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Malaysia

Sendirian Berhad (Private company limited by shares)

Malaysia is strategically located in the center of South East Asia closely connected to large Asian markets such as Singapore, China, Vietnam, Thailand, and India.

Malaysia is also a member of the Association of South East Asian Nations, benefitting from the free trade agreement among its member states.

Companies in Malaysia benefits from a territorial tax system, where income derived from foreign-source is not subject to taxation, whether remitted to the country or not. Furthermore, dividends paid to non-residents are exempt from withholding taxes.

There are no restrictions on Malaysian private limited companies upon repatriation of capital, profits, dividends, and royalties.

Its strategic location and tax regime makes the Malaysian Sdn Bhd. an attractive corporate vehicle for establishing regional headquarters. 

In addition, Malaysia has a wide variety of incentives in the form of tax holidays up to 10 years, tax allowances, accelerated capital allowances or reinvestment allowances.

Tax incentives covers the major industry sectors such as manufacturing, IT services, biotechnology, Islamic finance, energy conservation, environmental protection, regional operating headquarters, venture capital companies, business trusts, as well as for companies incorporated in special economic regions, among others.

Malaysian entities also benefit from the 68 double taxation treaties that Malaysia has concluded with other jurisdictions.

Malaysia has also low start-up costs compared to other business hubs. For instance, rental rates and wages are considerably much lower than in Singapore or Hong Kong.

Malaysia workforce is high-skilled and English-speaking and business documents are widely available in English.

Malaysia is also a strategic jurisdiction to trade by sea, it is located on the straits of Malacca and it has 4 major ports Pasir Gudang, Port Klang, Port Tanjung Pelepas, and Bayan Lepas.

Companies engaging manufacturing for export may be set in Malaysia their manufacturing and distribution base. There are 5 free zones (Pasir Gudang, Port Klang, Port Tanjung Pelepas, Kulim Hi-Tech Park, and Bayan Lepas), where companies are exempt from custom duties and benefit from flexible trading laws. 

Although a company in Malaysia may be incorporated with as little as RM 2 paid up capital, in order to qualify for work permits for foreign employees, a 100% foreign-owned company must have a minimum paid up capital of RM 500,000 for advisory and consultancy business, and minimum paid up capital of RM 1,000,000 for 100% foreign-owned companies engaging import, export, restaurant and trading business.

100% foreign-owned private limited companies may be restricted to conduct certain activities and may require a business license/approval from the relevant authorities.

A joint venture with a Malaysian partner (at least 50% of shares) requires a minimum paid up capital of RM 350,000 with an authorized capital of RM 500,000.

A Sdn Bhd is required to appoint a resident director and a licensed resident secretary, who must be natural persons.

Non-export companies oriented industries may face certain restrictions where hiring foreign employees. Such as a minimum of total sales of RM2 million and a minimum paid-up capital of RM100, 000.  Manufacturing, service, plantation and construction sectors may employee citizens from countries, include: Indonesia, Thailand, Nepal, Cambodia, Myanmar, Laos, Vietnam, and the Philippines.

Malaysia has agreed to implement the OECD’s automatic exchange of information for tax purposes (AEoI) by 2018.

In summary, Malaysia is the gateway from Southeast Asia and despite its legal obstacles, an attractive jurisdiction to establish Regional Headquarters and export oriented companies, while benefitting from an advantageous tax regime and a high-skilled cost-effective workforce.

Taxes

Tax residency – A company is resident in Malaysia if its management and control is conducted in Malaysia (at least one meeting of the board of directors is held in Malaysia during the year).

Basis – Malaysia taxes corporations on a territorial basis. Foreign-source income accrued by resident entities is not subject to taxation, except from companies carrying out business in the banking, insurance, air transport or shipping sectors.

Tax rate – Corporate income tax standard rate is 24%.

A reduced rate of 18% applies to SMEs on their first MYR 500,000 of taxable income. 

Capital gains – Capital gains are not subject to taxation, except for those arising from the disposal of real property or on the sale of shares in a company conducting real property business. In this case tax rate may be 30% if the property has been held less than 3 years prior the sale, 15% for properties held 4 and 5 years, and 5% for properties held six years or more prior the sale.

Dividends – Dividends received from a resident entity are tax-exempt. Dividends from foreign entities are offshore in nature and therefore not subject to taxation.

Interests – Interests are subject to corporate income tax. An exemption may be granted to interests derived from foreign-sources remitted to Malaysia.

Royalties – Royalties derived from Malaysia and foreign-source royalties remitted to Malaysia are subject to corporate income tax.

