Doing Business in Malaysia


Located in Southeast Asia, Malaysia is a tropical country with a population of 27.3 million featuring a unique multi-racial society comprising of Malay, Chinese, Indian, as well as indigenous races like the Iban, Dayak, Kadazan, Dusun and others. Being a country of rich cultural heritage, Malaysia boasts a unique blend of both modern and traditional.

Malaysia has transformed herself from a commodity-based economy to an advanced export-driven economy. The current diverse and robust economic activities comprise of manufacturing, construction, information and communication technology, maritime, oil and gas, biotechnology, agriculture, retail, tourism, banking and financial, healthcare and services. Towards achieving the status of being a developed nation, Malaysia is guided by the national framework known as the Vision 2020.

Due to her strategic location, developed infrastructure, productive workforce, and various other factors, Malaysia provides for a vibrant and conducive business environment. Supportive Government policies ensure that the country’s market-driven economy is facilitative for conducting business.

Malaysia offers abundant opportunities for those who wish to pursue business in the country. In doing so, there are fourways of carrying out business in Malaysia, namely:

  • Incorporating a local company;
  • Registering a foreign company;
  • Registering a sole proprietorship; or
  • Registering a partnership.

The Companies Commission of Malaysia (SSM), established on 16 April 2002, serves as an agency to incorporate companies and register businesses. SSM also ensures compliance with business and corporate legislations through comprehensive enforcement and monitoring activities. SSM offers efficient and fast service for the incorporation of companies, registration of businesses and lodgement of statutory documents. SSM has nationwide presence through its headquarters located in Kuala Lumpur as well as branch offices in all the states in Malaysia. SSM also serves as a depository and custodian of corporate and business information. Such information is vital to enable the business community to make informed business decisions and to enable members of the public to carry out verifications.
 

INCORPORATION OF A LOCAL COMPANY IN MALAYSIA

Incorporation of a local company is carried out pursuant to the provisions of the Companies Act 1965 (‘CA’). There are three (3) types of companies that can be incorporated under the CA namely:

  • A company limited by shares;
  • A company limited by guarantee; or
  • An unlimited company.

COMPANY LIMITED BY SHARES

The most common type of company incorporated for purposes of carrying on business is a company limited by shares. A company limited by shares may be incorporated as a:

  • Private Limited Company – identified through the words ‘Sendirian Berhad’ or abbreviation ‘Sdn. Bhd’ as part of the company’s name.
  • Public Limited Company – identified through the words ‘Berhad’ or abbreviation ‘Bhd’ as part of the company’s name.

The requirements to form a local company are:

  1. A minimum of two (2) subscribers to the shares of the company (section 14 of the CA);
  2. A minimum of two (2) directors (section of the 122 CA); and
  3. A company secretary who can either be:
    1. an individual who is a member of a professional body prescribed by the Minister of Domestic Trade and Consumer Affairs; or
    2. an individual licensed by SSM.

Both the director and company secretary shall have their principal or only place of residence within Malaysia (sections 122 and 139 of the CA respectively).
 

Incorporation Procedures

1. Name Search and Application for Name

A name search must be conducted to determine whether the proposed name of the company is available. The steps involved are:

  1. Completion and submission of Form 13A of the CA (Request for Availability of Name) to SSM; and
  2. Payment of RM30.00 fee for each name applied.

When the proposed company’s name is approved by SSM, it shall be valid for three (3) months from the date of approval.

2. Lodgement of Incorporation Documents

Incorporation Documents (as explained below) must be submitted to SSM within three (3) months from the date of the approval of the company’s name, failing which a fresh application for a name search must be done.
 

Incorporation Documents to be Lodged with SSM

1. Memorandum and Articles of Association

  • An original copy of the Memorandum and Articles of Association shall each be stamped at a fee of RM100.00. Stamps are affixed at the stamp office of the Inland Revenue Board.
  • The first directors and secretaries shall be named in the Memorandum and Articles of Association.
  • The subscribers to the company’s shares shall sign the Memorandum and Articles of Association in front of a witness.
  • Table A of the Fourth Schedule in the CA may be adopted as the Articles of Association of the company (section 30 of the CA).

