Advantages of Malaysia as a jurisdiction
Malaysia is a country that consist of 13 states and three federal territories, covering parts of the Malay Peninsula and the island of Borneo. Due to its favorable location and rapidly growing economy, Malaysia has become one of the most attractive jurisdictions for doing business and is actively pursuing the status of the “hottest” business zone in all of Southeast Asia.
Let's see why this jurisdiction is rapidly gaining popularity in the global market?
High positions in the world rankings
Malaysia was ranked 2nd place in the DHL Global Connectivity Ranking for Trade and Communications in Southeast Asia in 2019;
In the World Bank's 2020 Business Report, the country was ranked 2nd place for Ease of Doing Business within the Association of Southeast Asian Nations and 2nd place for Investor Protection in the same year;
The World Intellectual Property Organization awarded Malaysia 2nd place in 2020 for "Ease of Investor Protection".
Malaysia is currently ranked in the top ten most attractive countries for foreign direct investment, as evidenced by the fact that global companies have established more than 65,000 projects there over the past few years.
Liberal investment and tax policies
The Malaysian government encourages foreign investment through the liberal investment and tax policy.
It is not difficult to obtain a trade license in Malaysia, but it is not required either.
No sales and service tax or VAT are required for the sale and purchase transaction.
It is cheaper to set up an office in Malaysia than in other South Asian countries.
An investor can easily open his corporate bank account or personal bank account anywhere in Malaysia, if the company has a large amount of paid-up share capital, at least 500,000 ringgit (~ 122,000 USD).
Malaysia offers investors a work visa. In addition, investors in Malaysia can live comfortably with their family members if they want to because the government issues family visas too.
Political and economic stability
Political instability is an obstacle on the way of doing successful business. Malaysia is a peaceful and calm country, as it is dominated by parliamentary democracy. The 2014 Global Peace Index report named Malaysia as the safest country in Southeast Asia and the third safest country in Asia. Moreover, Malaysia's economy is more stable than in other Asian countries.
Favorable business environment
Malaysia, a member of the Association of Southeast Asian Nations, is a country with an abundance of natural resources. This country provides its investors with a comfortable business environment. Also, unlike most Asian countries, Malaysia is not worried about earthquakes, floods, tsunamis and other natural disasters.
The Malaysian mentality is characterized by friendliness and hospitality, which makes it much easier for an entrepreneur to get used to it and get competent help in any area. Obviously, in order to run a successful business, you need to communicate with the local people. In Malaysia, it is not difficult, because most residents can communicate in English, although it is not their native language.
Due to the strong demand in the Malaysian tourism industry, investors are enjoying a very good opportunity to sell and advertise their products to guests from all over the world. A clear testament to this rapidly growing sector is that Malaysia is the tenth largest tourist destination in the world.
Absence of corruption
Corruption is an obstacle on the way of doing successful business in any country. Malaysia is guided by the principle of transparency and clarity of legislation, and therefore there are no problems with understanding all the government mechanisms. For investors who want to open their own business in this country, it is a big advantage that Malaysia is one of the most clear countries, where the level of corruption is lower than in others in the Association of Southeast Asian Nations.
As a result, a favorable tax environment, an educated and skilled workforce, strong government support, well-developed infrastructure, fast transport links, political and economic stability and a favorable business environment can be singled out as the most common benefits of Malaysia.
Which form of activity is better to choose?
In Malaysia, there are several legal forms of legal entity that you can choose. We will describe below what advantages each of them has and which one is better to choose.
Sole proprietorship/ Millikan Tunggal (analogue of individual entrepreneurs in Russia)
As in the CIS countries, in Malaysia this type of entrepreneurship is the easiest and most attractive precisely because of the simple rules of creation.
Pros:
- Simple registration process due to its simplicity of the business entity;
- Low registration costs;
- Full control over business and income.
Cons:
- If an entrepreneur is declared bankrupt, then he will be responsible with all his property to creditors, since he has unlimited liability for his sole entrepreneurship;
- Certain business licenses are not available for this business form;
- This type of business entity is only available to citizens of Malaysia or permanent residents of the country.