Foreign-source income – Foreign-source income is exempt from taxation, whether remitted or not, unless income is derived from companies carrying out business in the banking, insurance, air transport or shipping sectors.

Withholding taxes – Dividends paid to non-residents are not subject to withholding tax. Companies paying interests and royalties abroad must withhold 15% and 10% tax, respectively, unless taxes are reduced or exempted due to a tax treaty.

Losses – Losses arising from taxable income may be carried forward indefinitely. Carryback of losses is not allowed.

Inventory - Inventory valuations are generally stated at the historical cost or net realisable value, whichever is lower. Cost may be valued using one of any methods as long as the same is used for each year.

Anti-avoidance rules – Transfer pricing rules require related-party transactions to be done at arm’s length. Transactions may be required to be documented and advance pricing agreements are available.

Thin capitalization and controlled foreign company rules do not apply.

Labor taxes – Employers and employees are required to make contributions to the Social Security Organization (SOCSO) at 1.75% on employees’ monthly wage, respectively. Employers and employees also contribute to the Employee Provident Fund at a 12-13% and 11%, respectively.

Tax credits and incentives – Malaysia has a wide variety of incentives covering the major industry sectors such as manufacturing, IT services, biotechnology, Islamic finance, energy conservation, environmental protection, regional operating headquarters, venture capital companies, business trusts, as well as for companies incorporated in special economic regions, among others.

Incentives may be in the form of tax holidays up to 10 years, tax allowances, accelerated capital allowances or reinvestment allowances.

Compliance – On average, a company in Malaysia may require 9 payments and 164 hours per year to prepare, file and pay corporate income tax, value added tax, and labor taxes, including payroll taxes and social contributions.

Personal income tax – An individual is tax resident in Malaysia if he or she stays more than 182 days per year in the country.

Both tax residents and non-residents are taxed on income derived from Malaysia. Foreign-source income is usually not subject to taxation.

Personal income tax is levied at progressive rates from 0% to 28% on income exceeding MYR 1,000,000. Non-residents are taxed at a 28% flat rate. Dividends from Malaysian sources are treated as ordinary income, while interests are tax exempt. Both interests and dividends from foreign source are tax exempt, whether remitted or not.

Capital gains derived from the sale of securities are tax-exempt, those derived from the sale of real properties are subject to the Real Property Gains Tax at rates of 30% for properties held up to 3 years, 20% on the fourth year, 15% on the fifth year and 5% after 5 years.

Other taxes – There is a local property tax, which is 6% in the value of the annual rent according to the assessment of the local authorities. There is a stamp duty levied on the transfer of real property assets at a 3%, and at 0.3% on share transactions.

There are no inheritance and wealth taxes.

Goods and Services tax is levied on certain goods and services at a 6% rate.

  • Offshore Income Tax Exemption
  • Offshore capital gains tax exemption
  • Offshore dividends tax exemption
  • CFC Rules
  • Thin Capitalisation Rules
  • Patent Box
  • Tax Incentives & Credits
  • Property Tax
  • Wealth tax
  • Estate inheritance tax
  • Transfer tax
  • Capital duties
  • 0% Offshore Income Tax Rate
  • 24% Corporate Tax Rate
  • 0% Capital Gains Tax Rate
  • 0% Dividends Received
  • 0% Dividends Withholding Tax Rate
  • 15% Interests Withholding Tax Rate
  • 10% Royalties Withholding Tax Rate
  • 0 Losses carryback (years)
  • Indefinitely Losses carryforward (years)
  • FIFO Inventory methods permitted
  • 188 Tax time (hours)
  • 8 Tax payments per year
  • 11% Social Security Employee
  • 13% Social Security Employer
  • 28% Personal Income Tax Rate
  • 6% VAT Rate
  • 73 Tax Treaties

Country details

Malaysia
MYR
Kuala Lumpur
Asia
m s - M Y , e n , z h , t a , t e , m l , p a , t h
28274729

Malaysia is a Southeast Asia nation and founder member of the ASEAN. Its territory is divided into two regions by the South China Sea.

Peninsular Malaysia is located in the Malay peninsula and is bordered to the north by Thailand and to the south by Singapore.

East Malaysia is located in the northern part of Borneo and is bordered to the south by Indonesia and to the north by Brunei.

It has a population of 30 million inhabitants. Its capital and most populated city is Kuala Lumpur, with 2 million people and more than 7 million in the whole metropolitan area.

Its official language is the Malay, although, as a former British colony, English is widely spoken, and around 30% of its population is from Chinese origin. In addition to Tamil and other 7 regional languages. Its official currency is the Malaysian Ringgit (MYR).

