【Malaysia】ESTABLISHING A COMPANY IN MALAYSIA: A GUIDE FOR FOREIGN INVESTORS

Yu Lie Yap

Malaysia remains a premier destination for foreign investment in Southeast Asia, offering a robust economy, strategic location, well-developed infrastructure, and a clear, facilitative regulatory framework.

In a significant move to enhance business mobility, Malaysia launched the Multiple-Entry Investor Pass on 1 April 2025. The pass allows foreign investors, including business owners and C-suite executives, to make multiple visits to Peninsular Malaysia for up to six months, extendable by a further      six months, for site visits and business negotiations, without permitting local employment or dependents.

This article provides an overview of the primary process for establishing a company in Malaysia, focusing on the requirements applicable to foreign-owned private limited companies.

General Overview: Types of Business Entities in Malaysia

•  Private company limited by shares

  A private company limited by shares is the most common and recommended legal entity for conducting business in Malaysia. It is a separate legal entity, providing shareholders with limited liability, restricted to the value of their share capital. A private company limited by shares requires at least one member and one director, with at least one director ordinarily residing in Malaysia. A private company limited by shares is considered foreign-owned if more than 50% of its voting shares are held by non-Malaysians.

  
  

• Representative office (RO)

  Foreign investors may establish a RO to conduct non-commercial, liaison activities such as market research, promotion, and coordination, with an initial operation period of      2 years, extendable up to a maximum of 5 years. The minimum operational expenditure requirement for a RO in Malaysia is RM 300,000 per year, funded from overseas, to sustain the RO’s activities.

  An RO is prohibited from engaging in any profit-generating activities, signing contracts, or providing direct services to clients. It serves as a low-cost initial market entry tool but must be upgraded to a private company limited by shares to commence trading.

  
  

• Branch office

  A foreign company may register a branch office in Malaysia. Unlike a private company limited by shares, a branch office is not a separate legal entity, and the parent company bears full liability for its obligations. Establishment requires registration with the Companies Commission of Malaysia (“SSM”) and the appointment of at least one authorized representative resident in Malaysia. It is common in sectors like banking, insurance, and for large multinationals executing specific projects.

  
  

• Other business forms

  Malaysian law also recognizes partnerships (general and limited) and sole proprietorships. However, these entities do not offer limited liability and are typically not available or practical for mainstream foreign investment due to regulatory restrictions and lack of separate legal personality.

  
  

KEY CONSIDERATIONS FOR ESTABLISHING A FOREIGN-OWNED PRIVATE COMPANY LIMITED BY SHARES IN MALAYSIA

• Determine business activities and regulatory approval requirements

  Foreign investors must first determine if their intended business activity is subject to foreign ownership restrictions and/or requires specific approvals.

  While Malaysia has a generally liberal policy where foreign investors may generally own 100% of the private company limited by shares, certain industries (e.g., financial services, telecommunications, oil and gas) remain regulated and may impose foreign ownership restriction and/or additional approval requirements.

  In particular, foreign-owned companies engage in manufacturing activities with investment above a certain threshold require submit an application for a licence to the Malaysian Investment Development Authority (“MIDA”) and foreign-owned companies engage in wholesale, retail, trading must obtain a wholesale and retail trade license from Ministry of Domestic Trade and Cost of Living.

  Other regulated sectors, such as education, healthcare, financial services, may be required to obtain specific licences, permits, or endorsements from the relevant ministries, regulators, or professional bodies before commencing operations.

  
  

• Capital requirement

  Generally, there is no minimum paid-up capital requirement for incorporating a local company in Malaysia. However, foreign-owned companies are typically required by authorities to have a minimum paid-up capital of RM500,000 for general business activities, or RM1 million for wholesale, retail, and trading activities, in order to support applications for expatriate work permits.

  For certain regulated sectors, the applicable capital thresholds may vary depending on the requirements imposed by the relevant regulator.

  
  

• Name reservation

  A name search must first be conducted with the SSM, following which the proposed company name must be reserved with and approved by SSM.

  
  

• Mandatory resident director

  A company must have at least one director who ordinarily resides in Malaysia; directors may be foreign nationals.

