that a letter of reference from a current bank could also be helpful in the application process (though this may be more the case for individuals).

The exact procedure will depend on the commercial bank. However, an example provided by HSBC provides a guideline, with the following documents required for subsidiary companies incorporated in Malaysia:

  • Form 24 (Allotment of shares);
  • Form 49 (List of directorship);
  • Form 8 or 9 (Certificate of incorporation of public or private company)
  • Memorandum and articles of association;
  • Board resolution (BR) for account of a limited company

Generally all the documents must be notarized by a notary public and thereafter confirmed by the Malaysian Consulate.

Time: instant/1 day

Cost: 1000-5000MYR (initial deposit requirement), plus notarization fees

5.  Register for Sales and Service Tax with the tax department

GST registration (formerly the sales tax, until April 2015) is mandatory if the annual company turnover exceeds MYR500,000  (approximately U.S. $173,000). GST generally stands at 6%. Foreign businesses that make a taxable supply over the threshold in Malaysia are required to register for the GST. However, exports of goods and services are not subject to GST.

To register you have to complete registration form GST-01. The application can be lodged electronically at www.gst.customs.gov.my and then click “Register for GST”, or in person at a Customs office registration kiosk, or by post to:

GST Processing Center, Royal Malaysian Customs Department, No. 22, Jalan SS 6/3, Kelana Jaya, 47301 Petaling Jaya, Selangor.

Documents required include:

  • identification number (usually business registration number as provided by SSM)
  • industry code according to the Malaysia Standard Industrial Classifications (MSIC) 2008 code
  • bank account number (for refunds) and a copy of bank statement
  • percentage on the value of all your supply according to Taxable supply, Local zero rated supply, Export, and Exempt supply.
  • date when company has or will exceed the threshold
  • Foreign businesses that register for the GST must also nominate who their a local agent is that will deal with all tax related matters

Other company documents are only required upon specific request by Customs.

Upon successful application, you will receive an approval letter, which includes a GST registration number and official date of registration.

Strangely, official and many other sources do not mention any processing time. It is implied that the process is either instant or very fast.

Time: Instant (online)

Cost: no charges

An employer is required to notify the Malaysian Inland Revenue Board (IRB) to register for payroll tax. According to a Malaysian Business guide by KMPG via Form CP22 of the commencement of employment of its employees in Malaysia within one month of the date of commencement of employment, and declare the total remuneration paid to employees for employment performed in Malaysia.

The registration can be completed in person, or online at: http://ekl.hasil.gov.my

Generally a copy of the Incorporation Certificate, Register of Directors, Managers and Secretaries, Memorandum and Articles of Association will be required. If it is certificates from a foreign parent company, then it will also need to be notarized copies.

Time: n/a

Cost: no charges

6.  Register with Social Security Office (SOCSO)

Employers must be registered with the social security office (SOCSO). Registration of the employer requires submission of Form 1 which can be done online using the MyCoID system (http://www.ssm-mycoid.com.my/web2/), or done in person at SOCSO directly.

Whenever they employ an employee who is eligible for social security, they must register the employee with SOCSO each time.

Registration in person can be done by the employer or employer’s representative but an authorization letter (Surat Akuan Majikan) from the employer is needed if registration is done by the employer’s representative. A sample of an authorization letter can be found at: http://www.perkeso.gov.my/images/dokumen/contoh_surat_akuan_majikan.pdf

Time: 1 day (estimate – no official processing/registration time is reported by SOCSO)

Cost: No known charges

Representative/Regional Office

A foreign company that only wishes to represent its head office, usually by authorizing a local principal agent to undertake certain activities, but not engage in any commercial activities may opt to register as a representative or regional office.

A representative office is an office approved to collected information on investment opportunities, trade relations, promote Malaysian exports or perform research and development in Malaysia. Meanwhile, a regional office is authorized as the parent company’s coordinator of any of its agents in the Southeast Asia and Asia-Pacific area, under the direction of its parent.

A.  Requirements / Restrictions

The representative office may not engage in commercial activities, and any Malaysian operations shall be completely funded by the parent company.

While a representative/regional office doesn’t not need to be incorporated, it does need approval from a relevant authority body. It is also required to appoint a Chief Representative to manage the representative office on a full time basis. Staffing is possible but should be kept to a minimum. In particular, each representative office is allowed to employ only one expatriate staff at any point of time, although this number may vary depending upon the type of office and industry.