* NOTE:
For the incorporation of a private company, the Articles of Association (section 15 of the CA) shall contain the following stipulations:

  1. Restriction on the right to transfer the company’s shares;
  2. Limitation on the number of members not to exceed 50;
  3. Prohibition on any invitation to the public to subscribe the shares/debentures of the company; and
  4. Prohibition on any invitation to the public to deposit money with the company.

2. Form 48A (Statutory Declaration by a Director or Promoter before Appointment)

The director or promoter declares under oath that:

  • he/she is not a bankrupt; and
  • he/she has not been convicted and imprisoned.

3. Form 6 (Declaration of Compliance)

This declaration states that all the requirements of the CA have been complied with. It must be signed by the company secretary handling the registration and who is named as the first secretary in the Memorandum and Articles of Association.

4. Additional documents:

  • Original Form 13A of the CA.
  • A copy of the letter from SSM approving the name of the company.
  • A copy of the identity card of each director and company secretary or a copy of the passport where a foreign director is appointed.

INCORPORATION FEES

Each application for the incorporation of a company shall be accompanied with payment as per the schedule below:

AUTHORISED SHARE CAPITAL (RM) FEES (RM)
Up to 100,000 1,000
100,001 – 500,000 3,000
500,001 – 1 million 5,000
1,000,001 – 5 million 8,000
5,000,001 – 10 million 10,000
10,000,001 – 25 million 20,000
25,000,001 – 50 million 40,000
50,000,001 – 100 million 50,000
100,000,001 and above 70,000

Certificate of Incorporation

A Certificate of Incorporation will be issued by SSM upon compliance with the incorporation procedures and submission of the duly completed incorporation documents.
 


Generally, a local company is required to:

  1. Convene an annual general meeting (AGM) yearly;
  2. Lodge the annual return and audited accounts yearly;
  3. Lodge statutory documents when there are changes in the registered particulars [Form 49- Return Giving Particulars in Register of Directors, Managers and Secretaries and Changes of Particulars], registered office [Form 44 - Notice of Situation of Registered Office and Office Hours and Particulars of Changes] or matter relating to share capital of the company [Form 24 - Return of Allotment of Shares], and
  4. Lodge various other statutory documents that need to be notified or registered with SSM (e.g. Form 11 (Notice of Resolution), Form 25 (Statement Containing Particulars of Shares Allotted Otherwise Than For Cash), Form 27 (Notice of Redemption of Redeemable Preference Shares), Form 28 (Notice of Increase in Share Capital) etc).

AGM

Section 143(1) of the CA requires a company to hold its first AGM within 18 months of its incorporation. The subsequent AGM must be held once in every calendar year and not more than 15 months after the holding of the last preceding AGM. If the company holds its first AGM within 18 months after the date of its incorporation, the company need not hold an AGM for the year of incorporation or the following year.

Annual Returns

Section 165 of the CA requires all companies to lodge the annual return within one (1) month of the AGM. The annual return of a company shall be in accordance with the Eighth Schedule of the CA. The annual return must include:

  1. a copy of the last audited accounts comprising the balance sheet and profit and loss accounts certified by a director, manager or secretary of the company (including every document required to be attached thereto); and
  2. a certified copy of the auditor’s report.

For an exempt private company which is solvent, the attachment of the audited accounts may be substituted by a certificate signed by a director, a company secretary and auditor stating that:

  1. the company is an exempt private company;
  2. the audited accounts in compliance with the provisions of the CA, has been tabled in the company’s AGM; and
  3. the company is able to meet it liabilities as and when they fall due as at the date of the audited profit and loss account.

The certificate must either be in Bahasa Malaysia or English and if it is in any other languages, the translation in Bahasa Malaysia or English must be provided.

* NOTE: An exempt private company is a private company having not more than 20 members, none of whom are corporations having direct or indirect interest in its shares.

The lodgement fee for an annual return is as follows:

  • a public company – RM350.00.
  • any other company – RM150.00.

Accounts

Section 167 of the CA requires every company and the directors and managers thereof to keep such accounting and other records that would enable true and fair profit and loss accounts and balance sheets to be prepared from time to time. These accounts must be prepared in accordance with the approved accounting standards.

As required under section 169 of the CA, these accounts must be tabled at the AGM. For the company’s first accounts, it must be laid within 18 months after its incorporation. Subsequent accounts must be tabled in every calendar year at an interval of not more than 15 months. The accounts must be made up for the period since the preceding account to a date of not more than six (6) months before the date of the AGM.

