Malaysia Investment Guide – Stable country in Southeast Asia

kuala-lumpur-city-viewOur Services in Malaysia: 

  • Incorporation of a Company in Malaysia
  • registration of a representative office
  • Joint ventures structures
  • Supply agreements, terms & Conditions, agency agreements
  • Employment agreements, Terms & Conditions, agency agreements

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Why invest in Malaysia?

Malaysia, a multi-ethnic, multicultural and multilingual society, strategically located in the heart of South East Asia with easy access to all of its neighbors, offers a cost-competitive location for investors intending to set up offshore operations for regional and international markets. Malaysia is in its most radical transformation as it battles to achieve the Vision 2020. As one of the five founding members of the Association of South East Asian Nations (“ASEAN”), a geo-political and economic organization whose aims include accelerating economic growth, social progress and cultural development among its members, the country is a strong supporter of the ASEAN Free Trade Area and the ASEAN Investment Area. Malaysia‘s political and economic stability with a well-developed legal system, prudent and pragmatic investor friendly business policies, cost-productive workforce, developed infrastructure comparable to that of any western country and a host of other amenities makes this country an enticing place for investors. Other points for foreign investors to consider when looking at Malaysia as a potential place for investment include various forms of business set up (e.g. representative office, branch office, companies etc.), tax-free zones, growth corridors and Labuan International Business and Financial Centre.

Malaysia today is one of the world’s top locations for offshore manufacturing and service based operations. Multinational corporations from more than 40 countries have invested in over 5,000 companies in Malaysia’s manufacturing and related services sectors. Many of them have also expanded and diversified their operations in the country, reflecting their confidence in Malaysia as a site for their business ventures.

 

 

Facts & Figures

Background

During the late 18th and 19th centuries, Great Britain established colonies and protectorates in the area of current Malaysia. These were occupied by Japan from 1942 to 1945. In 1948, the British-ruled territories on the Malay Peninsula except Singapore formed the Federation of Malaya, which became independent in 1957. Malaysia was formed in 1963 when the former British colonies of Singapore, as well as Sabah and Sarawak on the northern coast of Borneo joined the Federation. The first several years of the country‘s independence were marred by a communist insurgency, Indonesian confrontation with Malaysia, Philippine claims to Sabah and Singapore‘s withdrawal in 1965. During the 22-year term of Prime Minister Mahathir bin Mohamad (1981-2003), Malaysia was successful in diversifying its economy from dependence on exports of raw materials to the development of manufacturing, services and tourism. Prime Minister Haji Mohammad Najib bin Tun Haji Abdul Razak (in office since April 2009) has continued these pro-business policies and has introduced some civil reforms.

 

Location

South-eastern Asia, peninsula bordering Thailand and northern one-third of the island of Borneo bordering Indonesia, Brunei and the South China Sea, south of Vietnam.

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Area

329,847 sq. km (about the area of Germany without the federal state of Brandenburg)

Ethnic groups

Malay 50.1%, Chinese 22.6%, Indigenous 11.8%, Indian 6.7%, other 0.7%, Non-citizens 8.2% (2010 est.)

malay-people-ethnic

Language

  • Bahasa Malaysia (official),
  • English,
  • Chinese (Cantonese, Mandarin, Hokkien, Hakka, Hainan, Foochow),
  • Tamil,
  • Telugu,
  • Malayalam,
  • Panjabi,
  • Thai

Note: In East Malaysia there are several indigenous languages; most widely spoken are Iban and Kadazan

Population

30,073,353 (July 2014 est.)

Government type

Constitutional Monarchy

Note: Nominally headed by paramount ruler (commonly referred to as the king) and a bicameral Parliament consisting of a non-elected upper house and an elected lower house;

All Peninsular Malaysian states have hereditary rulers (commonly referred to as Sultans) except Melaka (Malacca) and Pulau Pinang (Penang); those two states along with Sabah and Sarawak in East Malaysia have Governors appointed by the government;

Powers of state governments are limited by federal constitution;

Under the terms of federation, Sabah and Sarawak retain certain constitutional prerogatives (e.g. right to maintain their own immigration controls).

 

GDP

Purchasing Power Parity USD525 billion (2013 est.) (Germany: USD3.227 trillion) (2013 est.)

Real Growth Rate: 4.7% (2013 est.) (Germany: 0.5%) (2013 est.)

Per Capita (PPP): USD17,500 (2013 est.) (Germany: USD39,500) (2013 est.)

 

Labor force by occupation

  • Agriculture 11.1%
  • Industry: 36%
  • Services: 53.5%

(2012 est.)

Unemployment rate

3.1% (2013 est.)

 

Inflation rate (consumer prices)

2.2% (2013 est.) Note: Approximately 30% of goods are price-controlled

 

Industries

Peninsular Malaysia:

Rubber and oil palm processing and manufacturing, petroleum and natural gas, light manufacturing, pharmaceuticals, medical technology, electronics and semi-conductors, timber processing;

Sabah

Logging, petroleum and natural gas production;

Sarawak

Agriculture processing, petroleum and natural gas production, logging

 

Exports:  USD 230.7 billion (2013 est.)

Export commodities

  • Semiconductors and Electronic Equipment
  • Palm Oil
  • Petroleum and Liquefied Natural Gas
  • Wood and Wood Products
  • Rubber
  • Textiles
  • Chemicals
  • Solar Panels

 

Imports:  USD 192.9 billion (2013 est.)

