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How to Start a Business in Malaysia

May 5, 2024 | Business Setup

Navigating the intricacies of starting a business in Malaysia can be a rewarding endeavour, given the nation’s robust economic growth and strategic position in Southeast Asia. With a diversified economy, a supportive governmental framework, and a dynamic business culture, Malaysia offers a fertile ground for entrepreneurs and investors. Whether you’re a local resident or a foreign investor, understanding the Malaysian market’s legal requisites, capital requirements, and nuances is essential.

We’re here to guide you through setting up your business, from selecting the right entity and registering with the authorities to establishing operations and scaling up in the Malaysian market. Follow along to convert your business idea into a successful venture in this vibrant economic landscape!

The Malaysian Business Environment

Key Industries and Opportunities In Malaysia

Malaysia offers a dynamic economic landscape, combining urban development with an abundance of natural resources. It’s recognised as a top emerging market and ranks as the world’s 37th-largest economy. The vibrant digital economy is driven by high internet penetration and widespread mobile usage.

As of 2020, a significant proportion of Malaysians were internet users, with mobile shopping being especially popular, and these figures have likely grown since then.

Manufacturing is pivotal to the Malaysian economy, focusing on electrical and electronic products. This sector hosts international powerhouses such as Intel and Panasonic. It’s transforming Industry 4.0 technologies, including robotics, automation, and the Internet of Things (IoT), which are modernising production processes.

The rise of financial technology (FinTech) is notable, with a projected increase in the number of digital payment users. Traditional banks like Maybank and CIMB continue to have a strong presence. However, new players like Grab and BigPay are carving out their market positions.

The services sector, which includes transportation, storage, food and beverage, and retail trade, is the most significant contributor to the nation’s GDP.

In 2022, this sector attracted a substantial amount of approved investments. Notably, information and communications accounted for over half of these investments.

Legal and Regulatory Framework

The Malaysian government has consistently supported Foreign Direct Investment (FDI), which has been a key factor in its economic growth. In 2022, Malaysia drew in over $36.9 billion in FDI, with services and manufacturing attracting the bulk of these funds.

The investment environment benefits from Malaysia’s strategic position, access to ASEAN markets, a skilled workforce proficient in English, and a strong ICT infrastructure.

The Malaysian economy expanded by 8.7% in 2022, its fastest rate in twenty years. This surge was fuelled by relaxed COVID-19 restrictions, rising commodity prices, and a boom in manufacturing exports. The investment climate in the U.S. is particularly positive, with American companies leading the successful electronics industry.

The government prioritises sustainability, with plans to set up a financing facility for sustainable technology startups and assist SMEs in adopting low-carbon practices. The finance ministry is considering a carbon tax. Moreover, the national stock exchange has initiated a voluntary carbon-market exchange. The 2024 budget includes incentives for the electric vehicle industry, such as exemptions on import duties and income tax reliefs for charger manufacturers.

The 2024 budget also includes incentives designed to attract manufacturing firms and strengthen the aerospace sector. The upcoming New Industrial Master Plan (NIMP) 2030 is expected to propose revisions to investment incentives. These changes will focus on creating high-value jobs and fostering integration into global supply chains.

Business Culture and Etiquette in Malaysia

When you’re looking to establish a business in Malaysia, it’s essential to be aware of the business culture and etiquette. The country’s diverse cultural tapestry shapes its business practices. It’s important to approach these cultural differences with sensitivity and respect, as they can greatly influence business relationships and operations.

The Malaysian government’s dedication to eradicating forced labour is evident through the ratification of the 2014 Protocol to the 1930 Forced Labor Convention. This commitment underscores the importance of maintaining ethical business practices. Furthermore, the unity government’s emphasis on food security, demonstrated by extended tax incentives for food production projects, indicates promising growth prospects in this area.

City Buildings In Malaysia

Launching a Business in Malaysia as a Foreigner

Can Foreigners Own Businesses in Malaysia?

The nation’s ASEAN Free Trade Area participation underscores its openness to international commerce. Foreign entrepreneurs are permitted to establish various types of business entities, including Branch Offices, Representative Offices, Private Limited Companies (Sdn Bhd), Sole Proprietorships, Partnerships, and Limited Liability Partnerships (LLPs), each subject to specific ownership regulations.

A Branch Office serves as an extension of the overseas parent company and requires at least one local resident agent. Representative Offices are established for non-commercial functions such as market research and cannot generate income. Foreign investors favour Sdn Bhd entities for their allowance of complete foreign ownership, subject to sector-specific regulations.

