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The Complete Foreigner’s Guide to Starting a Business in Malaysia

The Complete Foreigner’s Guide to Starting a Business in Malaysia

Malaysia, with its strategic geographical position and rapidly growing economy, has emerged as a prime destination for international entrepreneurs and investors. Its business-friendly policies, combined with a diverse cultural landscape and a wealth of natural resources, make it a compelling choice for business ventures. This guide aims to offer a comprehensive understanding of the various aspects of establishing a company in Malaysia, from legal prerequisites to operational considerations.

Note: While this guide strives to give a detailed overview of starting a company in Malaysia, it’s important to understand that every entrepreneurial journey is different. While you will indeed gain insight from this article, to truly have the foresight for an optimum company launch in Malaysia, you will need a trusted partner on the ground.

InCorp is here to provide bespoke assistance for every phase of your business venture in Malaysia. With our in-depth knowledge and expertise, we ensure that you navigate the complexities of the Malaysian business environment with assurance and accuracy. We highly recommend reaching out to our team at InCorp for personalised advice tailored to your specific business requirements.

Why Start a Business in Malaysia?

Malaysia’s position in Southeast Asia offers excellent access to the ASEAN markets, without the higher costs involved with its more developed ASEAN partners. In essence, Malaysia is still a “ground floor opportunity”, but with GDP predicted to rise from around US$400 billion in 2022 to US$780 billion by 2032, it won’t stay that way for long.

Its vibrant economy, rich in natural resources like palm oil, rubber, and timber, combined with a skilled workforce and technological advancements, creates a conducive environment for businesses. Government initiatives for investors, such as those under the Malaysia Digital Economy Corporation (MDEC) and various funding and grant programs, further enhance the allure of initiating a business in this up-and-coming nation.

Requirements for Foreigners to Start a Business in Malaysia

Legal Entity Options for Businesses

Sole Proprietorship

The most straightforward business entity, a Sole Proprietorship, is exclusively available to foreigners with permanent residency in Malaysia. Subsequently, foreigners can only start a sole proprietorship in Malaysia if they gain permanent residency.


A Partnership operates similarly to a Sole Proprietorship. To register a Partnership, all partners must either be Malaysian citizens or hold permanent residency in Malaysia.

Private Limited Company (Sdn. Bhd.)

A popular choice among foreign investors, a Private Limited Company allows foreigners to own the entire company. However, specific sectors, such as agriculture, banking, education, and oil and gas, mandate 50% Malaysian ownership.

Limited Liability Partnership (LLP)

An LLP blends the characteristics of both a partnership and a company, standing as a distinct legal entity separate from its partners. Foreigners can establish an LLP in Malaysia without being residents. However, the compliance officer for the LLP must either be a Malaysian citizen, a permanent resident, or someone who ordinarily resides in Malaysia.

Public Limited Company (Berhad)

Known as “Berhad”, this entity allows public share trading in Malaysia. Governed by the Company Act 2016, it’s favoured by large-scale businesses. While offering increased capital opportunities, it mandates strict regulatory compliance and transparency.

Branch Office

A Branch Office operates as an extension of its foreign parent company. While it mirrors the activities of the parent company, the parent company remains accountable for any debts the Branch Office accumulates in Malaysia. It should also be noted, that in most cases, this entity is most relevant for businesses seeking a temporary foothold in the Malaysian market. To establish a Branch Office, it’s mandatory to appoint at least one resident agent in Malaysia.

Representative Office

For foreign companies eager to explore the Malaysian market and understand its business landscape, a Representative Office is a suitable choice. However, it’s essential to note that a Representative Office lacks legal status in Malaysia — in essence, the parent company bears the responsibility for any debts or liabilities.

Unlike a Branch Office, a Representative Office is limited to promotional, liaison, market research, and coordination activities on behalf of the parent company. It cannot engage in profit-generating activities or enter into contracts.

You can read more in our article Choosing the Right Business Structure for Startups in Malaysia.

Foreign Investment Restrictions in Malaysia

  • General Stance: Malaysia is largely open to foreign investment, allowing up to 100% foreign equity in new projects and expansions of existing businesses.
  • Government Regulations: Different industries have specific rules set by relevant government departments. Some sectors may limit foreign ownership or require prior approvals before starting operations.
  • Foreign Ownership Limits: Certain sectors, like oil and gas, banking, and education, have restrictions on foreign ownership. For instance, upstream oil and gas activities might limit foreign equity between 30% and 100%.
Need on-the-ground insight?
Contact us at InCorp today.

