Dezan Shira in Malaysia

Dezan Shira & Associates have maintained an Alliance partner in Malaysia since 2013 and provide pre-entry advisory, corporate establishment, tax planning, accounting, compliance and audit services throughout the country, managed from offices in Kuala Lumpur. Our Alliance Partner firm employs numerous local legal, tax, accounting and audit staff to support this function and are one of the largest firms in the city.

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Regional Intelligence: Malaysia

Transitioning from a raw material-based economy to a multi-sector one in the 1980s and 1990s, Malaysia’s economy has maintained an average growth rate of above seven percent since 1967. While still considered an upper-middle income country by the World Bank, the Malaysian government is aiming to achieve high income (developed nation) status by 2020 through attracting increased FDI in the country’s high tech, biotechnology, Islamic finance, and services sectors. Over the past decade, Malaysia’s rapid economic growth has enabled the country to succeed in significantly reducing poverty levels from more than 50 percent in the 1960s to less than two percent today.

According to the IMF and World Bank, continued growth in the near and medium term hinges on the implementation of structural reforms that reorient the country’s economy towards the private sector. Launched in 2010, Malaysia’s Economic Transformation Program (ETP) has been the driving force behind government efforts to diversify and liberalize the economy by decreasing reliance on state owned enterprises (SOEs). Alongside the ETP, Malaysia’s New Economic Model has further eroded the clout of SOEs over the country’s economy by mandating the enactment of a wide range of government-funded projects and policy initiatives designed to incentivize foreign investment. On average, depending on the type of business line, it takes 5.5 days to set up a business in Malaysia.

While electronics, oil, gas, palm oil, and rubber have historically been the mainstays of Malaysia’s economy (primarily state-owned and accounting for around 32 percent of government revenue), several other sectors including financial services, tourism, education, retail, and healthcare have grown rapidly in recent years. Malaysia’s retail sector in particular has gained momentum since 2010 with the country’s e-commerce market set to grow from US$1 billion last year to more than US$10 billion by the end of 2015.

Malaysia’s East Coast Economic Region includes the states of Kelantan, Terengganu, and Pahang and the district of Mersing in Johor. It was established in 2009 and has proven to be a game changer for the country’s manufacturing output. In expanding the concept by collaborating with the Iskander SEZ, Malaysia has positioned its east coast as a key area for the development of ASEAN free trade.

HR Issues

Malaysia has a flexible visa policy that allows the majority of countries to enter without a visa for business trips that do not last longer than 90 days, including foreign nationals from the United States, France, Australia, Brazil, Germany, and the United Kingdom. It is important to check ahead of time if Malaysia requires a visa from your country.

Foreign workers in Malaysia can be employed in the manufacturing, construction, plantation, agricultural, services and domestic help sectors. All applications for foreign workers should be submitted to the One Stop Centre, Ministry of Home Affairs, except for applications for foreign domestic helpers which should be submitted to Malaysia’s Immigration Department.

Foreign workers who wish to be employed by a company within Malaysia will have to have their application reviewed by the relevant government agencies, such as the Ministry of Manpower. The employee’s sponsoring company must also work with the government to ensure that the worker is approved for entry. There are two types of visas available:

  • Single Entry – Valid for three months
  • Multiple Entry – Valid for three to 12 months

Applications must be made through the nearest Malaysian Representative Office Abroad or, for Indian and Chinese nationals, through the online I-Visa System.

Work permits are required for foreign nationals working within the following eligible work sectors:

  • Manufacturing
  • Plantation
  • Agriculture
  • Construction
  • Services

In order to work in Malaysia, the applicant must obtain approval from the Local Center of Approval under the Ministry of Home Affairs, and the applicant’s employer must also file for a Visa with Reference and a Visitor’s Pass if the employment is on a temporary basis.

Please find the full contact information of our Malaysian Asian Alliance Partner here.

Dezan Shira Asian Alliance Member in Malaysia

Christopher Heng & Peng Sam
8th Floor, Kompleks Mutiara, Jalan Sultan Azlan Shan
(Previously known as 3 ½ Mile Jalan Ipoh)
51200 Kuala Lumpur

Tel: +603 6257 1130
Fax: +603 6257 0500

Investment vehicles available to foreign investors

Generally, any person or foreigner can set up and operate a business in Malaysia. The requirement is that the firm or company must apply for registration from the Companies Commision of Malaysia (SURUHANJAYA SYARIKAT MALAYSIA {SSM}). Malaysia allows foreign investors to use the following investment vehicles:

  • Sole proprietorship
    • Owned by an individual operating as sole proprietor.
    • Must register with the SSM under the Registration of Businesses Act 1956.
  • Partnership
    • Can be between two or more (but not more than 20) persons.
    • Must register with the SSM under the Registration of Businesses Act 1956.
    • Partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient.
  • A locally incorporated company or a foreign company registered under the provisions of the Companies Act (CA ) 1965
  • Company limited by shares
    • A company formed on the principle that the members’ liability is limited by the Memorandum of Association to the amount, if any, unpaid on the shares taken up by them.
  • Company limited by guarantee
    • The liability of the members is limited by the Memorandum and Articles of Association to the amount which the members have undertaken to contribute to the assets of the company in the event the company is wound up.
  • Unlimited company
    • A company formed on the principle of having no limit placed on the liability of its members.

The most common company structure in Malaysia is a company limited by shares. Such limited companies may be incorporated either as a Private Limited Company (identified through the words “Sendirian Berhad” or “Sdn Bhd” as part of the company’s name) or a Public Limited Company (identified through the words “Berhad” or “Bhd” as part of the company’s name).

A company having a share capital may be incorporated as a private company if its Memorandum and Articles of Association:

  • Restrict the right to transfer shares.
  • Limit the number of members to 50, excluding employees in the employ of the company or its subsidiary and certain former employees of the company or its subsidiary.
  • Prohibit any invitation to the public to subscribe for its shares and debentu
  • Prohibit any invitation to the public to deposit money with the company for fixed periods of payable at call, whether interest-bearing or interest-free.

A public company can be formed or, alternatively, a private company can be converted into a public company subject to Section 26 of CA 1965. Such a company can offer shares to the public provided:

  • It has registered a prospectus with the Securities Commission.
  • It has lodged a copy of the prospectus with the SSM on or before the date of its issue.

A public company can apply to have its shares quoted on the Bursa Malaysia subject to compliance with the requirements laid down by the exchange. Any subsequent issue of securities (e.g. issue by way of rights or bonus, or issue arising from an acquisition, etc.) requires the approval of the Securities Commission.

Additional Requirements

Special licences or approval must first be obtained from the respective authorities for certain businesses such as banks, insurance companies, share broking companies, professional firms, investment corporations, and manufacturing corporations before registration may be made to the SSM. The other respective approval authorities include:

  • Ministry of Finance (MOF)
  • Ministry of International Trade & Industry (MITI)
  • Ministry of Domestic Trade & Consumer Affairs (MDTCA)
  • Malaysia Industrial Development Authority (MIDA)
  • Economic Planning Unit of the Prime Minister’s Department

Malaysia’s Industrial Coordination Act 1975 (ICA) requires manufacturing companies with shareholders’ funds of RM2.5 million and above, or engaging 75 or more full-time paid employees, to apply for a manufacturing licence from the Ministry of International Trade and Industry’s (MITI) Malaysian Investment Development Authority (MIDA).

Malaysia’s approval guidelines for industrial projects are based on the Capital Investment Per Employee (C/E) Ratio. Projects with a C/E Ratio of less than RM55,000 are categorised as laborintensive and thus will not qualify for a manufacturing licence or for tax incentives. Nevertheless, a project will be exempted from the above guidelines if it fulfils one of the following criteria:

  • The value-added is 30 percent or more.
  • The Managerial, Technical and Supervisory (MTS) Index is 15 percent or more.
  • The project undertakes promoted activities or manufactures products as listed in the List of Promoted Activities and Products - High Technology Companies.
  • Existing companies (formerly exempted) applying for a manufacturing licence.

Corporate Income Tax

  • Rate: 25 percent.
  • Residency: Considered resident if, at any time during the basis year, the management and control of the business was exercised in Malaysia.
  • Compliance: Self-assessment with estimated tax payable one month before the commencement of the year of assessment and monthly installments paid on the estimate of tax payable.
  • Incentives: Exemptions and double deductions for certain R&D expenditures and incentives for investments in promoted products, activities, and specific companies.

Indirect Tax

  • Rate: Service tax of six percent, sales tax of five or 10 percent.
  • Service tax is chargeable on the value of taxable services implemented by a taxable person. Sales tax is a form of consumption tax levied on taxable goods manufactured in Malaysia or imported into Malaysia for local consumption. On April 1, 2015, Malaysia implemented a goods and services tax (GST) of six percent, which replaced the current sales and service taxes. This process is still being settled down and some confusion and compliance issues remain. For assistance please contact our firm.

Indirect Tax

  • Rate: Up to 26 percent (will be reduced to 25 percent in 2015).

Tax Treaties

You can find extensive collection of Malaysian tax treaties from our Knowledge Sharing Platform.