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Company Formation in Malaysia

Overview :

Since it became independent in 1957, Malaysia’s economic record has been one of Asia’s best. At one time it was the largest producer of tin, rubber and palm oil in the world. In 2007, the economy of Malaysia was the 3rd largest economy in South East Asia and 28th largest economy in the world. Manufacturing has a large influence in the country’s economy. Malaysia is the world’s largest Islamic banking and financial centre. Malaysia today is a middle-income country with a multi-sector economy based on services and manufacturing. Malaysia is one of the world’s largest exporters of semiconductor components and devices, electrical goods, solar panels, and information and communication technology (ICT) products.

Advantages of incorporating business in Malaysia :
  • Malaysia is a very stable economy. It means lesser risk for overseas entrepreneurs and investors in Malaysia.
  • Malaysia’s workforce is highly educated and possesses skills that are necessary for companies to operate.
  • Malaysian government is quite pro-active in its approach towards converting Malaysia to a highly developed economy. Malaysian government is constantly looking for ways to make the country more attractive for foreign businesses and at the same time trying to convert local businesses into world class companies. It has a healthy mixture of foreign owned companies and competitive local companies.
  • Improving infrastructure with abundance of natural resources together with a world class transportation system.
  • Low cost business environment, high skill levels and the lifestyle, climate, educational opportunities and availability of a pool of multilingual professionals competent in English and the major Asian languages.
  • Malaysia has also introduced special taxation and financial incentives to encourage foreign investment and in particular investments into research and development and promoted activities related to industrial technology.

Attractive Tax Regime :
  • The income tax rate is 26%.
  • The corporate tax rate is 25%.
  • The sales tax/Vat rate is 5-10%.
  • Various tax deductions and allowances are available.
  • Other taxes on individuals

Capital duty-No
Stamp duty is levied at varying rates between 1% to 3% of the transacted value of property transfers and 0.3% on share transaction documents.
Capital acquisition tax-No
Inheritance/estate tax-No
Net wealth/net worth tax-No

Types of Entities
Sole Trader :

Like many other countries out there, the Sole Proprietorship business entity in Malaysia is owned solely by one individual, as his/her liability is unlimited. What unlimited liability means is: If a business fails or is declared bankrupt, creditors can sue the sole proprietor’s owner for all debts owed to respective merchants. This means personal assets, personal income and employment income are all liable.

Partnership :

The “Partnership” business entity is a joint-entity holder with two or more persons to carry out a legal business in Malaysia. The Companies Commission of Malaysia requires that partnership entities must comprise of at least two members and a maximum twenty members. Partners in a partnership business are also bounded by unlimited liability.

Limited Company (SDN BHD or BHD):

Sendirian Berhad (SDN BHD) is a private limited company, where it prohibits any invitation to the public to subscribe to any of its shares, deposit money with the company for investment or subscription. Minimum members in a private limited company is two and maximum is fifty.

Berhad (BHD) is a public limited company where its shares can be offered to the public for fixed periods and any other forms of subscription. The minimum number of members (shareholders) is two and maximum is unlimited.

There are three (3) types of limited companies in Malaysia :

Limited by Shares

Limited by Guarantee

Unlimited company with/without share capital

Companies Limited by Shares :

Liability of members’ contribution to this company is limited to the amount specified on their unpaid shares. Should the company become insolvent or goes into liquidation, members are not obligated to pay off the company’s debts if and unless any one of the members gives a personal guarantee.Also, members’ personal assets, employment and personal income are not liable to any of the company’s debts. This type of business entity is the most common one in Malaysia.

Companies Limited by Guarantee :

In a limited company’s Memorandum and Articles of Association, members’ liability is limited to the amount they ‘guarantee’ or undertake during winding up – In which the amount is specified in the Memorandum, agreed and signed by all members.
In many cases, companies limited by guarantee are often registered by non-profit organizations, public societies and clubs.

Unlimited Companies:

Unlimited companies are no different from sole proprietorship and partnership business entities. One of the only differences is that they have a special Articles of Association and are free to return capital to its members.

Foreign Companies:

Foreigners (non-Malaysian residents) are allowed to register a private limited company in Malaysia, so long as two of the company’s directors are permanent (principal place of residence) residents in Malaysia. Foreign companies are companies already incorporated (formed) outside of Malaysia but set up its business premises and operations in Malaysia.

There are two ways to go about being a ‘foreign company’ in Malaysia :

Register a branch in Malaysia, or;
Incorporate a local company (see “Requirements” below)

  • Limited Liability Partnership (LLP): The Limited Liability Partnership (LLP) business entity was proposed in 2003, but have yet to be fully implemented by the Companies Commission of Malaysia (”CCM” in English or “SSM” in Malay).
Time period

It usually takes 15 days to form a company in Malaysia.