Malaysia is an elective constitutional monarchy composed of a federation. The head of state is the King, who is elected for five years among the sultans of the Malay states, excluding the four remaining states, who elect governor.

Its system of government is based on Westminster, that constitutes a legacy of the British Empire.

Legislative power is divided into federal and state legislatures. The Malaysian Parliament is composed of a lower chamber, elected by suffrage, and the Senate, elected by the assemblies of the thirteen states, two representatives of Kuala Lumpur, one for each federal territory of Labuan and Putrajaya, as well as 40 directly elected by the King.

At the federal level, each state has a legislative chamber whose members are elected from electoral districts with only one representative.

Executive power is established in the National Cabinet headed by the Prime Minister. The Constitution stipulates that the Prime Minister must be a member of the lower chamber of the parliament.

Malaysia’s economy is the fourth largest of Southeast Asia, and the third on per capita income, after Singapore and Brunei.

Malaysia has large reserves of natural resources as tin, petroleum and to a lesser extent natural gas. While, natural rubber, palm oil, cocoa, pepper, pineapple, timber and tobacco are its most exported agricultural and forestry products.

Regarding the industrial sector, Malaysia exports high technology products in areas such as electronics, automotive and construction.

Tourism, both domestic and international, plays an important role in the economy, with an average of 25-30 million international visitors per year.

The financial sector in Malaysia is considerably large, and mostly concentrated at Kuala Lumpur, and also at the Labuan International Business and Financial Centre, located in the Federal Territory of Labuan.

Tax treaties

Country Type Date Signed
Namibia DTC  1998-07-28
Belgium DTC  1973-10-24
Jordan DTC  1994-10-02
Bahrain DTC  1999-06-14
Sudan DTC  1993-10-07
Poland DTC  1977-09-16
Uzbekistan DTC  1997-10-06
Seychelles DTC  2003-12-03
Kyrgyzstan DTC  2000-11-17
Syrian Arab Republic DTC  2007-02-26
Viet nam DTC  1995-09-07
Kuwait DTC  2003-02-05
Egypt DTC  1997-04-14
Hong Kong, China DTC  2012-04-25
Hungary DTC  1989-05-22
Pakistan DTC  1982-05-29
Brunei Darussalam DTC  2009-08-05
Czech Republic DTC  1996-03-08
Turkey DTC  1994-09-27
Bangladesh DTC  1983-04-19
Kazakhstan DTC  2006-06-26
Mongolia DTC  1995-07-27
Italy DTC  1984-01-28
Bosnia and Herzegovina DTC  2007-06-21
Saudi Arabia DTC  2006-01-31
Finland DTC  1984-03-28
France DTC  1975-04-24
India DTC  2012-05-09
Iran DTC  1992-11-11
Albania DTC  1994-01-24
Spain DTC  2006-05-24
Norway DTC  1970-12-23
New Zealand DTC  1976-03-19
Morocco DTC  2001-07-02
Korea, Republic of DTC  1982-04-20
Papua New Guinea DTC  1993-05-20
Senegal DTC  2010-02-17
Mauritius DTC  1992-08-23
Austria DTC  1989-09-20
Zimbabwe DTC  1994-04-28
Ireland DTC  1998-11-28
China DTC  1985-11-23
Malta DTC  1995-10-03
Romania DTC  1982-11-26
Chile DTC  2004-09-03
San Marino DTC  2009-11-19
Singapore DTC  2004-10-05
Thailand DTC  1982-03-29
Myanmar DTC  1998-03-09
Fiji DTC  1995-12-19
Luxembourg DTC  2002-11-21
Japan DTC  1999-03-19
Sri Lanka DTC  1997-09-16
Australia DTC  1980-08-20
Turkmenistan DTC  2008-11-19
Denmark DTC  1970-12-04
Indonesia DTC  1991-09-12
Canada DTC  1976-10-16
Venezuela DTC  2006-08-28
Philippines DTC  1982-04-27
Lebanon DTC  2003-01-20
South Africa DTC  2005-07-26
United Arab Emirates DTC  1995-11-28
Bermuda TIEA 2012-04-23
Croatia DTC  2002-02-18
Sweden DTC  2002-03-12
Qatar DTC  2008-07-03
Lao People's Democratic Republic DTC  2010-06-03
United Kingdom DTC  1996-12-10
Germany DTC  2010-02-23
Switzerland DTC  1974-12-30
Russian Federation DTC  1987-07-31
Netherlands DTC  1988-03-07

Procedures

We can help you incorporate a Sendirian Berhad (Private company limited by shares) in Malaysia.
Please, contact us to request a free, no obligation consultation.

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