Import commodities

  • Electronics
  • Machinery
  • Petroleum Products
  • Plastics
  • Vehicles
  • Iron
  • Steel
  • Chemicals

 

Business structures

Foreign investors wishing to set up their business in Malaysia can choose from a variety of business structures. A description of the key business structures is set out below. It should be noted that private limited companies are the most popular form of vehicle for doing business in Malaysia. All companies, partnerships and sole proprietors intending to do business in Malaysia are required to register with the Companies Commission of Malaysia (“CCM”) which is responsible for the administration of the Registration of Businesses Act and the Companies Act.

Sole proprietorship

A sole proprietorship is a business wholly owned by a single owner using personal name as per identity card or trade name. The sole proprietor will be personally liable for all the debts and obligations of the business. The income generated by the business is the income of the sole proprietor. Therefore, the sole proprietor is taxed on an individual basis.

All sole proprietorship in Malaysia must be registered with CCM. Generally, only Malaysian citizen or Permanent Resident of Malaysia can register as a sole proprietor.

Partnership

A partnership is defined as a relationship which subsists between persons carrying on a business in common with a view to profit. The Partnership Act will apply to all partnerships unless a formal agreement has been drawn up setting out the rights or obligations of the partners. A partnership cannot have more than 20 partners. The partnership does not have a separate legal existence. Partners are both jointly and severally liable for the debts and obligations of the partnership should its assets be insufficient. The profits of the partnership are attributed to the partners who are taxed on an individual basis.

All partnerships in Malaysia must be registered with CCM. Generally, only Malaysian citizens or Permanent Residents of Malaysia may register as a partnership.

 

Limited Liability Partnership

A limited liability partnership (“LLP”) offers a business structure that combines the operational flexibility of a partnership with the limited liability features of a company.

An LLP is a body corporate that has a legal personality separate from that of its partners. It is capable of suing or being sued. The LLP can own property in its own name. Every LLP must have at least two partners. The partner in an LLP can be an individual or a body corporate. The Limited Liability Partnerships Act will apply to an LLP unless a formal agreement has been drawn up setting out the rights or obligations of the partners.

An obligation of the LLP, whether arising in contract, tort or otherwise, is solely the obligation of the LLP. A partner is not personally liable for an obligation of the LLP. A partner will be personally liable in tort for his wrongful act or omission but will not be personally liable for the wrongful act or omission of any other partner of the LLP.

An LLP must appoint at least one compliance officer who is a Malaysian Citizen or Permanent Resident of Malaysia.

Private limited company

A private limited company (Sendirian Berhad or Sdn. Bhd.) is a legal entity separate and distinct from its members. A private limited company can sue or be sued and can own property in its own name. A private limited company must have less than 50 members. Its members have limited liability and are not personally liable for the debts and losses of the company.

There must be a minimum of two directors, who must both have their principal or only place of residence in Malaysia. Further, a minimum of two shareholders are required. Although foreign shareholders are allowed to hold all the shares in a Malaysian company, certain business areas are regulated through licences which may be subjected to certain equity requirements. However, there are requirements of minimum paid up share capital in order to apply for certain licenses, tenders or to conduct businesses in regulated business areas.

Representative Office/Regional Office

A foreign company wishing to explore the viability of doing business in Malaysia may set up a Representative Office (“RE”) / Regional Office (“RO”).

An RE/RO has the benefit of allowing a foreign entity to assess the business environment in Malaysia before deciding to set up a permanent structure. An RE/ RO does not undertake any commercial activities and only represents its head office/principal to undertake designated functions.

An RE collects relevant information on investment and business opportunities to develop bilateral trade relations and promote the export of Malaysian goods and products and carry out research and development.

An RO serves as the coordination centre for its affiliates, subsidiaries and agents within the South-East Asia and Asia Pacific region. It is responsible for conducting designated activities within the region it operates.

The RE’s/RO’s operation is completely funded from sources outside Malaysia. The RE/RO is not required to be incorporated under the Companies Act. The setting up of a RE/RO requires the approval by the Government of Malaysia. Approval for the RE/RO is usually for a period of two or three years and any extension of the period thereafter would be subjected to justifications submitted before the expiry of the approved period.

Branch Office

A foreign company wishing to establish a place of business or carry on business in Malaysia may set up a branch office. A Malaysian branch is considered an extension of the foreign company and not a separate legal entity. Therefore, the parent company of a branch office is liable for all the debts and liability of the branch office. A branch office is considered a non-resident entity because the control and management of a branch office is vested with the parent company. Generally, a branch office will not be regarded as resident in Malaysia for tax purposes. The branch will not be eligible for any tax exemptions and incentives which are available to local companies. The branch must register with CCM before commencing business or establishing a place of business within Malaysia. A branch office must appoint at least one agent who is ordinarily resident in Malaysia.

Labuan

Labuan is a Federal Territory of Malaysia off the coast of Borneo in East Malaysia. It is made up of the homonymous Labuan Island and six smaller islands and is located off the coast of the state of Sabah. Labuan‘s capital is Victoria.

Labuan International Business and Financial Centre (Labuan IBFC) has been established as an international financial business centre to provide for the development of offshore activities in the areas of banking and insurance, trust and fund management, investment holding and other activities carried on by multinational companies.

The incorporation, registration and administration of Labuan and foreign Labuan companies in Labuan are governed by the Labuan Companies Act (LCA). Generally, Labuan entities conducting Labuan business activities i.e. trading or non-trading activity carried on, in, from or through Labuan in a currency other than the Malaysian Ringgit by a Labuan entity with non-residents or another Labuan entity are accorded with a preferential tax treatment under the Labuan Business Activity Tax Act (LBATA) and subject to nil or low income tax depending on the type of activity conducted in Labuan.

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