Different Malaysia business entities

These are the common types of business entities incorporated in Malaysia.

Sendirian Berhad (private limited company/LLC)

office-receptionBest use: International manufacturing or services businesses wanting to expand their global footprint in southeast Asia can typically do business in Malaysia without restriction, as the government wants to encourage knowledge transfer, export growth and job creation.

  • The most common vehicle for investing in Malaysia is the Sendirian Berhad, which is the local equivalent of a private limited company. Two resident directors must be appointed by the owners;
  • 100% foreign ownership is permitted for companies in most industries. The Malaysian Investment Development Authority (MIDA) maintains a detailed list of businesses open to foreign investment in Malaysia.

Corporate tax payable: This business entity is subject to 25% corporate tax in Malaysia.

Labuan companies

Best use: Labuan is most useful to entrepreneurs establishing a financial services, distribution or international trading business in a growing, low-tax jurisdiction with easy access to southeast Asian markets.

  • With its ease of incorporation, Labuan is emerging as a regional offshore center, with a 3% tax rate on net audited profits and privacy for shareholders and directors;
  • As a free port, imports and exports to and from Labuan are exempt from duty, making a Labuan company useful for regional distribution enterprises;
  • Although they may rent properties in the rest of Malaysia, Labuan companies may not make sales within the country. They cannot therefore be used by international businesses wanting to sell to Malaysian customers.

Corporate tax payable: Trading companies will be subjected to a 3% tax while non-trading companies are subjected to zero tax.

Bumiputera companies

Best use: Malay-owned and operated companies focusing on providing services to the government.

  • As part of a government plan to incentivize Malaysian entrepreneurship and the return of ethnic Malays from abroad, Bumiputera status improves a company’s chances of winning government tenders;
  • These companies also benefit from special grants, discounts and incentives like cheaper business licenses and discounts when purchasing land or renting property.

Corporate tax payable: This business entity is subject to 25% corporate tax.

Branch office

Best use: Registering a Malaysian branch is most appropriate for foreign companies wanting to test the market quickly and with a lower administrative burden. However, as a branch is limited to the activities of its parent company we recommend incorporating an LLC in most cases as its increased flexibility and limited liability position it as a better way to grow your business in Malaysia.

  • Foreign businesses may register themselves directly in Malaysia without incorporating a subsidiary;
  • While these are referred to in Malaysian company law as “foreign companies”, they equate to the notion of a branch in most other jurisdictions and are permitted to make sales within the country.

Corporate tax payable: This business entity is subject to 25% corporate tax.

Representative office

Best use: A representative office is most appropriate when used to receive a team tasked with exploring the Malaysian market more fully.

  • These operations may not generate revenue and may only be used for support activities like after-sales support, market research and brand-building;
  • However, incorporating a Sendirian Berhad company gives greater flexibility for entering the Malaysian market due to its ability to make sales.

Corporate tax payable: This business entity is not subjected to corporate tax.

Sole proprietorship/Partnership

Best use: This business entity is the easiest and cheapest to establish a business. However, there is nearly zero protection to the business owner, thus we recommend incorporating an LLC instead.

  • A sole proprietorship is the most traditional form of business and it is owned and run by one person. There will be no legal distinction between the owner and the business.

Corporate tax payable: This business entity is subject to income tax of the business owner instead of corporate tax.

Free zone company

Best use: This business entity is most popular for foreign companies that are in export-oriented businesses in order to make full use of the ports and free zones that Malaysia provides.

  • Free zone companies are a gift for foreign companies using Malaysia as a gateway to Southeast Asia;
  • As a member of ASEAN, companies in Malaysia enjoy the benefits of being a part of the association such as free flow of goods;
  • Companies looking to use Malaysia as a regional manufacturing or distribution base can use from using Malaysian free zones if a majority of their business is conducted outside the country;
  • Advantages include low land and utility costs, numerous tax exemptions, proximity to efficient transport networks and unlimited repatriation of funds;
  • Disadvantages include i) companies must rent office space within the free zone ii) the Malaysian government will play a big part in daily business and iii) port authorities sometimes take advantage of their position to satisfy personal interests.

The four key industrial free trade zones in Malaysia:

  1. Port Klang:
    • Located in Malacca, it is one of the largest industrial parks in Malaysia;
    • This free zone is largely used for the following business sectors: international cargo distribution (logistics), and export operated manufacturing businesses.
  2. Pasir Gudang:
    • Located close to Johor Bahru, this free zone is in an ideal location for businesses looking to trade in Singapore and Johor Bahru;
    • This free zone is largely used for the following business sectors: electronics, petrochemicals, plastics, and food products.
  3. Port Tanjung:
    • Located near Singapore, this free port is one of the largest container ports in Malaysia;
    • This free zone is largely used for the following business sectors: sea freight distribution, and logistics.
  4. Bayan Lepas:
    • Located in the north of Malaysia, this free zone is the industrial hub of Penang;
    • This free zone is largely used for the following business sectors: electronic components, medical equipment and general assembly industries.

Corporate tax payable: This business entity is subject to 25% corporate tax but can benefit from tax holidays granted by the free zone authority on a case by case basis.

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