Malaysia is a great place to start a business for the majority of small business owners who are interested in expanding their operations to other countries. It is an appealing destination for foreigners to live and work in the country due to its bustling commercial environment and low cost of living.
Can a foreigner own a Malaysian business? The answer is an emphatic “yes.”
A foreigner can incorporate a specific type of business entity and only that entity under the Company Act 2016 as long as they have a valid residential address in Malaysia. For foreigners starting a business in Malaysia, which type of business structure is best?
A private limited company, also known as Sdn. Bhd. is the preferred business structure for foreigners starting a business in Malaysia. To show why a private limited company is the best choice, here are some comparisons between it and other business structures in Malaysia.
Private Limited Company versus Sole Proprietorship versus Partnership
As many may be aware, the majority of Malaysians would rather form a partnership or sole proprietorship than a private limited company (Sdn. Bhd.) due to the simple registration and low cost of incorporation and maintenance. However, only Malaysian citizens or Permanent Residents (PR) are permitted to operate such a business structure, so this option is not available to outsiders.
Additional disadvantages of these two business models include owners and partners must responsible for all of the company’s debts. Creditors can sue owners and partners if they file for bankruptcy to get their money back. It’s hard to get third-party investors or bankers to fund a business. Sole proprietorships and partnerships may cost less to run and require less annual compliance than private limited companies (Sdn. Bhd.). Bhd.). However, the owner and partners face a greater bankruptcy risk.
Private Limited Company versus a Subsidiary (Sdn. Bhd.)
A private limited company (Sdn. Bhd.) and a subsidiary (Sdn. Bhd.) are quite comparable. However, when compared to incorporating a private limited company (Sdn. Bhd.), setting up a subsidiary can be time-consuming and difficult.
The following documents are required:
Memorandum of appointment or power of attorney authorizing the person residing in Malaysia to accept notices on behalf of the parent company Statutory declaration by the agent of the parent company The cost of incorporating a subsidiary is dependent on the authorized share capital, in contrast to incorporating a private limited company (Sdn. Bhd.). The authorised share capital, for instance, is 400,000 MYR, and the incorporation fee is only 1,000 MYR. Fees are assessed in proportion to the authorized share capital.
As for tax treatment, branches are not given the opportunity to enjoy local corporate tax benefits. They are treated as a non-resident entities whereby the corporate tax rate will be 24% flat.
Branch Versus Private Restricted Organization (Sdn. Bhd.)
A branch office is regarded as an extension of a parent business. Specifically, they are not permitted to:
- Use a different name than the parent company;
- Carry out different kinds of business than the parent company;
- Use for the long term as typically, a branch is used by the parent company to test the market in a different country. The parent company will own the branch completely. Like an auxiliary, a branch office has a more intricate yearly consistency that they need to meet. Annual returns, audited financial statements for each branch, and audited financial statements for the parent company are all required of them.
In terms of tax treatment, branches are denied access to local corporate tax benefits. Since they are regarded as a non-resident entity, their corporate tax rate will remain unchanged at 24 per cent.
In order to support local businesses during the pandemic, the Kuala Lumpur City Hall (DBKL) has listed 20 types of businesses that foreign investors are not permitted to enter. This information was published in The Star newspaper on September 3, 2020.
The following is a list of businesses. This ruling only applies to new applications and will not affect existing ones, according to the mayor.
- Hypermarket/Supermarket/Mini Mart
- Sundry shop
- Petrol station
- Wet market
- Cybercafe
- Bag shop
- Spa
- Jewellery shop
- Car workshop
- Computer and accessories shop
- Laundry services
- Hair salon and barber shop
- Five-foot-way kiosk
- Food and drinks kiosk
- Restaurants/Bistro/Café
- Teak wood
- Furniture shop
- Retail shop (clothing and shoes)
- Mobile phone and prepare phone card shop
- Herbal and Chinese medicine shop (This requires approval from the Ministry of Health. In addition to controlling the number of foreign-owned businesses that have impacted local businesses’ revenues, the regulation sought to control foreigners operating such businesses without valid permits.)