Partnership / Perkongsian
This business entity is very similar to the first one in terms of unlimited liability (partners are responsible with all their property) and the country of origin of partners (only Malaysians can establish this type of legal entity).
The difference is that the partnership is based between a minimum of 2 and a maximum of 20 members and is suitable for professional firms. Any business profits from a partnership are taxed at the individual tax rate for each partner.
Limited Liability Partnership / Perkongsian Liabiliti Terhad
The participants of the company and the company itself are divided in their responsibility, namely: the partner is not responsible by his own funds to the creditors of the company, and also is not responsible for the misconduct of the other partner.
This type of business is attractive because there is no need to conduct an annual audit and there is no maximum number of partners (minimum - 2).
However, this form is only available to citizens of Malaysia or those who permanently reside there.
Public Limited Company (Berhad) and Company Limited by Guarantee (CLBG)
Malaysia also has a Public Limited Company (Berhad) and a Company Limited by Guarantee (CLBG), both of which are forms of public companies. Berhad is a type of joint stock company, the shares of which are offered to members of the public (members of the public). CLBG is a public (non-profit) company, and unlike the first one, it is not tied by shares. Typically used for non-profit companies: charities, foundations, or community projects.
Private Limited Company / Sendirian Berhad (Sdn Bhd)
It is an independent organization, the rights and obligations of which are not tied to its members. Shareholders are liable to the creditors of the company only up to the amount of the deposit. Minimum one and maximum 50 people can establish such company.
First, it will be necessary to select and agree on the name of the company with the Malaysian regulator (Companies Commission of Malaysia).
Also required:
- Deposit the minimum authorized capital;
- Appoint at least one director permanently resident in Malaysia;
- All directors must not have been convicted or bankrupt in the past five years;
- Office with a registered address;
- Preparation of an audit every year.
Benefits of opening an SDN BHD company in Malaysia
- Limited liability
One of the most obvious benefits of SDN BHD is a financial security. The suffix "Berhad" denotes the limited liability of shareholders, namely that they cannot and are not responsible for the company's debts, only up to the amount of the contribution. For example, if you invested 200,000 USD in the company's capital in exchange for 20% of the shares, and then the company went bankrupt, then the most unpleasant scenario for the development of events could only be the loss of the invested amount, but nothing more. The director will also not bear any personal legal responsibility for the obligations of the company.
- Full legal implementation
SDN BHD is considered a full-fledged legal entity that has all the rights for its implementation and business: the right to buy, own or sell assets, conclude contracts, open bank accounts and receive payments, file a lawsuit and many others. Since this is a full-fledged legal entity, it will exist regardless of its shareholders / directors until it is dissolved. Even if one of the shareholders retires or dies, the company will continue to operate, unless the company is bequeathed or removed from the register. The purpose of such an interesting environment for this type of company was to protect employees and other members of the corporation. Accordingly, SDN BHD is ideal for long term work.
- Transferable ownership
Another advantage of the SDN BHD company is the ease of transferring existing and issuing additional shares for new shareholders (investors). The ownership of the company is distributed among themselves by several shareholders, each of which allows the sale or transfer of its shares in part or in full without changing the structure of the company. In other legal forms of legal entities, this will not work, because the entire business will be sold.
- Of the advantages, one of the main ones, of course, is the tax rate.
The corporate tax rate for Sdn Bhd is generally lower than the individual tax rate and amounts to:
17% - for the first 500,000 MYR (~ 121,000 USD) profit;
24% - for income above 500,000 MYR (~ 121,000 USD);
26% is the maximum tax rate.
For comparison, the rate of sole proprietorship can reach 30% and higher.
The advantages of establishing an SDN BHD company in Malaysia are flexibility and security that this business model offers and accessibility to foreigners.
For whom a SDN BHD Malaysian company is a good option?
The legal form of the Malaysian company SDN BHD is an excellent option if you:
- Interested in choosing the optimal tax rate;
- Want to protect yourself (your funds) and separate the company's responsibility from your personal one to creditors;
- Planning the possibility of transferring ownership of the company;
- Want to have expanded access to company capital and financing;
- Not a citizen of Malaysia and want to establish a company on the territory of this state.
