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Foreign Company Setup Options in Malaysia
Subsidiary Company vs Branch Office vs Representative Office
This chart provides a side-by-side comparison of the three common setup options for foreign companies / foreigner intending to start up new business in Malaysia. Tax and compliance to regulatory requirements varies depending on the type of entity you choose to setup.
As company set up expertises, we aim to help owners choose the best option for their venture into Malaysia. Please feel free to contact us via email at firstname.lastname@example.org or call us at +603 26037328 to speak to our company set up expertises.
|Types of Foreign Companies Structure||Subsidiary Company Set up||Branch Office||Representative Office (RO)|
|Entity Name||Need not be the same as parent company||Must be the same as parent company||Must be the same as parent company|
|Allowed Activities||Can conduct all business activities*||Must be the same as the parent company||Can only conduct market research or coordinating activities|
|Suitable For||For local or Foreign Companies that wish to expand their operations in Malaysia||For Foreign Companies that wish to expand their operations in Malaysia for short term basis||For Foreign Companies that wish to set up temporary vehicle in Malaysia to conduct research and act as liaison office and other activities which will not result directly in actual commercial transactions.|
|Ownership||Can be 100% foreign* or locally owned||100% owned by the head office||No Ownership|
|Separate Legal Entity||Yes||No||No|
|Cap on Number of Members||Yes, max 50||Not Applicable||Not Applicable|
|Minimum Setting up Requirement||– Min one shareholders or can be solely owned by a corporate body (either 100% local or 100% foreign-owned*) allowed.
– One resident director are required, who need not be Malaysians but must have valid work permits and a principal residential address within Malaysia.
– Practising company/ qualified secretaries, public accountants or lawyers who are registered with the Companies Commission of Malaysia (CCM) can provide assistance with the incorporation documents and other requirements.
|Must have at least one Malaysia Resident Agent to set up the Branch||– The proposed operational expenditure of the RE must be at least RM300,000 per annum.
– The RE should be financed by funds emanating from sources outside
|Limited Liability||Yes||No, Liabilities extend to parent company||No, Liabilities extend to parent company|
|Need for Audited Accounts||Yes||Yes||No|
|Filing of Accounts with SSM and LHDN||Yes||Yes||No|
|Annual Filing||Must file audit report of subsidiary||Must file branch office’s as well as parent company’s audit reports||Not Applicable|
|Tax Treatment||– Taxed as Malaysia resident entity, local tax benefits available
– Tax at 25% on Malaysian sourced income (profit, adjusted for tax purposes). A SME is subject to income tax at a rate of 20% on the first RM500,000 of chargeable income.
– Tax incentives may be available depending on the type of activity undertaken and subject to meeting eligibility conditions.
|– Taxed as non-resident entity, local tax benefits not available
– Tax at 25% on profits attributable to the branch (subject to tax adjustments).
– Withholding tax of 10% + 3% is applicable on payments made to the branch for services performed in Malaysia (as branch is a non-resident for tax purposes)
– Generally tax incentives are not available to branch.
|Appointment of Officers||Must appoint at least one resident director to set up the Company||Must appoint at least one resident agent to set up the Branch||Not Applicable|
|Staff Hiring||No restrictions on hiring local or foreign staff||No restrictions on hiring local or foreign staff||A Representative office/Regional office will be given expatriate post and the number allowed depends on the functions and activities of the Regional Office/Representative Office. Expatriates will only be considered for managerial and technical posts.
The proposed expatriate must be currently employed by the applicant company or its subsidiary or within the group.
|References||Guidelines For Incorporation of A Local Company||Guidelines For Registration of A Foreign Company In Malaysia||Guidelines For Setting Up A Representative Office / Regional Office|
* With the liberalisation in Malaysia equity policy, foreign investors generally could hold 100% equity in majority industries except for strategic sectors of national interest such as water, telecommunications, ports, energy and etc. For every industry, there are specific sector regulations issued by the relevant governmental departments. These include regulations that could impose restrictions on the foreign ownership of equity of a company, require higher paid up capital requirements and also prior regulatory approval before the commencement of business operations (i.e.specific approvals, operating licences, permits or registrations)
A Malaysia Branch Office is considered a non-resident company for tax purposes. Non-resident companies are not eligible for tax incentives for new start up or resident companies. Besides, withholding tax of 10% + 3% is applicable on payments made to the branch for services performed in Malaysia (as branch is a non-resident for tax purposes). In view of this, most foreign companies prefer to set up a Subsidiary Company rather than a Branch Office.
On the other hand, Representative Office is suitable for foreign company who want to collect relevant information on investment opportunities in Malaysia especially in the manufacturing and services sector, enhance bilateral trade relations, promote the export of Malaysian goods and services and carry out research and development (R & D). Representative Office is prohinited from undertake any commercial activities and only represents its head office/principal to undertake designated functions.
- Business Licences in Malaysia
- Company’s Paid Up Capital Requirements for Employment of Expatriate
- Requirements to Apply for Expatriate Employment Pass
- Summary of Immigration Process
- Visa Requirements in Malaysia
- Passes Requirements in Malaysia
- Employment of Expatriates in Malaysia
- Approvals Required from Agencies/ Regulatory Bodies for Employment Pass Application