Generally, an approved representative/regional office is allowed to:

  • Planning or coordination of business activities
  • Gathering and analysis of information or undertaking feasibility studies on investment and business opportunities in Malaysia and the region
  • Identifying sources of raw materials, components or other industrial products
  • Undertake research and product development
  • Act as a coordination center for the corporation’s affiliates, subsidiaries and agents in the region
  • Undertake other activities which will not result directly in actual commercial transactions

Activities not allowed include:

  • Be engaged in any trading (including import and export), business or any form of commercial activity
  • Leasing warehousing facilities; any shipment / transshipment or storage of goods shall be handled by a local agent or distributor
  • Sign business contracts on behalf of the foreign corporation or provide services for a fee
  • Participate in the daily management of any of its subsidiaries, affiliates or branches in Malaysia

B.  Advantages/Disadvantages

Generally, this kind of structure is used as an easier method to explore business opportunities in Malaysia.

Naturally, due to the inherent restrictions, it is not useful for any other options and any business wishing to take the next step will still need to proceed with a branch office or subsidiary at some point.

C.  Registration Steps

1.  Appoint a Chief Representative

A representative office is required to appoint a Chief Representative to manage the representative office on a full time basis. This doesn’t need to be formally registered but should be decided upon before registering the representative/regional office.

Time: n/a

Cost: n/a

2.  Application to Trade Authority

A foreign institution applying to set up a representative/regional office in Malaysia is required to complete and submit an application to the appropriate authority based on its industry. For example, for manufacturing, it is the Malaysian Industrial Development Authority (Manufacturing Services Division)

(http://www.mida.gov.my/), banking and financial services, Bank Negara Malaysia (http://www.bnm.gov.my/) and for tourism services, contact the Ministry of Tourism, Malaysia (http://www.tourism.gov.my/de-de/de). This must generally be done together with the following documents:

  • A copy of the memorandum and articles of association or other constituent documents under which the applicant is established, duly verified by a statutory declaration made by a director of the applicant;
  • A copy of the latest audited balance sheet of the applicant;
  • A letter of approval from the home supervisory authority of the applicant on its proposed establishment of a representative office in Malaysia

The authority may require additional documents or information as deemed necessary to facilitate the application.

Time: 60 days

Cost: 5000MYR

3.  Register an Office

Every company must have a registered office in Malaysia to which all communications and notices may be addressed. Generally, the registered office must be reported within 14 days from the date of company registration. For a representative office, a letter must be sent to the appropriate trade authority confirming the address of the office.  It should also be possible to use the services of a virtual office as your registered office.

Time: 3 days – 1 week (estimate)

Cost: no charges

4.  Open Commercial Bank Account

There are a variety of commercial banks in Malaysia as well as foreign banks such as Barclays, HSBC or Deutsche Bank).

Generally the process is said to be relatively straightforward. Both residents and non-residents of Malaysia are able to open bank accounts, and customers will be required to provide proof of identity and some company documentation. The Expat Forums mentioned that a letter of reference from a current bank could also be helpful in the application process (though this may be more the case for individuals).

The exact procedure will depend on the commercial bank. However, an example provided by HSBC provides a guideline, with the following documents required for subsidiary companies incorporated in Malaysia:

  • Form 24 (Allotment of shares);
  • Form 49 (List of directorship);
  • Form 8 or 9 (Certificate of incorporation of public or private company)
  • Memorandum and articles of association;
  • Form 23 (Certificate of commencement of business) – only for public company/trading license for companies in East Malaysia.

Generally all of these documents must be notarised by a notary public and thereafter confirmed by the Malaysian Consulate.

In addition:

  • Original copy of the approval letter from the trade authority (e.g. Malaysia’s Ministry of Trade & Industry;
  • copy of the letter from the company addressed to the trade office confirming the registered address of the representative office.

Time: 1 day/instant

Cost: 1000-5000MYR (minimum deposit requirement)

5.  Register for Payroll Tax

If employing people, it is required to then notify the Inland Revenue Board (MIRB) via Form CP22 of the commencement of employment of its employees in Malaysia within one month of the date of commencement of employment, and declare the total remuneration paid to employees for employment performed in Malaysia.

The registration can be completed in person or online at: http://ekl.hasil.gov.my

Generally a copy of the Incorporation Certificate, Register of Directors, Managers and Secretaries, Memorandum and Articles of Association will be required.

Time: n/a

Cost: no charge

6.  Application for Expatriate Post

If sending/employing an expatriate for the purposes of the representative/regional office, you must submit an application and documents to the appropriate authority based on its industry. For example, for manufacturing, it is the Malaysian Industrial Development Authority (Manufacturing Services Division) (http://www.mida.gov.my/), banking and financial services, Bank Negara Malaysia (http://www.bnm.gov.my/) and for tourism services, contact the Ministry of Tourism, Malaysia (http://www.tourism.gov.my/de-de/de).