The accounts shall include:

  • a profit and loss account;
  • a balance sheet;
  • a directors’ report;
  • an auditors’ report;
  • accompanying notes and statements to the accounts; and
  • group accounts (if applicable).

The audited accounts must be certified by a director or a manager or a company secretary to be a true copy of such documents. The audited accounts lodged must either be in Bahasa Malaysia or English.

Notice of Change of Directors, Managers and Secretaries or Changes of their Details

Section 141(6) of the CA requires a company to, within one (1) month after it is incorporated, lodge the Return Giving Particulars in Register of Directors, Managers and Secretaries and Changes of Particulars (Form 49) containing details of its directors, managers and secretaries. Whenever there is any change in the officers of the company, details of the change must also be lodged with SSM using Form 49 within one (1) month from the date of such change.

Notice of Change of Registered Office

Section 119 of the CA requires every company to have a registered office within Malaysia to which all communications and notices may be addressed. The registered office must be established from the day the company begins to carry on business or from 14 days after the date of its incorporation, whichever is earlier. A Notice of Situation of Registered Office and Office Hours and Particulars of Change (Form 44) must be lodged with SSM within one (1) month after the date of incorporation or date of any such change.


There are two (2) modes of winding up under section 211 of the CA:

 
Voluntary Winding Up

Voluntary winding up is divided into two (2) categories, namely:

  1. Members’ voluntary winding up; and
  2. Creditors’ voluntary winding up.
    • Both members’ and creditors’ voluntary winding up are initiated by a special resolution of the company under section 254 of the CA.
    • Before proceeding with a voluntary winding up, the directors must make a written declaration to the effect that the have made an inquiry into the affairs of the company and are of the opinion that the company will be able to pay its debts in full within a period of 12 months after the commencement of the winding up .
    • The declaration and the statement of the company’s affairs must be lodged before the notice of the meeting at which the resolution for winding up is to be proposed, are sent.
    • Upon a resolution being passed by members, a liquidator is appointed.
    • Where the company is insolvent, creditors may supervise the liquidator’s conduct of the liquidation.

The liquidator must then convene the creditors’ meeting and lay before the creditors the statement of assets and liabilities of the company and draw their attention of their right to appoint a new liquidator.
 
Winding Up by the Court

  1. A compulsory winding up is initiated by an application to the court by any of the persons listed under section 217(1) of the CA namely:
    • The company;
    • A creditor (including a contingent or prospective creditor of the company);
    • A contributory or any person who is the representative of a deceased contributory or the trustee in bankruptcy or the Official Assignee of the estate of a bankrupt contributory;
    • A liquidator appointed in a voluntary winding up;
    • The Minister pursuant to sections 205 or 218(1)(d) of the CA;
    • The Central Bank in the cases of banks and finance companies under the purview of the Ministry of Finance;
    • The Registrar on the grounds specified under section 218(1)(m) or (n) of the CA; or
    • The Malaysia Deposit Insurance Corporation in the case of a member institution.
  2. The grounds for winding up are:
    • Pursuant to a special resolution – A company may be wound up where the members have by a special resolution resolved that it be wound up compulsorily;
    • Default in lodgement of statutory report – This applies only to public companies limited by shares;
    • Failure to commence business within a year – To enable members to recover their investment;
    • Membership of the company falls below two (2) – However this does not apply to a wholly owned subsidiary of a holding company that is permitted to own all the shares of its subsidiary under section 36 of the CA;
    • Inability of the company to meet its debts – This is the most common ground relied upon to wind up a company. The amount of debt outstanding must be in excess of RM500.00;
    • Where Directors are acting in their own interest ;
    • Where an inspector appointed under Part IX of the CA is of the opinion that the company is unable to meet its debts or that it is in the interest of the public, shareholders or creditors;
    • Required to wind up as stated in its Memorandum and Articles of Associations;
    • The Court is of the opinion that the Company be wound up;
    • License held under the Banking and Financial Institutions Act 1989 (BAFIA) or the Islamic Banking Act 1983 (IBA) has been revoked or surrendered;
    • Contravention of the BAFIA or IBA, as the case may be;
    • License held under the Insurance Act 1996 (IA) has been revoked or other grounds as laid out in the IA;
    • Company is being used for any unlawful purposes or any purpose prejudicial to national security, public interest or morality.


