Setting Up a Business in Malaysia: 4 Key Options for Foreign Investors

This article provides a comprehensive overview of the four main entity types relevant to foreign investors investing in Malaysia (Private Limited Company (Sdn. Bhd.); Branch Office; Representative / Regional Office; Labuan Company). Each section outlines legal foundations, set-up processes, advantages, disadvantages, and typical use cases. Links to detailed follow-up guides are provided for readers who wish to go deeper.

Already know which entity you want to set up? Jump straight to our in-depth guides for foreign investors below:

• Setting up a Private Limited Company (Sdn. Bhd.) in Malaysia
• Setting up a Branch Office in Malaysia
• Setting up a Representative / Regional Office in Malaysia
• Setting up a Labuan Company

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Why Malaysia?

Malaysia has long been a hub for foreign businesses looking to enter Southeast Asia. Its location along the Strait of Malacca places it at the crossroads of global trade routes. It is a member of ASEAN and a signatory to major trade agreements such as the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the Regional Comprehensive Economic Partnership (RCEP). These agreements open up preferential access to markets across Asia and beyond.

Beyond geography, Malaysia offers a stable legal framework. The Companies Act 2016 (CA 2016) governs most business entities, while the Labuan Companies Act 1990 provides for offshore vehicles. The country also maintains strong banking and professional service sectors, English is widely spoken, and the cost of doing business is competitive compared to regional peers like Singapore or Hong Kong.

At the same time, foreign investors face key decisions when entering the market. Should they create a local subsidiary? Register a branch of the foreign parent? Test the market with a representative office? Or consider an offshore Labuan vehicle? Each choice carries tax, liability, immigration, and compliance consequences.

The below provides an overview and addresses all of these questions:

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1. Private Limited Company (Sdn. Bhd.)

Legal foundation of Private Limited Companies

The Sdn. Bhd. is incorporated under Part II of the Companies Act 2016. It is a separate legal entity, distinct from its shareholders. Liability is limited to the amount unpaid on shares.

Key statutory requirements:

• At least one director ordinarily resident in Malaysia (sec. 196 of the Companies Act).
• At least one shareholder (individual or corporate, local or foreign).
• At least one company secretary, who must be a Malaysian citizen or permanent resident, ordinarily resident in Malaysia (sec. 235 of the Companies Act).

Ownership and capital of Private Limited Companies

Foreigners may generally own 100% of a Sdn. Bhd., though equity restrictions still apply in certain regulated sectors (e.g., oil & gas, telecommunications, wholesale and retail trade). For operational companies hiring expatriates, the Expatriate Services Division (ESD) requires minimum paid-up capital:

• MYR 1,000,000 for companies with ≥51% foreign ownership in services/retail.
• MYR 500,000 for other sectors.

Incorporation process of Private Limited Companies

• Name reservation with the Companies Commission of Malaysia (SSM) – valid for 30 days.
• Lodgement of incorporation documents (Constitution optional).
• Minimum paid-up capital may start as low as MYR 1, but higher is expected in practice (especially for banking relationships and ESD purposes).
• Timeline: 1–3 weeks if documents are complete.

Tax and compliance for Private Limited Companies

• Subject to corporate income tax (CIT) at 24%.
• SMEs (with ≤RM2.5m capital, subject to foreign-shareholding restrictions) may qualify for reduced rates of 15% on the first RM150,000 and 17% on the next RM450,000.
• Must file annual returns and audited financial statements (unless exempt under audit-threshold rules).

Immigration for Private Limited Companies

A Sdn. Bhd. can sponsor expatriates through the ESD once the minimum capital is in place. Work passes are tied to the company’s operational needs.

Use cases of Private Limited Companies

The Sdn. Bhd. is the default choice for foreign investors seeking a full operational presence: from manufacturing plants and trading hubs to service companies.

Read our full guide on setting up a Sdn. Bhd. as a foreign investor for further details.

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2. Branch Office (Foreign Company)

Legal foundation of Branch Offices

A foreign company may register a Branch Office in Malaysia under Part V, Division 1 of the Companies Act 2016. Unlike a subsidiary, a branch is not a separate legal entity; it is an extension of the foreign parent.

Key requirements of Branch Offices

• Must appoint at least one authorised agent who is resident in Malaysia.
• The parent company must lodge its constitution and financial statements with SSM.

Liability and structure of Branch Offices

Because a branch is not separate, the foreign parent is directly liable for the branch’s debts and obligations. This can increase risk exposure, but may be suitable for limited projects.

Tax and compliance for Branch Offices

• The branch is taxed in Malaysia on profits derived from Malaysian operations, at the standard 24% rate.
• No SME preferential rates are available.
• Annual financial statements of the parent (translated into English or Malay) must be filed with SSM.