As a general guide, the following documents should be submitted together with the application:

  • Certified true copy of passport containing particulars of the expatriate;
  • Curriculum Vitae of the expatriate to be employed; and
  • Certified Academic Qualification of the expatriate.

The authority may require additional documents or information as deemed necessary to facilitate the application.

Official sites (such as Malaysian Industrial Development Authority) provide guidelines for registering an expatriate post, but do not mention any fees or timeframes. At this point in time it is inferred there is no charge, and the processing time varies.

Time: 1-2 weeks (estimate)

Cost: no known charge

7.  Register with Social Security Office (SOCSO)

Employers must be registered with the social security office (SOCSO). Registration of the employer requires submission of Form 1, which can be done online using the MyCoID system (http://www.ssm-mycoid.com.my/web2/), or done in person at SOCSO direclty.

Whenever they employ an employee who is eligible for social security, they must register the employee with SOCSO each time.

Registration in person can be done by the employer or employer’s representative but an authorization letter (Surat Akuan Majikan) from the employer is needed if registration is done by the employer’s representative. A sample of an authorization letter can be found at: http://www.perkeso.gov.my/images/dokumen/contoh_surat_akuan_majikan.pdf

Time: 1 day (estimate – no officail processing/registration time is reported by SOCSO)

Cost: No known charges

Outsourcing Employment Through a GEO Employer of Record Service

Whether to incorporate in Malaysia, and what sort of entity to setup are just two of the many choices companies must make when expanding into a new market.

If the company intends to have staff in Malaysia they must also decide whether they will administer that employment internally or use a Global Employment Organization to handle payroll and Employer of Record responsibilities.  A GEO Employer of Record solution is an attractive alternative where

  • the company is looking to setup an office quickly
  • the company wants to work within a defined budget
  • the company wants to limit its initial commitment in Malaysia the company needs help with tax, employment, immigration and payroll compliance in Malaysia

The complexity of employment regulations in Malaysia makes the use of a GEO advisable coupled with local legal counsel to ensure full compliance with employment laws, for example the drafting of local contracts for workers.

Shield GEO provides a comprehensive service in Malaysia allowing companies to deploy their staff quickly with reasonable, clearly stated costs and timeframes. The company contracts directly with Shield to employ and payroll their staff on their behalf Malaysia.

Shield GEO then becomes the Employer of Record. Shield GEO assumes the legal responsibility for these employees, sponsoring them on work permits, complying with local employment law and running their monthly payroll. Using Shield GEO is the fastest and most cost effective way to deploy local and foreign workers into Malaysia. Read more about outsourced employment through Shield GEO.

Summary of Set Up Steps

Rep/Reg. Office Branch Office Subsidiary Company Time Cost (MYR)
Reserve a Name No No Yes 1-2 days 0
Appoint a representative Yes Yes No N/A N/A
Lodge Incorporation Documents No Yes Yes 8 days 1200-70200
Apply at Trade Authority Yes No No 60 days 5000
Register for Goods & Services Tax (GST) No Yes Yes 1-3 days 0
Establish Office No Yes Yes N/A N/A
Open Corporate Bank Account No Yes Yes Instant 0
Register for Payroll Tax No Yes Yes 1-2 weeks 0
Register for Social Security No Yes Yes 1-2 days 0
Apply for Expatriate Post Yes No No 1-2 weeks 0
TOTALS:

*applications and processing times, not including internal document preparation, etc

Rep/Reg.

67-74 days

MYR 5000

Branch

17-27 days

 

MYR 1200-70200

Subsidiary

18-29 days

 

MYR

1200-70200

Conclusion

According to the PwC Doing Business in Malaysia guide, most foreign businesses incorporate a subsidiary company, with most being public or private companies limited by shares.

Branch offices are relatively flexible and easy to set up for less substantial products, and do not restrict repatriation of profits, however companies that are entering Malaysia solely for construction projects tend to enter joint ventures.

Representative/regional offices can be a good way to observe the market and determine future strategies, but overall are the least preferred option due to the restrictions on activities to be carried out. Despite not requiring incorporation, they still require approval from the Malaysian government, which can be a lengthy process.

  • Tax Compliance : What is FATCA and who is affected?

Tax Compliance : What is FATCA and who is affected?

  • Tax Compliance : What is FATCA and who is affected?

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