Note: This article was written by Shawn Ho and was first published on Asia Law Network.
Whether you are a local or a foreigner who has decided to set up a new business in or expand an existing business into Malaysia, here is a checklist of 9 key action steps that one can take to plan and execute the process smoothly. These steps are not strictly sequential but a list of key moving parts, some of which can be done concurrently.
We have also included an easy reference checklist at the end of this article which gives a broad indication of the general sequence, timing, and cost for each action step.
- Seek Local Professionals & Advice
While it is not impossible to get things done by one’s self, certain critical applications, filings or submissions may be challenging without engaging local service providers, agents or runners familiar with the nuances and idiosyncrasies of the system. Examples of critical steps that may be challenging to accomplish without the assistance of such services providers include procuring business premise and signboard licences from municipal councils, work visas and permits from the immigration department, filing of documents with the state land offices for property related dealings, tax related registrations and filings etc.
Malaysia’s national language (Bahasa Malaysia) is the default language used at government offices and for official documents, often without English translations being readily available. Foreigners may also experience difficulty in getting accurate information or updated documents online or through telephone enquiries, and may often find that certain processes are best done ‘over the counter’.
Therefore, shortlisting and engaging professional services such as accountants, auditors, tax agents, corporate secretaries, lawyers, work permit & visa agents, intellectual property agents, property agents etc, is a critical first step. These professionals will also be able connect you with other service professionals or specialists, which will save invaluable time, money and ultimately, frustration.
- Determine Industry Specific Licences & Requirements (Only if applicable)
While Malaysia has liberalised restrictions to foreign participation in many sectors over the past decade, certain specific industries are still limited or protected due to national policy reasons. Examples of industries which involve specific licences and conditions include oil & gas services, bonded warehousing and freight, land transportation services, wholesale & retail trade, tour operators, F&B restaurant/cafes, franchise etc.
It is important to determine at the outset whether the business activity you wish to carry on in Malaysia is subject to:
- Any specific licences or conditions,
- Any restrictions on foreign equity ownership,
- Any minimum paid up capital requirements, or
- Any requirements for Bumiputera (ie Malay) directors or local equity ownership.
The above are not exhaustive and may always not be easy to determine, as a single business activity may require multiple licences and approvals. Getting clear visibility on this point will help you to plan your corporate structure, working capital and will also give you a realistic timeframe on the actual date of commencement of your business.
Action tip: Create a checklist of the applicable licence, licence requirements, relevant licensing authority, relevant service provider/facilitator (if any), estimated timeframe and cost to secure such licence(s).
- Open a Bank Account
Opening of an individual or company bank account locally (and preferably near the intended business premise) is one of the first things that needs to be done in order to effect payments, share issuance, deposits, and fees which usually require local currency. Enquiring in advance with local or international banks on the exact documentation, requirements and time need to open a bank account will be prudent, bearing in mind the anti-money laundering compliance checks and the “know your customer” requirements that all banks need to satisfy before approving the new bank account.
Action tip: Identify what documentation / information / address is needed to open a bank account and whether a foreign currency account / cross border monetary transfers or loans are needed (and if so, any applicable exchange control rules)
- Incorporate a Company / Business Entity
If it has been decided that a private company limited by shares (known as ‘Sendirian Berhad’ or ‘Sdn. Bhd.’ in Malaysia) is the business vehicle of choice, searching and reserving a company name and incorporating a company is now made procedurally simpler and faster under the Companies Act 2016, which allows for the use of a ‘super form’ via an electronic template submitted 24/7 online through the MyCoID 2016 portal (https://mycoid2016.ssm.com.my/). The process can be done by oneself individually or through a professional and the incorporation should take less than 3 working days upon submission. The Companies Act 2016 also allows for private companies to have a single foreign member / shareholder and a single foreign director provided that the foreign director has a principal place of residence in Malaysia.
Action Tip: Going through Item 2 (above) is critical in determining the type of business vehicle to incorporate as some government licences can only be issued to specific business entities such as the private company limited by shares and not others (for example, LLPs may not be recognised by some departments yet).
- Secure a Business Address & Premises
Whether in the form of a rented or purchased premises, virtual office, service office or even a permanent residential address, a physical premise or mailing address within Malaysia is usually required in other applications for bank account, company formation, licences and work permits etc. Foreigners may consider subscribing to virtual offices or renting service offices or co-working spaces, which are often located at prestigious business locations, for a quick and affordable ‘temporary business address’ prior to committing to a longer term tenancy or property purchase.
Action Tip: Some corporate secretarial service providers may be able to provide the use of their existing business address as a temporary registered and/or business address.