Immigration for Branch Offices

A branch can hire expatriates, but approval is generally more restrictive compared to a Sdn. Bhd. We therefore highly recommend obtaining advice specific to your needs before you take any steps.

Use cases for Branch Offices

• Short-term or project-based presence.
• Companies that prefer to operate under the parent’s branding and identity.
• Investors who do not want to create a separate Malaysian entity.

Read our full guide on setting up a branch as a foreign investor for further details.

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3. Representative / Regional Office

Legal foundation of Representative / Regional Offices

Representative and Regional Offices are approved by the Malaysian Investment Development Authority (MIDA), not under the Companies Act. They are non-commercial vehicles.

Functions permitted for Representative / Regional Offices

• Market research.
• Feasibility studies.
• Coordination of marketing, sourcing, or regional management.
• Prohibited from conducting sales, signing contracts, or generating revenue in Malaysia.

Requirements for Representative / Regional Offices

• Must be fully funded by the foreign parent company.
• Must demonstrate minimum annual operating expenditure of MYR 300,000.
• Approval is granted for up to 2 years at a time, with a maximum of 5 years.

Immigration Representative / Regional Offices

• May employ a limited number of expatriates, subject to MIDA’s assessment of necessity.

Use cases for Representative / Regional Offices

• Foreign investors conducting a market-entry study before deciding on permanent operations.
• Regional coordination offices for multinationals headquartered outside Malaysia.

Read our full guide on setting up a Representative Office / Regional Office as a foreign investor for further details.

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4. Labuan Company

Legal foundation of Labuan Companies

Labuan entities are established under the Labuan Companies Act 1990 and regulated by the Labuan Financial Services Authority (Labuan FSA). They thus work in a regime that is different from the Companies Act 2016.

Ownership and structure of Labuan Companies

• May be 100% foreign-owned.
• Can be incorporated as a trading, holding, leasing, or investment company.

Tax regime for Labuan Companies

• Labuan trading companies may elect to pay either 3% of audited net profits or a flat MYR 20,000 tax per year.
• Substance requirements apply: companies must maintain adequate employees and expenditure in Labuan to access tax benefits.
• Labuan companies engaging with Malaysian residents may face higher tax implications under the Income Tax Act 1967.

Immigration for Labuan Companies

Labuan companies can apply for Labuan work permits, though the scope is narrower than for Sdn. Bhd.

Use cases for Labuan Companies

• International trading and holding companies.
• Businesses looking for a tax-efficient structure outside Malaysia’s domestic system.
• Regional investment vehicles.

Read our full guide on setting up a Labuan Company as a foreign investor for further details.

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5. Other Malaysian Entities (Overview)

Sole Proprietorships and Partnerships

Available only to Malaysian citizens or permanent residents. Foreign investors cannot register these directly.

Limited Liability Partnerships (LLPs)

A hybrid structure combining partnership flexibility with limited liability. While viable in theory, LLPs are rarely chosen by foreign investors because they are not well recognized by regulators for expatriate hiring or licensing.

Companies Limited by Guarantee (CLBGs)

Typically used for non-profit organizations, charities, and associations. Not a vehicle for commercial business.

Comparison at a Glance

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Conclusion

For foreign investors, Malaysia offers a range of entry options. The correct choice depends on your business objectives, appetite for risk, and long-term plans:

• Bhd. – the go-to structure for full-scale operations.
• Branch Office – suitable for short-term or project-based activities where parent liability is not a concern.
• Representative Office – ideal for non-commercial market entry or coordination.
• Labuan Company – effective for holding or international trading in a tax-efficient regime.

While other vehicles exist, these four represent the core pathways for foreign investors. Each carries different compliance, tax, and immigration implications. A careful needs analysis is essential before committing to a structure.

To learn more, explore our detailed guides linked above, or contact us for tailored advice on choosing the right entity for your Malaysian venture.

FAQs

Q: can foreigners own 100% of a Malaysian company?

Yes, in most sectors a Sdn. Bhd. can be 100% foreign-owned. Restrictions still apply in regulated industries like oil & gas, telecommunications, and wholesale/retail trade.

Q: what is the minimum capital to hire expatriates in Malaysia?

For foreign-owned Sdn. Bhd.s in services/retail, the ESD requires at least MYR1,000,000 paid-up capital; in other sectors, MYR500,000 is usually sufficient.

Q: what is the difference between a Labuan company and a Sdn. Bhd.?

A Sdn. Bhd. is a domestic entity taxed under the Income Tax Act 1967, while a Labuan company falls under a separate offshore regime with preferential tax rates, but with limitations on business with Malaysian residents.

Q: how long does it take to set up a company in Malaysia?

A Sdn. Bhd. can typically be incorporated within 1–3 weeks if the requirement documents are in order. A Labuan company can also be incorporated quickly, though regulatory approvals may add time.

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