Process for Foreigners to Start a Business in Malaysia

Starting a business in Malaysia as a foreigner involves several key steps. Here’s a breakdown to guide you through the process:

1. Choosing and Securing a Business Name

Before anything else, you’ll want to pick a unique business name. Ensure it’s not too similar to existing businesses and aligns with the guidelines set by the Companies Commission of Malaysia (SSM). Your company name will be held for 30 days after SSM approves it. You can read more about choosing a company name on the SSM website.

2. Official Business Registration

Once you’ve settled on a name, gather all required documents and submit them to SSM. This includes items like your business plan, passport, visa, and if you’re setting up a Private Limited Company (Sdn Bhd), the Memorandum and Articles of Association. The time and cost for registration can vary based on your chosen business structure and whether you’re registering online or in person.

3. Acquiring Necessary Licenses

Your business might need specific licenses or permits, depending on its nature. These could come from various governmental bodies, such as the Ministry of Trade and Industry or the local council. It’s essential to research and secure these before you commence operations. If in doubt, talk to a trusted partner like InCorp.

4. Tax Matters

Register your enterprise with the Inland Revenue Board (LHDN) to get your tax identification number. Staying compliant with Malaysia’s tax obligations, like submitting yearly tax returns and handling corporate taxes and SST is crucial.

You can read more in our article What Should You Know Before Starting a Company in Malaysia?

Costs Associated with Starting a Business in Malaysia

Starting a business in Malaysia involves various financial outlays. Here’s a concise overview:

Paid-up Capital

The minimum paid-up capital needed to establish a company in Malaysia is RM1. It is important to understand that different government agencies, banks, and entities may impose their own minimum capital requirements for specific purposes such as loan applications, licensing, or business transactions. It is crucial to ensure that the stated paid-up capital accurately reflects the funds available, as it is illegal to declare a higher amount than what the company possesses.

Note: You can change the paid-up capital declared during company registration. It is advised that you consult your company secretary to determine this amount.

Here’s a rough guideline on the specific commitments necessary for issuing work permits to foreign employees. For instance:

  • Advisory businesses: RM1 million (US$210,000)
  • Import/export businesses: RM1 million (US$210,000)
  • Joint ventures with a Malaysian partner: RM350,000-500,000 (US$73,500-US$105,000)

Tax Implications for Foreigners Starting a Business in Malaysia

Navigating the tax landscape is crucial for foreigners initiating a business venture in Malaysia. Here’s a concise overview of the tax implications:

Corporate Tax

  • Standard Rate: Businesses in Malaysia are subject to a corporate tax rate of 24%.
  • SMEs Benefit: Small and medium enterprises (SMEs) with a paid-up capital of RM2.5 million (US$533,000) or less enjoy a reduced tax rate of 17% on their initial RM600,000 (US$127,000) earnings.

Sales and Service Tax (SST):

  • Introduction: In 2018, the Malaysian Government transitioned from GST to SST.
  • Sales Tax: Taxable goods, whether manufactured in Malaysia or imported, are subject to a sales tax rate of either 5% or 10%.
  • Service Tax: A service tax rate of 6% is applicable. For the latest amendments and updates on SST, one can refer to announcements by Malaysian Customs.

Individual Tax:

  • Taxation Basis: Only income sourced from Malaysia is taxable for individuals. Income from foreign sources remains non-taxable.
  • Tax Residency: An individual gains tax resident status if they reside in Malaysia for 182 days or more during a year.

Tax Rates: Personal tax rates are tiered based on income levels:

Taxable Income (MYR) Tax on Base Amount (MR) Tax on Excess (%)
5,000 – 20,000 0 1
20,000 – 35,000 150 3
35,000 – 50,000 600 6
50,000 – 70,000 1,500 11
70,000 – 100,000 3,700 19
100,000 – 400,000 9,400 25
400,000 – 600,000 84,400 26
600,000 – 2,000,000 136,400 28
Above 2,000,000 528,400 30
Need on-the-ground insight?
Contact us at InCorp today.

Visa Requirements for Foreigners Starting a Business in Malaysia

For foreign entrepreneurs eager to start a business in Malaysia, understanding visa requirements is crucial. Here’s a concise guide:

Malaysia Tech Entrepreneur Program (MTEP)

  • Introduced by MDEC in 2017, the MTEP, in collaboration with Malaysia Digital Hub (MDH), aims to bolster the tech startup ecosystem by offering work visas to foreign tech entrepreneurs.
  • Two types of work visas are available:
    • Professional Visit Pass (PVP-MTE): Valid for 1 year.
    • Residence Pass (RP-MTE): Valid for up to 5 years, catering to both new and established foreign entrepreneurs.
  • Notably, this program allows you to secure a visa even before company incorporation, but it’s exclusive to tech entrepreneurs.