Sole Proprietorships and Partnerships are restricted to Malaysian citizens or permanent residents. LLPs offer a hybrid structure and permit foreign participation, though they must appoint a compliance officer who is a Malaysian resident or citizen.

Initial Capital Requirements for Starting a Business

Embarking on a business venture begins with registering with the SSM. Entrepreneurs must reserve a unique business name, submit the necessary incorporation documents, and provide a comprehensive business plan along with identification. The registration cost and duration vary based on the chosen entity and whether the process is conducted online or in person. Additional licences and permits may be required for certain business activities.

Foreign business owners must also register with the LHDN to obtain a tax identification number and comply with local taxation laws, including corporate tax and GST. Establishing a business as a non-local involves:

  • Overcoming language and cultural differences.
  • Securing capital.
  • Finding local collaborators or staff.

Engaging with local experts such as legal advisors, accountants, and business consultants is crucial for navigating the commercial environment.

Registering Your Business In Malaysia

Choosing the Appropriate Business Entity

Selecting the right business entity is an imperative step that should be in line with your entrepreneurial objectives. For individual entrepreneurs, a sole proprietorship is the most straightforward option. Still, it’s only accessible to Malaysian citizens and permanent residents due to its unlimited liability structure. Partnerships, which can have up to 20 owners, are similarly limited to Malaysian citizens and permanent residents.

For those seeking a separate legal entity, an Sdn Bhd is a favoured choice, particularly among foreign investors, as it allows full foreign ownership and limits your liability for your investment in the company. This entity requires at least one member but no more than 50. Public limited companies are designed for larger operations and can offer shares to the public.

Non-profit organisations typically opt for a company limited by guarantee, while an unlimited company does not offer liability protection. Foreign entities may set up a representative office for market exploration without legal standing or a branch office, which operates as an extension of the foreign parent company. A limited liability partnership combines features of partnerships and companies.

Understanding the subtleties of each business structure will help you make an informed decision that suits your business needs.

Registration Procedures and Requirements

The SSM oversees the business registration process. To establish a business, you must appoint at least one director and one shareholder who are both over 18 years old, a minimum paid-up capital of RM1, and a local company secretary licensed by the SSM or a member of a recognised professional body. A local registered address is also required.

The registration process typically takes between 5 to 10 business days. It begins with a name search through the SSM to ensure it’s unique, followed by reserving the approved name for 30 days. Required documents for registration include:

  • Identification copies for all directors.
  • A declaration of compliance.
  • A declaration by a director or promoter before appointment.

Navigating the SSM

The SSM is responsible for incorporating companies and registering businesses. It is advisable to familiarise yourself with the different types of entities available. Choosing a trade name can enhance your business’s professional image. After the necessary documents are signed by the director and shareholder, they can be submitted to the SSM along with the registration fee of $213, including tax. Upon successful completion, you’ll receive a certificate as proof of registration.

Obtaining Licences and Permits

The right licences and permits are required to operate legally. The PBM issues business licences, which vary depending on the location and nature of your business activity. General licences are mandatory for all businesses upon registration, while sector-specific licences may be necessary for certain industries.

Activity-specific licences regulate certain activities and may be relevant to multiple industries or sectors. Business registration must occur within 30 days of commencement and is valid for one to five years. Compliance with laws, security, public order, and morality is expected.

Your Business Registration Certificate is available within an hour after payment. Operating an unregistered business can result in penalties or imprisonment under the Registration of Businesses Act 1956. Additionally, you must obtain licences from relevant authorities and register with the EPF before hiring. Online registration is available through the ezBiz portal.

City In Malaysia At Night

Setting Up Operations

Finding Ideal Business Locations

Penang is emerging as a competitive locale for startups, challenging Kuala Lumpur’s status as the primary business centre. Due to its demographic composition and supportive local policies, the region is particularly conducive to Chinese and Malaysian-Chinese business owners and international investors.

In Penang’s capital, Georgetown, entrepreneurs have access to a variety of co-working spaces and coffee shops that serve as practical work environments. These venues contribute to a cooperative spirit among business owners. The presence of local accelerator programs further enhances Penang’s appeal as a nucleus for entrepreneurial activity.

Hiring Employees and Understanding Labour Laws

Familiarity with the nation’s employment regulations is crucial for maintaining compliance and fostering a positive workplace. The Employment Act 1955 outlines the fundamental employment conditions, including work hours, contracts, and termination procedures. A typical workweek is limited to 45 hours, with overtime compensated at an increased rate.

