How to start business in Malaysia

Malaysia is embracing the private sector, participating in prominent business development and trade programs like China’s Belt and Road initiative which aims to improve infrastructure between China and Southeast Asia.

While the economic climate has made Malaysia supportive for small businesses as a whole, there are still some challenges US citizens might face when starting a new business in the country.

This blog post will take you through some of the key steps to opening a Malaysian business.

What types of foreign businesses are allowed in Malaysia?

Contrary to what you might expect, there are several common business types you can’t establish as a US citizen in Malaysia, including sole proprietorships, enterprises, or LLP companies.

However, there are still ways to register a business that allow for foreign ownership, including the following:

Sdn Bhd company (or Private Limited Company)

While Sdn Bhd (Sendirian Berhad) is a viable registration option for most businesses, some industries require that Sdn Bhd’s have 50% Malaysian ownership. Some of those industries include education, oil & gas, banking, tourism, and agriculture.

If your business falls outside of that list, you’ll be eligible to be a 100% foreign owned Sdn Bhd. If that’s the case, there are some financial requirements you must comply with to incorporate.

Capital requirements are in place to ensure that your business has sufficient funding to operate and contribute to the Malaysian economy.

As with all business types, there are upsides and downsides to incorporating as a Sdn Bhd.

Pros

• Limited liability - With an Sdn Bhd, you aren’t liable for your company’s debts beyond the initial share capital investment.
• Easy transfer of shares - You can easily transfer shares from an Sdn Bhd.
• No restrictions on increasing share capital - You can increase your share capital as much as you need to.

Cons

• Minimum requirement of two directors and two shareholders - If you want to run a one-person business, this isn’t a business type that will accommodate that.
• The approval process can be challenging - It can be difficult to get approval if you don’t have any local Malaysian participants

Labuan International Company (LIC)

The most straightforward filing option, a Labuan International Company (LIC) can be 100% foreign owned. This business structure is common among import, export, trading, and consultant businesses, but isn’t limited to those industries.

Set-up as an LIC is simple, as you only need a single director and shareholder, positions that can both be filled by one person.

There are various reasons why setting up an LIC might be a good option for your business, and some for why it might not:

Pros

• 100% foreign ownership - You can be the sole director/owner of your company if you set up a LIC
• Easy registration from abroad - Since you don’t have to be physically present in Malaysia to incorporate an LIC, you can handle all the paperwork electronically or via local agents.
• Easy to get Visas for your family - WIth an LIC, the visa processes for family members will be much easier to obtain.

Cons

• Not suitable for domestic business - Since an LIC is primarily designed for international business, you would have to navigate red tape to trade locally in Malaysia.
• Limited presence in Malaysia - As Labuan is a federal territory but geographically distant from mainland Malaysia, it can be challenging to do business with local clients.

What’s the process for registering?

The process for incorporating is simple, assuming your business qualifies as one of the two entity types listed above.

Here’s a step-by-step guide to registering your business:

1. Application of name search

The first step is to submit to a name search to ensure your company’s proposed name is available for registration in Malaysia.

First, complete and submit Form 13A of the CA (Request for Availability of Name) to the Suruhanjaya Syarikat Malaysia (Companies Commission of Malaysia otherwise known as SSM), and pay the relevant fee.

If your name is approved by the SSM, it will be reserved for three months following the date of its approval.

For choosing your new company name, consider using our Business Name Generator tool to brainstorm ideas.

2. Lodgement and registration documents

Next, you’ll submit your registration documents to the SSM within the three month period following naming approval.

If the documents aren’t sent within the allotted time, you’ll need to submit a new Application of Name Search.

Registration documents include:

1. Constitution (optional) - If you wish to operate outside of the Companies Act 2016, you’ll need to adopt a Constitution for your company, which governs the internal management of your business.
2. Section 201 Declaration - This is a statutory declaration which confirms that the director of the company:

• Isn’t bankrupt
• Hans’t been convicted of offenses that might disqualify them from acting as a director

1. Section 236 Declaration of Compliance - This is a document confirming that you comply with all requirements set out in the Companies Act, and must be signed by the company secretary or a promoter.
2. Original copy of Form 13A - This is a letter from the Suruhanjaya Syarikat Malaysia (SSM) which confirms you’ve reserved your company name.
3. Identification documents - You’ll need to present a copy of both the director’s and secretary’s identification documents which can include a passport or identity card.

3. Pay registration fees

Outside of the documentation, you will also have to pay registration fees to incorporate your company. The amount you’ll need to pay will be determined by your company’s authorized share capital.

For a foreign-owned Sdn Bhd with a minimum of RM500,000 for, the fee is RM5,000, and will increase as share capital goes up.

When all requirements have been met and the application is approved, the SSM will issue you with a Certificate of Incorporation.

The only difference for Labuan companies is that they are usually structured as limited liability entities, meaning there’s no requirement to list member liability as “unlimited” in the Memorandum of Association.

What if I need more help?

The best resource for those looking to register a business in Malaysia is the SSM (the Companies Commission of Malaysia).

They’ve been around since 2002 and in addition to the added advantage of a website written also in English, they have written out specific guidelines for registering a business in Malaysia.

Discover Wise Business: The business account for going global

When you’re ready to go international with your business, you’ll need a payment solution that works for you.

Wise is not a bank, but a Money Services Business (MSB) provider and a smart alternative to banks. The Wise Business account is designed with international business in mind, and makes it easy to send, hold, and manage business funds in currencies. You can get major currency account details for a one-off fee to receive overseas payments like a local. You can also send money to countries.

Open a Wise Business account online

Some key features of Wise Business include:

• Major local account details to receive international payments with ease.
• No monthly account fees, just a simple one-off fee for account details.
• Receive payments from e-commerce platforms such as Amazon or via Stripe.
• Create invoices using the Wise invoice generator or invoice templates.
• Accounting integrations, including a QuickBooks Bill Pay connection.
• Batch payment options for fast payment of up to 1,000 people.