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Doing Business in Malaysia

Boasting a competitive business environment, diverse economy, and strategic location in Southeast Asia, Malaysia has emerged as a prime destination for businesses seeking to expand their horizons. The country offers a unique blend of opportunities and challenges that can propel your business to new heights. Are you ready to unlock the potential of doing business in Malaysia?

Key Takeaways

  • Understand Malaysia‚Äôs business landscape and legal/regulatory framework for successful entry into the market.
  • Embrace Malaysian culture, build relationships & maximize opportunities through financing & taxation strategies.
  • Leverage digital channels to expand reach and navigate potential economic, political & corruption risks.

Malaysia Business Guides

Understanding Malaysia’s Business Landscape

Malaysia’s business landscape, particularly in Peninsular Malaysia, is characterized by a diverse economy, strong infrastructure, and strategic location in Southeast Asia, making it an attractive destination for business expansion with a key external connection to surrounding countries. With key industries such as manufacturing, services, and agriculture driving growth, the country provides access to a market of 680 million people.

The official language of Malaysia is Malay.

Malaysia’s well-developed infrastructure and connectivity enable seamless access to regional and global markets, further bolstering its appeal as a cost competitive location to foreign investors.

Economic Overview

malaysia economic overview

The Malaysian economy has evolved from agriculture to manufacturing and services, with key economic sectors such as electronics, chemicals, and tourism driving growth. Government policies like the New Economic Policy (NEP) and the National Development Policy (NDP) have played a significant role in shaping the country’s economic landscape, with the aim of eradicating poverty and redistributing wealth among different ethnic groups.

The Twelfth Malaysia Plan, which includes the Malaysia Digital Economy Blueprint introduced in 2020, further demonstrates the country’s commitment to digital transformation and economic development.

Here is a brief explanation of the main components and objectives of the Twelfth Malaysia Plan:

  1. Economic Growth and Recovery: The Twelfth Malaysia Plan aimed to stimulate economic growth across industry, trading, and recovery following the economic challenges brought about by the COVID-19 pandemic. It focused on strategies to boost domestic and foreign investments, promote trade in export-oriented industries (such as palm oil), and enhance productivity.

  2. Sustainable Development: Sustainability was a significant theme, with an emphasis on environmentally friendly and sustainable development practices. The plan aimed to balance economic growth with environmental conservation and social inclusivity ‚Äď matters of great interest to lawmakers.

  3. Digitalization and Technology: The Twelfth Malaysia Plan recognized the importance of digital transformation and technology adoption across various sectors, which are key matters for companies considering doing business in Malaysia. Initiatives related to digital infrastructure, e-commerce, and technology-driven innovation were prioritized.

  4. Education and Human Capital Development: Investment in education and human capital development remained a cornerstone of Malaysia’s development plans. The plan aimed to improve the quality of education and skills training to meet the demands of a modern economy.

  5. Infrastructure Development: Infrastructure development continued to be a priority, with a focus on transportation, connectivity, and urban planning. Projects such as the expansion of transportation networks and the development of smart cities were part of the plan.

  6. Social Inclusion and Welfare: The Twelfth Malaysia Plan aimed to address social inequality and improve the overall welfare of the population. This included initiatives to enhance healthcare services, affordable housing, and social safety nets.

  7. Rural and Regional Development: Special attention was given to the development of rural and less developed regions in Malaysia. Doing business in Malaysia means incorporating these regions where possible. The plan included strategies to reduce regional disparities in terms of income and infrastructure.

  8. Private Sector Growth: Encouraging private sector growth and entrepreneurship was a key objective. The plan sought to create a conducive business environment, reduce regulatory barriers, and promote small and medium-sized enterprises (SMEs).

  9. International Trade and Investment: Malaysia aimed to strengthen its position in international trade and investment by pursuing trade agreements and partnerships with other nations and regions.

The Twelfth Malaysia Plan, like previous Malaysia Plans, was a dynamic document subject to adjustments and revisions as needed to respond to changing economic, social, and global conditions. Doing business in Malaysia successfully requires companies to understand these key areas. 