Generally, all income of companies and individuals accrued in, derived from or remitted to Malaysia is liable to tax. However, income remitted to Malaysia by resident companies (other than companies carrying on the business of banking, insurance, air and sea transportation), non-resident companies and non-resident individuals are exempted from tax. Income tax in Malaysia is assessed on income earned in the current year under a self-assessment system.

Gross Income

Less Allowable expenses
Less Double deduction of expenses
Less Special deductions [S. 34(6) of the Income Tax Act 1967 (ITA1967)]

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Adjusted Income

Add Group relief – Current year adjusted loss surrendered by a “surrendering company” (Y/A 2000 to Y/A 2005 – Sch 4C, ITA 1967) (Y/A 2006 onwards – S. 44A, ITA 1967)
Less Reinvestment allowance (Y/A 1996 and prior)
Less Industrial adjustment allowance (Deleted from PIA 1986 w.e.f. August 2007)
Add Balancing charges
Less Capital allowances and balancing allowances (up to adjusted income, excess to be carried forward except for listed investment holding companies)

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Statutory Income

Less Exemption of income for pioneer companies/Investment tax allowance (for applications received on or after 1 November 1991)
Less Reinvestment allowance (Y/A 1997 onwards)
Less Previous years’ business losses (not applicable for listed investment holding companies)
Add Statutory income from other sources
Add Recoveries of abortive prospecting expenditure

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Aggregate Income

Less Current year business losses
Less Prospecting expenditure
Less Pre-operational business expenditure (Sch 4B of the ITA 1967)
Less Proportion of permitted expenses for investment holding companies (Y/A 1993 onwards – S. 60F, ITA 1967) except listed investment holding companies (Y/A 2006 onwards – S. 60FA)
Less Trust annuity (S. 63(5), ITA 1967)
Less Approved donations [S. 44(6), 44(6A), 44(8), 44(9), 44(10), 44(11), 44(11B) and 44(11C), ITA 1967]
Less Zakat business [S. 44(11A)]
Less Group relief – current year adjusted loss transferred from a “surrendering company” (Y/A 2006 onwards – S. 44A, ITA 1967)
Less Carry-back losses – Immediately preceding and not exceeding RM100,000 (Y/A 2009 and 2010. See S. 44B, ITA 1967)

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Total Income

Add Statutory income made up of franked dividends deemed as total income (Y/A 2008 onwards)
Less Personal reliefs for resident individuals

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“CHARGEABLE INCOME”


MSC Malaysia status is awarded to both local and foreign companies that develop or use multimedia technologies to produce or enhance their products and services, and for process development.

Currently, this status is awarded to 3 types of business entities namely companies, incubators and institutes of higher learning (IHLs), each with different application criteria and guideline.
 

APPLICATION FLOW FOR COMPANIES

Process for Pre-Application Stage

  • Register pre-application online
  • Evaluation of pre-application details
  • Acceptance of pre-application
  • Assignment of successful pre-application to a MDeC’s Business Analyst

Process for Internal Assessment

  • Submission of 3 years business and financial plan online
  • Evaluation of Commercial & Technical aspects of the business plan by MDeC’s Business Analyst
  • Evaluation of financial projection of the financial plan by MDeC’s Financial Analyst

Process for Formal Application

  • Submission of mandatory supporting documents by applicant:
    - 3 copies of business plan
    - Application form
    - ROC documents
    - 3 year audited report of substantial stakeholders of the company
    - A non-refundable processing fee of RM2,000 to “Multimedia
  • Issuance of Letter of Acceptance to applicant

Process for Approval

  • Presentation of the business proposal to the Approval Committee by Business Analyst
  • An approval is given after the Ministries of Finance and Ministry of International Trade & Industry agrees to the recommendation made by the MSC Malaysia Approval Committee.

ELIGIBILITY CRITERIA FOR COMPANIES

  • Provider/Developer and/or heavy user of multimedia products and services
  • Employ substantial proportion of Knowledge Workers (KWs) i.e. total KWs must be 15% of total employment of company
  • Strong value propositions specifying how operations will contribute to the development of the MSC Malaysia and Malaysia
  • Establish a separate legal entity for MSC Malaysia-qualifying activities
  • Comply with environmental guidelines

 

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