How to Start a Business in Malaysia

Malaysia’s strategic location in Southeast Asia and rapidly growing economy make the country an appealing destination for entrepreneurs and investors. The country provides access to ASEAN markets at lower costs than other developed nations in the region. Malaysia offers significant business opportunities. This article will cover how to start a business in Malaysia, including the process for foreigners, the costs involved and a step-by-step guide to start a business in Malaysia.

How to start a business in Malaysia

To start a business in Malaysia one has to follow these steps including:

1. Choose the Right Business Structure: Select a business entity, with a Private Limited Company (Sdn Bhd) being the most common for foreign investors.
2. Reserve a Company Name: Register your preferred company name with the Companies Commission of Malaysia (SSM), ensuring it meets their guidelines.
3. Register the Business with SSM: Apply for company registration within 30 days and obtain the certificate of incorporation and business registration number.
4. Obtain Necessary Licenses and Permits: Depending on your business type, secure relevant licenses and permits from the appropriate government agencies.
5. Open a Business Bank Account: Set up a corporate bank account with required documents like your certificate of incorporation and business registration.
6. Register for Tax: Register for corporate income tax with the Inland Revenue Board of Malaysia (LHDN) within three months of starting operations.

Cost of starting a business in Malaysia

The cost of starting a business in Malaysia varies depending on the type of business and services needed:

1. Company Registration: Registering a private limited company (Sdn Bhd) costs between RM1,000 and RM5,000, which covers company name search, registration, stamp duty and professional fees.
2. Sole Proprietorship: Registration costs RM30 per year if using your own name or RM60 per year if using a trade name.
3. Business License: Business licenses typically cost between RM1,000 and RM1,500, depending on the state.
4. Cash Flow Reserve: It’s recommended to have a cash flow reserve of about RM100,000 to cover six months of expenses like salaries and rent

Other considerations of the cost of starting a business include opening a corporate bank account, registering with EPF and SOCSO, registering with the Inland Revenue Board (LHDN) and fulfilling annual business reporting requirements.

Starting a business in Malaysia involves several other major costs:

1. Research: Understand market trends, competition and customer needs. This helps tailor your business model for success.
2. Financial Costs: Small businesses require initial capital, which can come from personal savings, friends and family, investors, or business loans. Loan terms and eligibility vary by bank.
3. Legal and Compliance Costs: This includes business registration, Sdn Bhd incorporation fees, solicitor fees, name registration fees and insurance costs for protection against liabilities.
4. Premises-Related Expenses: If a physical location is required, costs will include rent, deposits and potential renovations. Online businesses save on these expenses.
5. Equipment Acquisition: Expenses for office equipment, furniture and specialized tools. It’s usually more cost-effective to buy rather than lease in the long term.
6. Marketing and Advertising: Costs for branding, including logo design, brochures, business cards, signage and a website to attract customers.
7. Employee and Staffing Expenses: These include salaries, benefits, recruitment costs, contributions to the Employees Provident Fund (EPF) and medical coverage.

Opening a business in Malaysia for foreigners

Foreigners interested in starting a business in Malaysia need to be aware that not all business entities allow 100% foreign ownership. Some foreign companies can set up entities in Malaysia to explore new markets and conduct business activities. However, certain business structures, such as corporations or associations incorporated outside Malaysia may not permit full foreign ownership.

Additionally, unincorporated societies or associations that have legal standing in their home country can also establish operations in Malaysia, but they must meet specific legal requirements.

Foreigners can start a business in Malaysia under different legal structures, each with its own requirements:

1. Sole Proprietorship: Only available to foreigners with permanent residency in Malaysia.
2. Partnership: Must involve Malaysian citizens or permanent residents as partners.
3. Private Limited Company (Sdn. Bhd.): Common for foreign investors, allowing full foreign ownership, but some sectors like agriculture, banking and oil and gas require 50% Malaysian ownership.
4. Limited Liability Partnership (LLP): Foreigners can set up an LLP, but the compliance officer must be a Malaysian citizen or permanent resident.
5. Public Limited Company (Berhad): Suitable for large businesses, allowing public share trading, but requires strict compliance and transparency.
6. Branch Office: A foreign company can establish a branch in Malaysia, but the parent company is liable for debts and a resident agent must be appointed.
7. Representative Office: Ideal for exploring the market and conducting research, but cannot generate profit or enter into contracts. The parent company is responsible for any liabilities.

Ongoing Compliance and Responsibilities:

1. Annual Compliance: File financial statements, tax returns and undergo audits to ensure legal adherence.
2. Employer Responsibilities: Make contributions to the Employees Provident Fund (EPF), Social Security (SOCSO) and Employment Insurance System (EIS).
3. Ongoing Tax Compliance: File tax returns on time, make payments and stay updated on tax law changes to avoid penalties.

Government Agencies that Supporting Businesses in Malaysia

1. Ministry of Entrepreneur Development and Cooperatives (MEDAC): Provides training, financial aid and advisory services to entrepreneurs and cooperatives.
2. Small and Medium Enterprises Corporation Malaysia (SME Corp. Malaysia): Develops policies and coordinates programs for SMEs.
3. Malaysia External Trade Development Corporation (MATRADE): Promotes external trade and focuses on export development.
4. Pertubuhan Keselamatan Sosial (PERKESO): Offers social security for work-related accidents or diseases.
5. Suruhanjaya Syarikat Malaysia (SSM): Regulates businesses, handles new registrations and offers compliance guidelines.
6. Companies Commission of Malaysia (CCM): Manages business registration, renewal and compliance.
7. Human Resources Development Fund (HRDF): Develops the local workforce in line with Malaysia’s economic goals.
8. Malaysian Investment Development Authority (MIDA): Advises on investment opportunities and supports companies investing in Malaysia.

Conclusion

Malaysia offers an attractive environment for international business, with a business-friendly government, favourable tax policies, a high standard of living, great infrastructure and a multilingual, educated workforce. The country’s strategic location and excellent transport links make it an appealing trade destination. Additionally, Malaysia’s multicultural society fosters diversity and growth.

Starting a business in Malaysia presents great opportunities, but it requires careful planning, regulatory compliance and thorough research. The process becomes manageable and rewarding with proper guidance and support which allows entrepreneurs to tap into the potential of this dynamic market.