Key Statistics on the Malaysian Economy

IndicatorLatest ValueYear
GDP (PPP)$760.29 billion2023 (est.)
GDP per capita (PPP)$23,9392023 (est.)
GDP growth (annual)4.70%2023 (est.)
Unemployment rate3.20%2023 (est.)
Poverty rate (national poverty line)0.60%2023 (forecast)
Gini coefficient (inequality measure)41.22018
Human Development Index (HDI)0.8032021
Current account balance (% of GDP)3.00%2023 (est.)
Trade (% of GDP)131.60%2023 (est.)
Foreign direct investment (net inflows, % of GDP)3.20%2023 (est.)
Public debt (% of GDP)63.50%2023 (est.)
Inflation rate (consumer prices)2.90%2023 (est.)
Ease of doing business ranking61st2024
 
Malaysia Digital Economy Blueprint

Unemployment Rate in Malaysia

Doing business in Malaysia is impacted by the unemployment rate in the country. The unemployment rate in Malaysia experienced fluctuations due to the impact of the COVID-19 pandemic and economic challenges. The Malaysian approach to dealing with this has been working to recover from the pandemic’s effects, which had resulted in temporary job losses and increased unemployment. The Malaysian government has implemented various measures to mitigate these effects across industry and stimulate high technology economic activities to create a competitive business environment, including job retention programs and stimulus packages to boost future employment and increase tax remittances, from company profits and income tax.

Infrastructure and Connectivity

Malaysia offers excellent transport links, including modern airports, seaports, and road networks, providing easy access to regional and global markets. Major transport hubs like Terminal Bersepadu Selatan in the Klang Valley and Kuala Lumpur International Airport (KLIA) in Kuala Lumpur facilitate trade, tourism, and transportation between Malaysia and its neighboring countries.

The country’s extensive road and rail connections, including the KTM West Coast Line and the Malaysian East Coast Rail Link (ECRL), further enhance its connectivity. The Malaysia Digital Economy Blueprint also highlights the government’s dedication to transforming Malaysia into a digitally-driven, high-income nation and a regional leader in the digital economy, powered by high technology.

Navigating the Legal and Regulatory Framework for Doing Business in Malaysia

A thorough comprehension of Malaysia’s legal and regulatory framework is key to a successful business venture in the country. From company registration to foreign investment regulations, navigating this landscape requires thorough knowledge and attention to detail. By adhering to the country’s laws and regulations, foreign investors can minimize risks and maximize opportunities.

Company Registration

Registering a company in Malaysia involves choosing the appropriate business vehicle, fulfilling registration requirements, ensuring the presence of all incorporation documents, and complying with reporting obligations. The Companies Commission of Malaysia (CCM) oversees the registration process, ensuring that all necessary documentation is submitted and requirements are met.

Upon successful registration, businesses can enjoy the benefits of operating in Malaysia’s favorable business environment, ranked 15th in the world for ease of doing business by the World Bank and International Finance Corporation (IFC).

Required company incorporation documents (for a private company) in Malaysia include:

Memorandum and Articles of Association (M&A):

  • This document outlines the company‚Äôs objectives, internal regulations, and structure. It defines the roles and responsibilities of shareholders, directors, and officers.

Form 24 (Return of Allotment of Shares):

  • This form is used to report the issuance of shares to initial shareholders and specifies the details of share allocations.

Form 49 (Return Giving Particulars in Register of Directors, Managers, and Secretaries and Changes of Particulars):

  • This form provides information about the company‚Äôs directors, managers, and company secretaries, including their names, addresses, and changes in their particulars.

Form 9 (Certificate of Incorporation):

  • This is the official certificate issued by the Companies Commission of Malaysia (SSM) confirming the successful registration of the company. It serves as proof of the company‚Äôs legal existence.

Form 32A (Particulars of Directors):

  • This form contains the personal details of the company‚Äôs directors, such as names, identification numbers, and addresses.

Form 24A (Statement by a Person or Persons not being a Nominee Company):

  • This form is required when the initial shareholders are individuals, and it confirms their consent to act as shareholders of the company.

Form 44 (Notice of Situation of Registered Office and Office Hours and Particulars of Changes):

  • This form provides information about the registered office of the company and any changes in its location or office hours.

