5 Key Considerations For Foreigners Starting A Business In Malaysia
While business entity registration in Malaysia for foreigners isn’t complicated, it’s just the start!
That’s why when MISHU receives an enquiry for foreign incorporation, we first make sure they understand, can, and are willing to meet requirements to actually operate.
Our guide below is based on these sessions, covering five key considerations before registering a foreign business in Malaysia, namely:
- WRT / USS license requirements
- sector-specific requirements
- where you plan to physically operate
- business entity options (and potential nominee needs), and
- Employment Pass needs
Of course, readers are welcome to skip the guide and get in touch.
Otherwise, let’s begin.
1. WRT / USS license requirements
This is the first thing we bring up, as almost any business in Malaysia with 51% foreign equity needs a:
- Wholesale, Retail & Trade (WRT) license if they deal in trade sectors, OR
- Unregulated Services Sector (USS) license if they deal in services
Both require a paid-up capital of at least RM1 million (~ quarter million USD) which must be shown in the company’s bank statements at the time of application.
They are issued by the Malaysian Ministry of Domestic Trade to protect local SMEs by preventing foreign direct competitors to do business here – so if you feel like they make it hard for smaller foreign setups, that’s exactly what they’re meant to do!
In our experience, two ways exist for foreign ventures to circumvent this license:
- foreign tech businesses who qualify for the Malaysia Tech Entrepreneur Programme (MTEP)
- incorporated joint ventures with Malaysians with at least 51% equity going to the local
However, if you want a 100% foreign owned business, these licenses are mandatory.
If you are able to meet WRT or USS licensing requirements, the next step is determining if your industry has specific regulatory restrictions by the Malaysian government.
2. Sector-specific requirements
Let us start by saying that many industries in Malaysia don’t have specific needs, but some have rules that affect a foreign party’s ability to do business, including:
- foreign equity limits
- staff qualifications and nationality
- premise and facility requirements
- more!
We can’t cover all of them in this guide, but we’ll cite one of the most common enquiries we get: Foreigners who want to set up a language centre.
Our linked guide covers the process in full, but some of the main barriers include:
- maximum 51% foreign equity (which will need that USS license!)
- 30% of the local equity must be Bumiputera-owned
- requires a chairman, principal, and five governors as part of the management team
- not being located near other similar language centres
- not being allowed to offer non-language courses without separate licenses
Some are willing to comply with these requirements; others say no thank you – identify your industry requirements before registering a business and signing agreements.
We’ve got guides on quite a few businesses, so see if we’ve covered your intended venture in Malaysia:
- travel agency
- recruitment agency
- childcare centre
- restaurant (another popular one!)
- bar in Kuala Lumpur
- factory
- clinic
- tuition centre
- vocational training centre
If not, it may be that we just haven’t gotten round to writing it yet, so drop us a message!
Once industry-specific requirements are addressed, the next step is determining where you plan to operate in Malaysia, assuming your business needs physical premises.
3. Determine your physical operation site
We know this isn’t always possible from halfway across the world, but knowing where in Malaysia you’d like to operate beforehand is a huge help.
While industry licenses are issued federally and uniform across Malaysia, licenses to operate in a premise are regulated by district level Local Authorities (known as PBTs), each with their own requirements!
Think of the PBT as the ‘last mile’ of your business setup – all else can go right but unless you meet PBT’s premise and signboard requirements for your type of business, you won’t be able to actually operate.
That’s why logistics companies plan for last mile delivery from the start, and that’s why we always encourage foreigners to find out where they plan to operate beforehand, then find out the respective PBT’s premise rules, namely:
- proximity to other types of business activities
- proximity to residential areas or places of worship
- whether residential premises are allowed for certain sectors
- layout requirements
Foreigners should also make sure their business signboards can comply with PBT requirements, namely the prioritisation of Bahasa Melayu (our national language) if other languages are used.
This an issue which has led to many foreign businesses getting fined and in theory it could even get your license revoked.
Ultimately, PBT guidelines inform you which premises you can operate in and changes you’ll have to make to comply with all their requirements.
And it’s only once our foreign leads are comfortable with these – in addition to WRT / USS license and industry requirements – that we proceed to foreign business entity options.