Malaysian company as a jurisdiction is really attractive, because the locals are familiar with global brand products, high educational standards, quality health care products and services, and organic and bio-friendly products. The World Bank currently considers Malaysia to be an upper middle income country. Therefore, the population here values a quality product and is ready to pay the appropriate price.
Which documents and information are required to open a company in Malaysia?
Companies that do business in Malaysia are required to register with the Companies Commission of Malaysia (SSM) according to Companies Law 777 of 2016. In order to register a company in Malaysia, you will need to use the services of a company secretary, who must be a member of a professional body or licensed by an authorized body - SSM Malaysia.
To start you will need:
- The name of the company;
- Description of business activities;
- Passport of at least one director and shareholder;
- Business address and registered address;
- Structure (information about directors and shareholders);
- Capital.
IMPORTANT!
The name of the company
According to the Companies Commission of Malaysia (SSM) guidelines for company naming, there are some requirements:
- There should be no connection with with royal families or government agencies with words such as "royal", "federal" and "ASEAN";
- Should not be misleading about the nature of the business;
- Should not be offensive;
- Should not resemble the name of another registered company;
- Should not be associated with activities controlled by other laws such as "insurance", "estate agent" and "Takaful", unless written approval is obtained from the relevant agency;
- Should not be associated with government-regulated activities such as "architect", "co-op" and "engineer" unless written approval has been obtained from the appropriate agency.
Business Description
It is important to clarify the type of business that your BHD SDN company will be doing. All businesses in Malaysia are classified using the MSIC code. If you are not sure about the category exactly, then we will consult with the secretary of the company on this issue, providing him with a detailed description of the activities of the future company.
Business address and registered address
Your business address and registered address do not have to be the same. The first is the place where your business operations and events take place, and the registered address is usually the company secretary's office, where all letters will be addressed and which should be available to the public during business hours.
In case you don't have a physical office or store, no business address is not required.
Structure
Directors and shareholders play different roles: the directors are the management (executive body) of the company, and the shareholders are the owners.
Directors can be both Malaysians and foreigners, provided that they:
- Over 18 years old;
- Not bankrupt;
- Have not been convicted in Malaysia or abroad.
If the director is planning to be a foreigner who is not residing in Malaysia, at least one more resident director is required in order to establish an SDN BHD company.
Legal entity SDN BHD can have up to 50 shareholders. During the company registration process, each shareholder must declare which share they own. Once the company is registered and a business account is opened, each shareholder must transfer the amount in accordance with their share to a bank account.
Documentation
Passport
A required document during the SDN BHD company incorporation process is the passports of all directors and shareholders, which are provided for identification purposes.
Authorized letter
Such a letter from the relevant authorities will only be required if the company name contains words (which we indicated above), the use of which requires special permission from government agencies.
Obligatory fee
Payment to the Companies Commission of Malaysia (SSM) for registration in the amount of MYR 1,010.
Payment for the services of a licensed secretary (and nominee director, if necessary) varies according to the number of his duties.
Company formation in Labuan
Labuan is a relatively new Malaysian offshore jurisdiction, which attracts mainly by its favorable tax regime. Labuan is located close to Jakarta, Singapore and Hong Kong, which makes it a fairly profitable economic center.
Labuan is often chosen for the following benefits:
- Low requirements: the company can be registered with only one investor / shareholder, which can be a legal entity or an individual.
- Low share capital: the minimum share capital starts from 1 USD.
- Confidentiality: Investors can use the services of nominee directors / shareholders in order to stay in the shadows.
Although the last point is one of the main advantages of an offshore company, it can turn into a disadvantage. Potential investors and counterparties will find it difficult to conduct their own audit of the company and the majority may simply be frightened by such uncertainty and secrecy of the structure.
Another reason why our company has recently not recommended registering the company in Labuan is the new tax rules.
On February 10, 2020, the Labuan Business Activity Tax Act 2020 entered into force, according to which any Labuan company that does business and does not adhere to the mandatory rules for the presence of substance (economic presence) will be obliged to pay 24% tax for the reporting period instead of 3%.