Form 45 (Consent to Act as Secretary):

  • This form is necessary when appointing a company secretary, and it includes their consent to serve in that capacity.

Form 49A (Statement of Share Capital and Return of Allotment):

  • This form details the company‚Äôs share capital structure, including the number of shares, their nominal value, and the names of shareholders.

Company Seal (Common Seal):

  • While not a document, the company seal is an important part of company incorporation. It is used for affixing the company‚Äôs official stamp on documents to indicate their authenticity.

Please note that the specific requirements and forms may vary based on the type of business entity and any additional permits or licenses required for certain industries per the rules of local authorities, depending on the companies anticipated economic activities (a company’s statutory declaration as to business purpose may determine which activities it can participate in). Companies may also have to pay a registration fee or subscribe to certain services tax payments. It’s essential to consult with the Companies Commission of Malaysia (SSM) or seek professional advice to ensure compliance with the latest regulations and documentation requirements for your specific business.

Foreign Investment Regulations

Foreign investors must navigate sector-specific regulations and restrictions on foreign ownership while also taking advantage of available incentives and grants. In some sectors, there may be limits on the extent of foreign investment or requirements for a minimum ownership by certain indigenous ethnic groups in Malaysia. The foreign ownership limit for insurance companies, for example, is set at 70 percent, with higher limits considered on a case-by-case basis. By understanding and complying with these regulations, foreign investors can optimize their investments and ensure a smooth entry into the Malaysian market.

Getting to Know the Inland Revenue Board in Malaysia

The Inland Revenue Board of Malaysia (IRBM), also known as ‚ÄúLembaga Hasil Dalam Negeri Malaysia‚ÄĚ in Malay, is the government agency responsible for administering and enforcing the country‚Äôs taxation system. It operates under the purview of the Ministry of Finance in Malaysia. The primary role of the IRBM is to collect and manage various forms of taxation, including income tax, corporate tax, and indirect taxes like the Goods and Services Tax (GST) or Sales and Services Tax (SST), depending on the prevailing tax system in the country.

Key functions and responsibilities of the Inland Revenue Board of Malaysia include:

  • Tax Collection: The IRBM collects taxes from individuals, businesses, and other entities in accordance with the prevailing tax laws and regulations.

  • Tax Compliance: It ensures that taxpayers comply with their tax obligations by filing accurate and timely tax returns and paying the appropriate amount of taxes.

  • Tax Assessment and Auditing: The IRBM assesses and audits taxpayers to verify the accuracy of their tax declarations and assess any additional tax liabilities, if necessary.

  • Taxpayer Services: The agency provides assistance and information to taxpayers regarding tax matters, helping them understand their tax obligations and rights.

  • Tax Policy Implementation: The IRBM plays a role in the implementation of tax policies set by the Malaysian government, including changes in tax rates, incentives, and exemptions.

  • Tax Enforcement: It takes enforcement actions against individuals or entities that fail to meet their tax obligations, including imposing penalties, fines, or legal actions in cases of non-compliance.

  • Taxpayer Education: The IRBM conducts educational programs and initiatives to increase tax awareness and promote voluntary compliance among taxpayers.

  • Data Management: The agency manages tax-related data and records to ensure accurate and efficient tax administration.

The Inland Revenue Board of Malaysia plays a crucial role in funding various government programs and services by collecting revenue through taxation. It contributes significantly to the country’s fiscal stability and economic development by ensuring that tax revenues are collected efficiently and fairly from both individuals and businesses in Malaysia.

Embracing Malaysian Business Culture

Adopting the Malaysian business culture can bolster relationships and encourage cooperation. In a business environment where respect, politeness, and teamwork are highly valued, understanding local customs and values becomes crucial for success. By adapting to the nuances of Malaysian business culture, foreign investors can establish trust, enhance communication, and ultimately, thrive in the Malaysian market.

Communication and Language

English is widely spoken in Malaysia’s business environment, making it easier for international businesses to communicate and operate. However, understanding local customs and language nuances can enhance communication and rapport.

In addition to English, Bahasa Malaysia, Chinese, and Indian dialects are commonly spoken, reflecting the country’s diverse cultural landscape. By being aware of these linguistic and cultural differences, businesses can effectively communicate with local partners and customers, fostering stronger relationships and better collaboration.