4. Choosing the right business entity
Foreign businesses have two main choices of business structure:
- a branch office, or
- a Sdn Bhd
A branch is a direct extension of a foreign company incorporated outside Malaysia – faster and cheaper to set up, but the parent is fully liable for branch debts and legal commitments, and the branch cannot conduct business that differs from the main company.
A Sdn Bhd is a locally incorporated company with varying levels of foreign shareholding. More expensive to set up, but the foreign owners are shielded from its debts and legal commitments, and the venture can diversify into activities separate from its owners based on the local market.
For an overseas business, this means a foreign-owned subsidiary, of which there are many examples.
For long-term operations, Sdn Bhds are by far the most popular choice because they offer:
- limited liability protection
- greater operational flexibility
- easier local expansion
- better long-term scalability
Our subsidiary vs branch comparison covers this in full, but we’ll proceed from this point assuming Sdn Bhds as the entity of choice.
How to register a foreign-owned Sdn Bhd
Sdn Bhds are registered with Suruhanjaya Syarikat Malaysia (SSM), our regulatory body for businesses.
It’s technically possible to incorporate yourself, but unless you already have an SSM account, it requires physically visiting an SSM branch to verify your identity. If this is possible, our guide to DIY company registration explains the process in full.
Most foreigners engage a third-party provider, and a practical choice is to use a Company Secretarial firm since one of the statutory requirements is to appoint a Company Secretary within 30 days of incorporation – this way you kill two birds with one stone.
Whoever you hire will ensure you meet SSM’s incorporation requirements, and if it was MISHU (yes, we are a Company Secretarial firm), we’d make sure you have the following six things sorted out:
- proposed company names with explanations if not in Bahasa Melayu or English
- up to three MSIC codes and a 200-word nature of business description
- a Malaysian registered address
- one locally residing director (can be a foreign / nominee)
- one shareholder (individual or corporate)
- RM2,500 in paid-up capital, share price, number of shares, and ownership proportions
While officially RM1 paid up capital is enough to incorporate, banks typically only approve accounts when they see at least RM2,500, so treat that as the effective minimum to do business.
Notice requirements to register a business are far lower than to operate said business as a foreigner – that’s why we always inform foreign clients of everything else beforehand!
What’s a nominee?
For foreign businesses that cannot source a resident director, a nominee is a locally residing individual that is appointed as a director in name to fulfil SSM’s requirements.
Both sides typically sign a nominee director agreement that strips a nominee of the usual director powers like accessing company finances and making decisions – all they get is a director’s fee. Similar arrangements exist for nominee shareholders where foreign equity is restricted.
It’s an arrangement that carries risks for both sides – but more so for the nominee – so MISHU doesn’t provide this service ourselves, but many Company Secretarial firms do.
What about Labuan companies?
The MISHU team facilitates Labuan company incorporations as well, and as a business vehicle they’re intended for international business activities or Labuan-based operations.
If your goal as a foreign business is to sell to the Malaysian domestic market, a Labuan company is just not a viable option.
Alright, now for the final consideration: Expatriate hires!
5. Planning for Employment Pass applications
We always clarify if the foreign business plans to fill long-term positions with skilled foreign talent – perhaps as business owner, director, senior manager, or some other specialist position.
This means Employment Passes (EPs), a topic unto itself we cover in our full guide to EP applications.
In summary, businesses that plan to have foreigners relocate to Malaysia as full-time employees must be prepared to meet strict requirements and allocate resources for:
- meeting EP monthly salary requirements
- registering an employer account with the Expatriates Services Division, and
- preparing, submitting, and tracking EP applications
- keeping records for EP renewals
Alternatively, a Malaysian Professional Visit Pass (PVP) addresses a different kind of foreign hiring need – in contrast to an EP, a PVP is short-term and non-renewable, but carries no minimum salary requirements.
Like we said, expat visas are its own rabbit hole, and it’s crucial to plan for it before registering your foreign business in Malaysia.
That’s it from us, and we wish you all the best with your Malaysian venture 😊
Let MISHU support your foreign business registration
Setting up a foreign-owned subsidiary in Malaysia doesn’t have to be complicated, and with MISHU’ fully online incorporation services, you can focus on growing the business while we handle the paperwork.