Workers are entitled to paid rest days, annual leave, sick leave, and maternity leave, with the specifics depending on their tenure. The Industrial Relations Act 1967, the Occupational Safety and Health Act 1994, and the Employees Provident Fund Act 1991 mandate contributions to retirement savings.

The Employees’ Social Security Act 1969 establishes a social security program, while the Minimum Retirement Age Act 2012 sets the retirement threshold at 60. Employers must also safeguard employee personal data in accordance with the Personal Data Protection Act 2010.

Foreign business owners must obtain approval from the Ministry of Home Affairs to employ international staff. Adherence to these laws is essential to prevent disputes and ensure equitable treatment of workers.

Establishing a Supply Chain Framework

A robust supply chain is essential for business prosperity. The country’s workforce is educated and multilingual, which is advantageous for international commerce.

Labour laws generally protect workers, which can increase the likelihood of legal challenges from employees. Despite the Malaysia Institute for Supply Chain Innovation’s disassociation from MIT, the nation continues investing in supply chain proficiency educational programs.

Businesses should consider the legal aspects of intellectual property, tax considerations, and regulatory compliance when developing their supply chain strategies.

Technology and Infrastructure Setup

Implementing the necessary technology and infrastructure is vital for business operations. The country’s infrastructure is well-developed, and technology solutions are readily available for companies of varying sizes.

Entrepreneurs should explore government financing schemes that assist SMEs in the initial stages of business development. It’s important to note that home-based businesses are restricted to Malaysian residents or permanent residents, which may influence foreign entrepreneurs’ choice of business structure.

City In Malaysia Aerial View

Marketing and Growing Your Business

Building a Brand Identity

Creating a distinctive brand identity is essential for differentiation in Malaysia’s competitive marketplace. This encompasses the entire spectrum of customer interactions, from visual design elements to communication style.

To cultivate a brand identity that connects with consumers, ensuring uniformity in image and messaging across all platforms is essential. This uniformity is instrumental in establishing trust and recognition, which are pivotal for securing customer loyalty and advocacy.

Digital Marketing Strategies for Malaysian Audience

With a high internet and social media usage rate, the potential for digital marketing in Malaysia is substantial. Social media platforms such as Facebook, Instagram, and TikTok have high engagement rates. They are integral to reaching the Malaysian demographic.

Crafting digital marketing strategies that resonate with local users involves leveraging each platform’s distinct features and demographics to produce tailored content. For instance, WhatsApp’s user-friendly interface has made it a favoured medium for communication. At the same time, TikTok’s appeal to younger audiences offers a channel for more innovative and visually stimulating content.

An effective digital marketing plan should be goal-oriented and rooted in thoroughly comprehending the intended audience. It’s important to choose platforms that reflect the brand’s ethos and to generate content that captivates and is pertinent, ensuring a uniform brand presence across all mediums.

Engaging with the audience through interactive communication and precise advertising can amplify visibility and influence. It’s also vital to track and assess performance metrics to refine the strategy and make data-driven adjustments.

Networking and Relationship Building

In addition to digital marketing, forging connections remains a key driver of business growth in Malaysia. Networking now spans both physical and virtual realms, with digital tools streamlining the process of making and maintaining contacts.

Cultivating relationships with peers, industry leaders, and prospective customers can open doors to cooperative ventures, strategic alliances, and recommendations that propel business advancement.

Expanding Operations and Scaling Up

For enterprises aiming to broaden their reach and scale, the surge in e-commerce and digital advertising expenditure signals a market conducive to expansion. Recognising the influence of social media on product discovery and purchasing decisions, businesses are increasingly directing their advertising budgets towards online channels.

To scale effectively, digital channels must be weaved into the customer experience, and social media must be utilised to connect with a digitally literate audience. A holistic strategy is recommended to enhance Malaysia’s appeal as a commercial hub, capitalising on digital networks and social media tactics to effectively engage with the intended market segment.

Embark on Your Malaysian Business Journey

Stepping into the Malaysian business landscape offers a world ripe with opportunities for both local citizens and international entrepreneurs. Whether drawn by the vibrant digital economy, robust manufacturing growth, or the rich tapestry of commerce across traditional and emerging sectors, the pathway to launch and grow a business in Malaysia is paved with supportive infrastructures and policies.

Armed with the right information, respect for cultural etiquettes, and adherence to legal frameworks, you’re poised to plant the seeds of success in rich Malaysian soil. Embrace the spirit of innovation, connectivity, and sustainability that thrives in this dynamic market. Your business adventure in Malaysia isn’t just about starting up; it’s about scaling new heights in a landscape that celebrates diversity and rewards perseverance. Welcome to your next business frontier.

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