Building Relationships

Building relationships with Malaysian business partners and stakeholders requires patience, trust, and a genuine personal interest in understanding local customs and values. Establishing strong connections and gaining trust is essential for successful business operations. Malaysians prioritize politeness, consideration, and respect when conducting business. Maintaining face and avoiding embarrassment are also important cultural values.

By investing time and energy in cultivating relationships, foreign investors can pave the way for fruitful collaborations and long-term success in Malaysia.

Financing and Taxation in Malaysia

In the business realm of Malaysia, financing and taxation play significant roles. By understanding the various sources of capital and the country’s territorial taxation system, businesses can effectively navigate the financial landscape and optimize their investments.

The upcoming discussion will focus on various facets of financing and taxation in Malaysia, highlighting their implications for both resident and non-resident businesses.

Access to Capital

Access to capital in Malaysia includes bank loans, government grants, and venture capital, with various incentives available for specific industries and projects. Top providers of business loans in Malaysia include Maybank, RHB Bank, HSBC, Bank Negara Malaysia, and the World Bank Group.

Prominent venture capital firms in the country, such as Gobi Partners, 1337 Ventures, and Cradle Fund Sdn Bhd, provide funding opportunities for businesses seeking investment. By leveraging these sources of capital, businesses can secure the necessary funding to expand their operations and tap into the vast potential of the Malaysian market.

Taxation System

Malaysia’s taxation system is territorial in nature, with corporate tax rates, incentives, and double tax treaties affecting both resident and non-resident businesses. The corporate tax rate for all companies in Malaysia is 24%.

malaysia company tax rate

However, various tax incentives are available for investment in selected industry sectors in Malaysia, including:

  • Education and healthcare
  • Communications
  • Utilities
  • Transportation
  • Green technology

By understanding the intricacies of Malaysia’s taxation system, businesses can better plan their financial strategies and optimize their tax liabilities, ensuring a more profitable and sustainable presence in the country. One crucial aspect of this process is paying taxes in a timely and accurate manner.

Human Resources and Employment Law

Effective human resources management and adhering to employment law are vital elements for operating businesses in Malaysia. A young, educated, and productive workforce, coupled with a high level of English proficiency, creates an attractive talent pool for businesses to tap into.

This discussion will delve into the different components of human resources and employment law in Malaysia, providing insights on how businesses can efficiently manage their workforce in compliance with local regulations.

Some employment law matters companies must consider when doing business in Malaysia include:

  • Social security contributions, including to the Employee Provident Fund

  • Income tax remittance

  • Advice on enforcing contracts when dealing with disputes

  • Resolving insolvency when protecting employee rights

  • Protection of public holidays in working hour rules

  • Anti-discrimination rules when employing workers from varying cultures (not just in the ASEAN region)

  • Malaysian government incentives and programs for employees

Recruitment and Talent Management

Recruitment and talent management involve sourcing local and foreign talent, understanding work permit requirements, and implementing effective retention strategies. The Employment Act 1955 and the Private Employment Agencies Act 1981 govern recruitment in Malaysia, with employers required to adhere to employment and labor laws when recruiting, managing, and terminating employees.

By ensuring a compliant and efficient hiring process, businesses can secure the best talent and build a strong foundation for success in the Malaysian market.

Employment Law

Employment law in Malaysia is governed by various acts and regulations, covering aspects such as contracts, termination, and employee rights and benefits. Some key laws and regulations include:

By understanding and adhering to these laws and regulations, businesses can effectively manage their workforce, ensure compliance, and minimize the risk of disputes and legal issues.

Expanding Your Business through Digital Channels

Business expansion through digital channels in Malaysia necessitates an understanding of the e-commerce landscape and the deployment of effective digital marketing strategies. With a rapidly growing internet penetration and a tech-savvy population, the country’s digital landscape presents significant opportunities for businesses looking to expand their reach and grow their customer base.

This section will delve into the different elements of digital expansion in Malaysia, providing insights on how businesses can utilize these digital channels to their advantage.

