Setting Up A Business In Malaysia: 5 Things Every Foreign Founder Must Know

For international entrepreneurs, setting up a business in Malaysia is a strategic gateway to the ASEAN market. The country offers cost-efficiency and connectivity. However, success hinges on understanding and complying with strict legal and financial requirements for non-residents. 

In this guide, we outline the five core pillars every foreign founder must address to ensure a compliant and efficient market entry.

Business Structures in Malaysia: Choosing the Right Vehicle

Choosing your legal entity is the first critical decision, impacting liability, compliance, and access to funding. For foreign investors, one option stands out for its credibility and scalability.

Overview of Common Business Types

Suitability Considerations

If your plan involves scaling operations, raising institutional capital, or hiring expatriate staff, the Sdn. Bhd. (Private Limited Company) is the only viable choice. Its limited liability structure and robust corporate governance are crucial for bank acceptance and investor confidence.

Criteria For Setting Up A Business In Malaysia

The registration process is managed by the Companies Commission of Malaysia (SSM). The rules heavily emphasise accountability through local representation and demonstrable financial commitment.

Resident Director: The Non-Negotiable Requirement

• Mandatory Rule: An Sdn Bhd must appoint a minimum of one director who ordinarily resides in Malaysia.
• Definition: “Ordinarily resides” means the individual must have a primary residential address in Malaysia. They do not need to be Malaysian citizens or shareholders.

• The Foreign Founder’s Solution: Non-resident founders can use a Nominee Resident Director service. This is a standard compliance solution provided by Corporate Service Providers (CSPs). It allows foreign founders to meet legal requirements without needing to relocate immediately.

Paid-Up Capital: The Real Cost of Entry for Expat Passes

The minimum paid-up capital is RM1. However, this figure can be misleading for foreign founders who intend to work in the company.

• Practical Threshold (Expat Passes): Foreign-owned companies that want to hire expatriates must meet minimum capital requirements. These are set by the Expatriate Services Division (ESD). The practical threshold ranges from RM250,000 to RM500,000. This depends on the industry and the number of expat positions requested.
• Why It Matters: The ESD views higher paid-up capital as evidence of local substance. It also shows a sufficient financial commitment to support expatriate salaries and business operations.

Essential Incorporation Documents

The following documents and information are submitted digitally through the MyCoID portal for SSM registration:

• Company Name: This must be approved through a name search and reservation.
• Business Activities: A detailed description of the company’s core activities is required (up to three).
• Director and Shareholder Details: Full contact and identification details are needed (Passport/IC).
• SSM Digital Records: Once approved, you will receive the Certificate of Incorporation and the Statement of Particulars. This statement includes details about shareholders, directors, and capital.

Applying for Work Permits and Visas: Expatriate Compliance

Foreigners intending to work in their newly established Malaysian business must secure the correct employment pass. This process is managed by the Immigration Department of Malaysia (JIM) and the Expatriate Services Division (ESD).

Key Passes and Eligibility Criteria

• Employment Pass (EP): Issued for executive, managerial, and professional roles. This is the pass most foreign founders will require.
• Minimum Salary Threshold: The position must meet a minimum monthly salary threshold (currently RM5,000, though this is higher for senior positions).
• Prerequisite: Your company must meet the high Paid-Up Capital requirements (RM250,000+) before the ESD will consider your EP application.
• The Procedure: The Malaysian employer (your new Sdn Bhd) applies on behalf of the expatriate through the ESD online system. 

Note: For your application to be considered by the ESD, your business must

• be fully operational, 
• have a valid lease agreement, and 
• possess the necessary high-paid-up capital 

Business Licences and Halal Certifications:
Post-Incorporation Compliance

Incorporation only grants legal existence. You must secure operational licences based on your industry and location.

Industry-Dependent Licensing

Do not assume you can operate immediately after incorporation. Licensing requirements are regulated by multiple authorities:

• General/Premise Licence: Mandatory, obtained from the local municipal council (e.g., DBKL) for every physical business location.
• Sector-Specific Licences: Required for industries like F&B, manufacturing (MIDA), education, and finance (Bank Negara Malaysia).

Tip: To avoid delays, consult a CSP who can identify all necessary licenses based on your business activities before you start operations.

Halal Certification (JAKIM)

This certificate is necessary for businesses involving consumables (like food and cosmetics) and if you intend to market to Muslim consumers. In that case, the Halal certification issued by the Department of Islamic Development Malaysia (JAKIM) is essential. While not mandatory for operation, it is a significant commercial advantage and a mark of trust in the Malaysian market.

Where To Apply For Necessary Licenses

Source: Business Licenses | MyGOV

Opening a Bank Account: Navigating KYC and AML

Opening a corporate bank account is often cited as the most frustrating step for foreign founders. One of the reasons is the stringent Know Your Customer (KYC) and Anti-Money Laundering (AML) regulations.

The Non-Negotiable Hurdle: Physical Presence and KYC

• Core Requirement: Most major local banks require the authorised signatories and a Malaysian resident director to be physically present at a Malaysian branch. This process acts as a final identity verification and submission of documents. Hence, there is no fully online process for foreign-owned entities.
• Bank Scrutiny: Foreign-owned companies are automatically categorised as higher risk. Banks will perform deep scrutiny to clarify the nature of the business and verify the source of funds.
• Required Documents: Beyond the certified SSM documents (Certificate of Incorporation, Statement of Particulars), you must provide a certified Board Resolution authorising the account and the Passports/Visas of all signatories.

Major Banking Institutions and Recommended Solutions

Practical Tips for Foreign Founders Entering Malaysia

These tips are vital for ensuring long-term compliance and success in the Malaysian market:

• Utilise Your Company Secretary: Your appointed Company Secretary is your mandatory compliance officer. He or she is responsible for ensuring all annual returns, statutory records, and SSM filings are correct. 
• Master Tax Compliance Early: Beyond SSM and ESD rules, foreign founders must adhere to tax regulations. This includes filing annual tax returns with the LHDN and registering for the Sales and Service Tax (SST) if your revenue exceeds the threshold. The current SST registration is RM500,000 for most services.
• Linguistic Intelligence: While English is the primary language in corporate settings, Malaysians also communicate in other languages. For example, you may find documents written in Bahasa Malaysia. Therefore, be prepared to adapt communications and marketing into other languages to capture local market segments.

FAQs for Foreign Founders Setting Up A Business In Malaysia

Sources

• A guide to conducting business in Malaysia | Business Times 
• Business Guide – Malaysia | enterprisessg 
• Business Registration – EzBiz Online | SSM
• GUIDELINE FOR REGISTATION OF NEW BUSINESS New business registration conditions 1. Under the provisions of Section 5 of Registrat | SSM
• Guidelines for the Incorporation of a Local Company | SSM 
• MALAYSIA CORPORATE IDENTITY NUMBER (MyCoID) | miti/gov