There are two main criteriafor substance for a Labuan company:
- Hiring Full Time Employees (FTE) in Labuan;
- Minimum Annual Costs in Labuan (Operating Expenditure - OPEX).
The number of employees and costs depend on the legal form of the company and the type of business.
Since the new rules did not acquire sufficient clarity and did not create an understanding of how to legally conduct themselves, many investors abandon such an offshore jurisdiction as Labuan, bringing their business to world standards and making it as transparent and legal as possible.
Opening and maintaining an account for the Malaysian company
For a Malaysian company, it will be a big advantage to open a corporate account in the bank of the country of registration - in Malaysia.
Overall, the structure of the Malaysian financial system evolved when the government took steps to strengthen Malaysia's banking system following the mid-1997 financial crisis.
Today, the Malaysian banking sector is considered to be rapidly developing: the total size of the Malaysian capital market in 2018 was 3.1 trillion Ringgit, in 2019 - 3.2 trillion Ringgit, and in 2020 amounted to 3.4 trillion Ringgit.
One of the main regulators in Malaysia is the National Bank of Malaysia - Bank Negara Malaysia (BNM).
The number of licensed banking institutions in Malaysia is currently 56, including 32 domestic banking institutions and 24 overseas.
There are four local banking giants in Malaysia:
- Malayan Banking (Maybank) is the largest and most recognizable bank in the country. It provides all types of services including personal manager, internet banking, plastic card issuance, insurance, trading services and other services;
- CIMB Bank - considered the second largest bank in Malaysia, serving millions of clients and having thousands of branches throughout the country;
- Public Bank - ranks third in the list of Malaysian giant banks and develops the banking market of Hong Kong, China, Vietnam, Cambodia and Sri Lanka. Today it offers personal and business account services, investment and trust programs, trading and digital banking services, multicurrency and deposit accounts;
- RHB Bank is a bank that is represented in 9 countries of ASEAN (Association of Southeast Asian Nations) and is known for its financial offerings ranging from mortgages to savings accounts and loan offers for companies.
Required documents and information for opening a corporate account
Usually, different banks have different requirements for opening a business account. As a rule, banks in Malaysia need the following documents:
- Standard account opening forms signed by authorized representatives;
- Copies certified by the Company Secretary:
- Decisions of the board of directors confirming the opening of a corporate account;
- Charter;
- Confirmation of company registration.
- Copies of passports and proof of address of directors, authorized signers, ultimate beneficial owners;
- Certificate of Incumbency - an official document that lists the names of the current directors and confirmation of their corporate position in the company;
- Additional documents requested by the bank.
Depending on the structure of the company, the founders and the type of business, the process may take more or less time, but on average, it is about three months.
Banks can also set minimum deposit requirements.
Why do we recommend opening business accounts with Malaysian banks for companies from this jurisdiction?
- When correspondent banks carry out compliance with international payments, there are less questions and mistrust to a company with an account in the country of registration than to a company whose place of registration and the place of an account opening are not the same. Banks often consider such cases to be high-risk and accordingly request additional documents / ask a number of additional questions during compliance or KYC (knowyour client) procedures.
- Malaysia is one of the countries where PayPal successfully provides its services. The advantages of this world-famous payment system are not used by companies from all jurisdictions, so it is a common requirement that the place of registration of a company and the place of opening any other corporate account must be in the same country. It should be noted that another quite popular platform for business, Stripe, also holds the view that the country of the bank account and the country of registration of the company should be the same.
- Our clients increasingly began to contact us with the fact that one of the largest and most successful sites - GooglePlay is introducing the same requirement. The presence of a corporate account of a company in a bank of the country in which it was founded becomes an obstacle for many corporations. Therefore, we recommend that you address this issue at the stage of creating a company.
- Do not forget that banks in Malaysia are more trusting and friendly to Malaysian companies, which means that any procedure / request is much faster and easier.
Why Taxters?
Our team does not just blindly follow the instructions, but first of all, advises and helps each client to choose the most suitable option. If we see that Malaysia is not suitable for you or will not fully meet your needs, we will be happy to offer several alternative and effective options.
Click on the "Quick consultation"button and we will fully accompany the registration of your company and the opening of a corporate account.