  
  

POST-INCORPORATION REGISTRATIONS

Following SSM incorporation, the foreign-owned company must complete several critical registrations:

• Tax registration: Register with the Inland Revenue Board of Malaysia (“LHDN”) to obtain a tax identification file number.

  
  

• Employment and immigration matters: In Malaysia, companies must register as an employer with the Employees Provident Fund (“EPF”) and the Social Security Organisation (“SOCSO”) before hiring any employees. Effective October 2025, mandatory EPF contributions of 2% each for both employer and employee apply to all non-citizen employees holding a valid employment pass. Mandatory SOCSO contributions also apply to provide foreign talent with employment injury and invalidity coverage.

  Where foreign directors are appointed or foreign employees are engaged, the company must apply for the relevant work permits, such as an employment pass, through the Expatriate Services Division of the Immigration Department of Malaysia. For companies in the manufacturing or selected services sectors, these applications are typically supported by MIDA.

  Foreign investors should note that effective 1 June 2026, minimum monthly salary requirements for employment passes have been increased significantly: Category I will rise to RM20,000, Category II to RM10,000, and Category III to RM5,000.

  
  

• Customs account: Companies involved in manufacturing or trading of goods, must register with the Royal Malaysian Customs Department for Sales and Service Tax (“SST”) purposes if their annual turnover exceeds RM500,000. Service providers must also register if their annual taxable service value exceeds specific thresholds, usually RM500,000 for most services or RM 1.5 million for food and beverage services.

  
  

• Bank account: Open a corporate bank account with a licensed bank in Malaysia. Banks will require the original incorporation documents, board resolutions, and information on beneficial owners. Some may require MIDA approval letters before account activation.

  
  

• Company secretary: Appoint a qualified company secretary registered with SSM within 30 days of incorporation. Unlike regular employees, the company secretary acts as an officer of the company and is responsible for ensuring ongoing statutory compliance. They must be a member of a professional body recognized by the Ministry of Domestic Trade and Cost of Living or licensed by SSM, and must reside in Malaysia.

  
  

OTHER CONSIDERATIONS

• Annual filings: File annual returns and financial statements with SSM. Submit annual tax returns and monthly/quarterly SST returns (if applicable) to LHDN and customs.

  
  

• EPF & SOCSO: Make monthly contributions for all employees.

  
  

• Land/real estate: Under the Guideline on the Acquisition of Properties issued by the Economic Planning Unit (“EPU”) of Ministry of Economic, foreign investors may purchase land and property in Malaysia, subject to approval from the EPU and/or the relevant state land office. Investors must also comply with state-specific restrictions, which typically include meeting the minimum purchase price threshold, ensuring residential properties are not classified as low-cost housing, avoiding designated Malay reserved land or properties allocated as Bumiputera interest, and observing any additional restrictions on property type imposed by the state.

  
  

• Global minimum tax (BEPS 2.0): Large multinational enterprises with consolidated annual revenues exceeding €750 million or more in at least two of the four consecutive financial years immediately preceding the tested financial year, are also subject to the 15% Global Minimum Tax, which Malaysia implemented effective 1 January 2025.

  
  

• Data protection: Companies handling personal data of customers or employees must comply with the applicable personal data protection regulation. Key requirements include obtaining consent in both Malay and English for the collection, access, and processing of personal data; the mandatory appointment of a data protection officer for large-scale data processing activities, with such officer required to be registered with the Personal Data Protection Commissioner; and strict compliance with cross-border transfer guidelines, which require data controllers to assess whether the receiving jurisdiction offers an “adequate level” of protection before transferring personal data outside Malaysia.

  
  

Final Thoughts

Malaysia remains an attractive and strategically positioned destination for foreign investors due to its stable legal framework, generally liberal foreign ownership policies, and business-friendly regulatory environment. While the incorporation process for a private company limited by shares is relatively straightforward, foreign investors must carefully consider sector-specific licensing requirements, capital thresholds, immigration rules, tax obligations, and ongoing compliance responsibilities. With proper planning, regulatory due diligence, and guidance from qualified local professionals, Malaysia offers a solid and commercially viable platform for regional expansion and long-term investment growth.