A Foreigner’s Guide To Subsidiary Registration In Malaysia
In Malaysia, a subsidiary refers to a corporate entity controlled by another (the parent) via majority shareholding or control over director appointments and voting powers.
Depending on scale, a subsidiary can be set up as one of two entities:
- Sendirian Berhad (private limited company) if no more than 50 shareholders
- Berhad (public company) if > 50 shareholders
Even if its parent is foreign, a subsidiary is foreign-owned as it is still incorporated in Malaysia, and below we explain how foreign businesses can register and start operating a subsidiary, namely:
- key features
- alternative structures
- requirements to incorporate
- steps in the incorporation process
- common business licenses / visas, and
- subsidiaries as joint ventures between local and foreign owners
Readers are welcome to skip the guide and get in touch directly, but otherwise, please treat references to ‘subsidiary’ below as referring to a Sdn Bhd.
Let’s begin.
Key features of a subsidiary
As this guide focuses on Sdn Bhd, the subsidiary will likely be similar to a private limited company in your home country with key features being:
- separate legal entity status meaning it can own assets, sign contracts, and sue or be sued in its own name
- limited liability for shareholders and directors shielding personal assets from business liabilities
- ownership through shareholding which can easily be sold or transferred
- strong perceived credibility due to the stricter compliance demands
Essentially, a subsidiary via Sdn Bhd is what you go for if you want your Malaysian outfit to have autonomy and for there to be insulation between it and the parent that offers liability protection.
For businesses that want the exact opposite, there are two alternative structures to consider!
Alternative structures
Besides private and public companies, a foreign company can operate in Malaysia via:
- branch office, or
- representative office
Unlike a subsidiary, branch and representative offices are direct extensions of their foreign parent company without separate legal status. The parent is fully liable for their actions, but both are generally faster and cheaper to set up than a subsidiary.
Which of the two to go with depends on the intended purpose.
Branch office
A branch office is a Malaysian extension of its foreign parent that must operate under the same name and only carry out identical business activities as its parent.
It is also taxed as a non-resident entity (up to 25% depending on type of income).
Representative office (RO)
An RO allows foreign companies to set up offices in Malaysia from which they may conduct market research, product development, and explore investment opportunities.
ROs can operate for 2 – 5 years and are not allowed to carry out revenue-generating activities at any time.
Incorporation requirements
Our subsidiary registration checklist explains this in full, but basically you need 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 director)
- one shareholder (individual or corporate)
- RM2,500 in paid-up capital, share price, number of shares, and ownership proportions
While officially just RM1 paid up capital is enough to incorporate a company, banks typically only approve accounts when they see at least RM2,500, so treat that as the effective minimum to do business.
Incorporation steps
Realistically, the only step for foreign businesses is to engage a third-party to incorporate on their behalf!
That said, subsidiary registrations are done online via SSM’s MyCOID portal with four main steps:
- Checking and reserving a proposed company name
- Preparing required documents
- Submitting the incorporation application, and
- Receiving the registration notice
Excluding third party fees, SSM charges RM50 for name reservation RM1,010 for incorporation, and provided documents are in order, incorporation takes three to ten working days based on number of pending applications.
Main post-incorporation steps
Once registered, foreign subsidiaries typically have five pending tasks before it can begin trading.
Appoint a Company Secretary
Within 30 days of incorporation, a subsidiary must appoint a licensed Company Secretary who is responsible for ensuring compliance with the Companies Act 2016, namely:
- managing Annual Submissions
- maintaining updated subsidiary details
- keeping meeting minutes and drafting resolutions
Since you’ll likely incorporate with the help of a third party, they typically have an internal Company Secretarial team or an external partner they can connect you to upon registration.
One of the most first resolutions you will need is a resolution to open a bank account.
Open a bank account
While banks are typically more cautious with foreign-owned entities, in our experience subsidiaries are perceived as more trustworthy due to ties to an established business.
Whether the KYC process can be done fully done online or requires a director to present themselves physically is at the discretion of the bank, and two things can facilitate the former:
- your Company Secretary refers you to a bank they have a relationship with
- you already have an account with the bank in your current country of operation
For details on documents required, check out our guide to opening a business bank account.
Register as a tax resident
All subsidiaries must register with Lembaga Hasil Dalam Negeri (LHDN) for taxation purposes, including:
- corporate tax registration
- Sales & Service Tax (SST) if annual revenue exceeds RM500,000
- employer taxes (EPF), SOCSO, PCB if you plan to hire employees
Apply for business licenses
At the very least, a foreign-owned subsidiary will need the following licenses:
- composite license (combined premise and signboard license)
- WRT / USS license (for foreign-owned businesses selling to the Malaysian market)
While the above may be enough, in reality, many industries require additional licenses:
Additionally, across industries, common business activities also require specific licenses:
Unsurprisingly, the number and type of licenses needed significantly affects how long it takes to begin operating, and we’d be happy to advise you on how long it might be in your case.
Apply for Employment Passes
If the parent company wants team members from their country to help run the subsidiary in Malaysia as permanent additions, they need to register an account with the Immigration’s Expatriate Services Division and apply for relevant Employment Passes based on position:
- Category 1 EP for key roles (shareholders, directors, and C-suites)
- Category 2 EP for non-key roles with a minimum salary of RM5,000
- Category 3 EP for non-key roles with a minimum salary of RM3,000
Category 1 and 2 holders may bring dependents, and a separate application is needed for each member.
Categories 2 and 3 also require explaining why a role cannot be filed locally.
Alternatively, the parent may want key members to come to Malaysia to upskill locals before flying back instead of staying indefinitely, in which case a Professional Visit Pass may be more appropriate.
Subsidiaries as joint ventures
If done as a foreign-local partnership where the foreign shareholder owns less than 20%, the subsidiary can potentially enjoy substantially more preferential tax treatment.
We explain this at length in our guide to JV tax treatment in Malaysia, but in short, foreign-owned subsidiaries (20% foreign ownership and more) are taxed a flat 24%.
Meanwhile, foreign-local subsidiaries with <20% foreign ownership may be taxed as follows:
- 15% on the first RM150,000
- 17% on RM150,001 to RM600,000, and
- 24% on anything above RM600,000
Of course, on paper this means surrendering parent company status and control, but that’s why we only enter JVs with partners we trust, and even then, only with a tailored Shareholders’ Agreement!
So if you’re outside Malaysia at the moment or don’t want the hassle, get in touch with us!
Let MISHU incorporate your subsidiary
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.