Hiring a Country Manager

  • If you’re not immediately relocating to Malaysia but have an existing business elsewhere, consider hiring a country manager in Malaysia. This professional can help lay the groundwork for your business expansion and your own Malaysian Visa down the line.
  • Once trust is established, you can incorporate your company in Malaysia, with the country manager as a director.
  • When ready to apply for a visa, you’ll need to inject a certain amount of paid-up capital into your company to qualify for a work visa. Two types of visas are available:
    • Employment Pass (Category II) Expatriate: Valid up to 2 years.
    • Employment Pass (Category I) Expatriate: Valid up to 5 years.

Employment via an Employer on Record (EoR):

  • To establish residency in Malaysia, which is a prerequisite for company incorporation, you can collaborate with an EoR to be employed as your business’s country manager.
  • The EoR will apply for an employment pass on your behalf. Once settled in Malaysia, you can incorporate your company.
  • After a few months of successful operation and demonstrating good financial records, your company can apply for an Employment Pass for you.
  • It’s essential to avoid appointing a nominee director with no stake in your business, as they hold the same responsibilities as any other director. If you can’t relocate to Malaysia, it’s advisable to partner with a trusted advisor like InCorp who can find you a reputable local EoR.

Hiring Employees Upon Incorporating a Business in Malaysia

When expanding into Malaysia, foreign businesses must be well-acquainted with the local employment landscape to ensure compliance. Here’s a concise guide on how to hire employees in Malaysia:

Options for Hiring

Establish a Legal Entity

This is suitable for those eyeing long-term investments in Malaysia. The most popular choice among foreign investors is the Private Limited Company (Sdn. Bhd.), which permits 100% foreign ownership. 


An EoR, as well as helping you obtain a visa as above, can also manage all employment-related tasks, from onboarding to payroll. This option allows businesses to start operations in Malaysia swiftly without the lengthy setup process. 

Contractors as an Alternative

Instead of hiring employees, businesses can engage contractors for more flexibility. However, it’s crucial to set up compliant contracts and correctly classify talent to avoid noncompliance risks. For help with this, we recommend working with a proven service provider like InCorp.

Key Employment Considerations

Employment Law

Adherence to the Employment Act of 1955 is mandatory. This includes formalising employment arrangements, ensuring statutory leave entitlements, adhering to standard working hours, and providing mandatory notice periods and severance pay.


It’s vital to correctly classify workers as employees or contractors. Misclassification can lead to penalties, including fines and even imprisonment.


The payroll cycle in Malaysia is monthly, with standard working hours not exceeding 48 hours per week. Overtime is paid at a minimum of 150% of the regular wage.

Social Security Contributions

Employers and employees must contribute to three social security funds: the Social Security Organisation (SOCSO), Employees’ Provident Fund (EPF), and Employee Insurance Scheme (EIS).

Again, partnering with local experts, such as InCorp, can simplify the hiring process and ensure compliance with Malaysian employment laws.

You can read more in our article Employer’s Statutory Obligations in Malaysia.

Where to Next for Starting a Business in Malaysia

Embarking on a business journey in Malaysia is an exciting venture, but it’s essential to navigate the complexities with precision and expertise. While this guide provides a comprehensive overview, every business is unique, and personalised guidance can make all the difference. 

At InCorp, we specialise in offering bespoke solutions tailored to your specific needs, ensuring a smooth and compliant business setup in Malaysia. Don’t leave your success to chance; reach out to InCorp today and let us be your trusted partner in your Malaysian entrepreneurial journey.


What are the primary legal entities available for foreigners in Malaysia?

Foreigners can opt for Private Limited Companies, Limited Liability Partnerships, Branch Offices, Representative Offices, and Public Limited Companies, among others.

Is it necessary for foreigners to reside in Malaysia to start a business?

While not mandatory for all business types, certain visa options and business structures may require residency or a local representative.

What is the corporate tax rate for businesses in Malaysia?

The standard corporate tax rate is 24%. However, SMEs with paid-up capital of RM2.5 million or less benefit from a 17% tax rate on the first RM600,000.

How can InCorp assist me in starting my business in Malaysia?

InCorp offers tailored solutions for every phase of your business venture in Malaysia, from incorporation to hiring, ensuring compliance and smooth operations.

Are there any restrictions on foreign ownership in Malaysia?

While Malaysia is generally open to foreign investment, certain sectors have specific foreign ownership limits or require prior regulatory approvals.

Set Up a Company in Malaysia Today

About the Author

InCorp Content Team

InCorp's content team includes talented copywriters from our regional group and globally. We contribute informative, thought leadership, and market-trending articles to guide aspiring business entrepreneurs to a higher level across the Asia-Pacific region.

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