E-Commerce Landscape

Malaysia’s e-commerce landscape is rapidly growing, with increasing internet penetration and a tech-savvy population driving online sales and digital services. The market is projected to expand from USD 7.11 billion in 2023 to USD 14.32 billion by 2028, demonstrating a compound annual growth rate of 13%.

Prominent e-commerce platforms in Malaysia include Shopee, Lazada, and Lelong. By understanding the dynamics of the e-commerce market and capitalizing on its growth potential, businesses can successfully expand their operations and tap into the country’s burgeoning digital economy.

Digital Marketing Strategies

Successful digital marketing strategies in Malaysia involve leveraging social media, search engine optimization, and targeted advertising to reach and engage customers. Social media marketing, for example, enables businesses to create tailored content for specific audiences on platforms such as Facebook, Instagram, and Twitter.

Search engine optimization (SEO) helps businesses improve their visibility in search engine results, driving more traffic to their websites and increasing their online presence. By implementing these and other digital marketing strategies, businesses can effectively reach their target audience, build brand awareness, and ultimately, drive sales and growth in the Malaysian market.

Navigating Challenges and Risks

To navigate the challenges and risks in Malaysia, one must grasp the economic and political risks and ensure adherence to anti-corruption regulations. While the country offers significant opportunities for business growth, it is essential to be aware of potential pitfalls and obstacles that may arise along the way.

Businesses can be better equipped for success by proactively taking on challenges and risks in the competitive business environment of the business in Malaysia market, including navigating through Malaysian operations.

Economic and Political Risks

Economic and political risks in Malaysia include currency fluctuations, political instability, and potential changes in government policies affecting businesses. Although Malaysia generally has a stable political environment compared to some neighboring countries, it is important for businesses to thoroughly evaluate the political landscape and potential risks prior to expanding into any Southeast Asian country.

By understanding these risks and taking proactive measures to address them, businesses can minimize their exposure to potential setbacks and maximize the opportunities for growth in the Malaysian market.

Compliance and Corruption

Compliance with anti-corruption regulations is essential for businesses operating in Malaysia, with strict laws governing bribery, corruption, and corporate governance. The Malaysian Anti-Corruption Commission Act of 2009 (MACC Act) is the principal anti-corruption legislation in the country, outlining offences such as:

  • soliciting/accepting bribes
  • offering/giving bribes
  • making a false claim
  • abuse of position
  • conspiracy to commit any of these offences

By ensuring compliance with these regulations and promoting a culture of transparency and ethical conduct, businesses can reduce the risks associated with corruption and create a solid foundation for long-term success in Malaysia.

Summary

As we have explored, Malaysia presents a wealth of opportunities for businesses looking to expand their operations in Southeast Asia. From its diverse economy and strategic location to its tech-savvy population and thriving digital landscape, the country offers a dynamic environment for growth and success. By understanding the intricacies of Malaysia’s business landscape, legal and regulatory framework, and cultural nuances, businesses can effectively navigate potential challenges and risks, and capitalize on the immense potential that this vibrant nation has to offer.

Frequently Asked Questions

Yes, you can start a business in Malaysia as a foreigner in the form of a private limited company and own 100% of it, except for in some industries such as agriculture, banking, education, oil and gas, where 50% Malaysian ownership is required.

Malaysia is an attractive option for businesses looking to expand their operations due to its economic and political stability, infrastructure, cultural diversity and thriving economy. Establishing a virtual office with Servcorp is an effective way to gain a foothold in the Asian market with minimal risk.

Doing business in Malaysia is good due to its stable political climate, legal system, strong fundamentals, low corporate tax rate and excellent infrastructure. These features make Malaysia an attractive destination for foreign direct investment.

Malaysia's economy is driven by its manufacturing, services, and agriculture sectors, with electronics, chemicals, and tourism being major contributors.

Respecting authority, politeness and teamwork, as well as understanding local customs and values are essential aspects of Malaysian business culture for successful collaboration.

Travis is a global business development advisor. He has spent the last 14 years supporting business establishment and development in North America, Southeast Asia, and throughout the world. With multiple degrees from the University of Oregon, Travis currently splits his time between the US, and Bali, Indonesia. At RemotePad, Travis writes about remote work, hiring internationally and PEO/EOR business models.

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