- Secure Immigration Permits & Visas (Only if applicable)
While there is an array of possibilities for foreigners to enter and stay in Malaysia, different types of work permits and visas may apply depending on the type of activity to be undertaken and the length of stay in Malaysia. Examples include:
- visitor (single entry or multiple entry visas),
- spouse (spousal visa / long term social visit pass),
- migration (under the Malaysia My Second Home programme),
- employee (types of employment passes may vary depend on skillset and salary),
- short term contract & engagements (professional visit pass),
- a shareholder or director of a newly incorporated company (work permit),
- or when setting up a regional office / representative office where a company has already been established in the home company (work permit).
The specific requirements and procedures to obtain the correct work permits or visas may be confusing to many foreigners, not to mention the actual submissions and communications with the immigration department. Different work permits may also have different requirements in respect of minimum paid up share capital on the applicant company. These capital requirements may then vary depending whether the applicant company is fully foreign owned or the level of Malaysian equity ownership in the company.
It would also be prudent to anticipate the number of work permits / visas one’s business will require if it intends to hire expatriates as employees. Certain government incentives such as obtaining Multimedia Super Corridor (MSC) status should be considered which may make it easier for the company to hire of foreigners / expatriates.
Action tip: Determine at the planning stage the type and number of work permits / visas that the foreign owner and the business will need prior to moving to or setting up a company in Malaysia (see point 2 and 4 above). Some useful information can be found from the Expatriate Services Division of the Immigration Department of Malaysia.
- Human Resources and Employment
Malaysia offers a sizeable pool of educated and skilled human resources, at relatively affordable wages, many with the ability to speak multiple languages or dialects (mainly English, Malay, Chinese, Tamil, Cantonese, Hokkien). There is also a high mobility of talent from smaller cities in Malaysia who are hungry for the opportunity of better career prospects. Every business owner should be mindful of its obligations as an employer with regard to employee related statutory deductions and contributions (such as Employees’ Provident Fund, Social Security Organization, Human Resources Development Fund and Monthly Tax Deductions), prior to hiring its first employees.
Furthermore, Malaysian labour laws are often perceived to favour the employee, which may increase the risk of industrial action suits brought against the employer should the employer be ignorant or breach local labour practices. Being knowledgeable of and compliant with the whole swath of local employment laws and practices (contained in the Employment Act & Regulations, Occupational Safety and Health Act, Minimum Wages Order, Workman’s Compensation Act, Industrial Relations Act and others) is a professional discipline on its own and may be next to impossible for a business to undertake on its own. Seeking professional advice on compliance, contracts, procedures and policies which are compliant with local laws and practices will benefit the business in the long run.
- Conduct Intellectual Property Searches & Registration (Only if applicable)
Malaysia has a robust legal framework as well as an affordable and accessible system for the registration and protection of intellectual property. Take the preliminary steps of conducting trademark searches online (https://iponline.myipo.gov.my/ipo/main/search.cfm) or searching widely online for your intended business name to ensure that it is not already registered or used by any third parties locally. This step may save you from having to re-think your business name or logo, to something as crippling as being embroiled in a lawsuit for intellectual property infringement. A business name (also known as ‘trade name’ or ‘brand name’) is the name that the public and your customers identify your products and services with. Your company’s name does not need to be the same as your business name.
Action Tip: If brand protection or intellectual property ownership is a key component of your business, do engage with intellectual property lawyers or registered agents early to explore the suitability and costs of filing for trademark and patent registrations at the outset, as the entire registration process can easily take 6 to 12 months.
- Tax Planning & Registrations
Tax implications and compliance requirements should never be an after-thought. At the early stage of deciding on the type of business vehicle to use, due consideration should be given to the different income tax rates, allowable tax deductions, availability of tax incentives, burden of tax filings and compliance, that may vary depending on whether one uses a private limited company, limited liability partnership, partnership or sole proprietor. The main types of taxes that most businesses will contend with are income tax, withholding tax, real property gains tax, stamp duty, goods and services tax (GST).
Just as a simple example, leaving GST registration as an afterthought may result in missed opportunities to claim valuable input tax credits on big ticket setup costs incurred. Similarly, knowing which pre-operational and pre-commencement of business costs that are tax deductible against Malaysian income tax may give you instant tax savings for your business.
Action Tip: Consult a tax advisor before any major expenditure is incurred.
Checklist of Action Steps (with Time/Speed & Cost indicators
About the Author: Shawn Ho is a partner of Donovan & Ho. He is experienced in corporate matters such as acquisitions, cross-border transactions, restructuring exercises, sale of businesses, joint venture arrangements, shareholder agreements, and franchise businesses. His background in tax advisory has enabled him to assist several multi-national companies achieve considerable tax-savings through cross-border tax planning, implementing tax-efficient structures using Labuan companies, and incorporate tax advice into commercial transactions.
