How to Start a Business in Malaysia Efficiently as a Foreigner

Malaysia is fast emerging as a top destination for global entrepreneurs, combining political stability, a modern and diversified economy, and a strong pro-investment environment. 

For foreign founders, the opportunity lies in tapping Southeast Asia’s growth and in using Malaysia’s robust infrastructure, favorable trade agreements, and forward-looking incentives to start a business in Malaysia. 

In this guide, you’ll find everything you need to know, including the steps to start a business as a foreigner in Malaysia. 

Key Takeaways:

• Foreigners can fully own an Sdn. Bhd., but a resident director and Malaysian company secretary are mandatory. 
• Paid-up capital may start at RM 1, though sector-specific or visa-related rules often demand more.
• Malaysia’s corporate tax rate is 24%, with SME rate tiers based on paid-up capital and ownership.
• Non-resident companies pay withholding tax on interest (15%), royalties (10%), and services, subject to DTAs. 
• There are multiple entity options: Sdn Bhd, branch office, representative office, or even a Labuan International Company.

Why Foreign Entrepreneurs Choose Malaysia?

When considering setting up a business in Malaysia, this nation represents a compelling destination. Here’s why:

• Diversified Economy: Once heavily dependent on agriculture and commodities, Malaysia has evolved into a modern, export-driven economy.
• Robust Foreign Direct Investment (FDI): In 2024, Malaysia saw a net inflow of RM 51.5 billion in FDI, up from RM 38.6 billion the prior year. The FDI stood at RM995.5 billion at the end of 2024. 
• Pro-Business Agencies: The Malaysian Investment Development Authority (MIDA) and other government bodies provide a one-stop shop for investors, simplifying approvals, incentives, and regulatory navigation.
• Extensive Free Trade Agreements (FTAs): Malaysia has signed a network of FTAs that provide broad preferential access to over 4 billion consumers and reduce import duties on many goods.

Understanding Market Entry Strategy in Malaysia

When planning to start a business in Malaysia, foreign entrepreneurs must develop a robust market-entry strategy. Here’s how to think through it:

1. Researching the Malaysian Market

Before setting up, it’s key to assess Malaysia’s economy. Check factors like:

• Overall Gross Domestic Product (GDP) trends
• GDP per capita
• Growth drivers
• Economic hubs

Look for government policies, incentives, or liberalization efforts. For instance, the Ministry of Investment, Trade and Industry (MITI) highlights that over time, many service sub-sectors have been progressively liberalized to allow 100% foreign equity.

2. Identifying Sectors Open to Foreign Investment

To shape a viable entry strategy, foreign firms must pinpoint which industries are accessible and promising:

• Open-Sector Industries: Some sectors permit full foreign ownership, such as manufacturing, software/IT, and many service sub-sectors.
• Restricted Sectors: There are regulated areas. For example:
  • Banking/Finance: Foreign ownership in commercial banking may be capped. 
  • Telecommunications: Foreign equity may be limited, depending on the sub-sector. 
  • Distributive Trade: Certain retail trade businesses may require Malaysian or Bumiputera shareholding. 
• Incentivized Sectors: Malaysia offers tax or regulatory incentives for high-value and export-oriented sectors, like green technologies, high-tech manufacturing, and biotech, which might be especially attractive.

3. Understanding Customers & Local Demand

Malaysia is multiracial, so preferences in products, marketing, and user behavior will vary. Localization in product design, branding, and communication is critical. Consider factors like:

• Language
• Digital Adoption
• Affordability & Income Tiers

Minimum Capital & Investment Options for Foreigners

When considering how to start a business in Malaysia, one of the most critical factors to address is how much capital you need.

Legal Minimum Paid-Up Capital

Under the Companies Act 2016, there is no fixed statutory minimum paid-up capital for companies in Malaysia. Technically, a company (including foreign-owned) can be incorporated with as little as RM 1 paid-up capital. However, in practice, foreign-owned companies often inject more capital for credibility, banking, licensing, and visa purposes. 

Sector- and License-Specific Capital Requirements

For certain sectors, regulatory or licensing bodies impose higher minimum capital requirements for foreign-owned companies:

Funding Paths for Foreign Entrepreneurs

Foreign entrepreneurs in Malaysia have multiple funding options: traditional and government-supported.

• Venture Capital (VC): Malaysia has a growing VC ecosystem. For instance, Malaysia Digital Economy Corporation (MDEC) has strategic partnerships with VC firms. Early-stage tech startups can also use MDEC’s Investor Matching Programme, which pairs startups with VCs and other investors.
• Angel Networks: While not always explicitly spelt out in government portals, angel investors operate via networks such as the Malaysian Business Angel Network (MBAN). In some grants, the role of accredited angel investors is formalized. 
• Government Grants & Incentives:
  • Malaysia Digital Catalyst Grant (MDCG): Open to the majority of foreign-owned digital companies.
  • Malaysia Digital Acceleration Grant (MDAG): Helps more mature digital tech companies scale.
  • Malaysia Digital X-Port Grant (MDXG): For digital companies focused on exports.

Choosing the Right Business Structure

When foreign entrepreneurs decide for business set up in Malaysia, choosing the right structure is critical. Below are the main options, with pros and trade-offs.

Legal, Residency & Immigration Requirements

When starting a company in Malaysia, it’s crucial to understand both the legal entity requirements and the immigration/visa framework. 

Legal & Corporate Structure Requirements

Here are some legal & corporate structure requirements to follow:

• Corporate Governance Requirements: At least one director must be “ordinarily resident” in Malaysia. A company secretary is mandatory. They must be licensed or part of a prescribed professional body and resident in Malaysia.
• Paid-Up Capital: Depending on the sector, regulatory or visa-related capital thresholds apply: e.g., RM 1,000,000 for trading businesses; RM 500,000–1,500,000 for education or franchise businesses. 
• Regulated Sectors: Certain sectors (e.g., banking, telecommunications, oil & gas) may impose equity restrictions or require local partnerships.

Residency & Immigration / Visa Requirements

Here are key pathways and regulatory points:

• Investor Pass: Introduced by the Malaysian Expatriate Services Division (ESD) and launched by MIDA, it is:
  • A multiple-entry visa (MEV).
  • Valid for 6 months initially, with an additional 6 months extendable.
  • Targeted at foreign investors / decision-makers who a Malaysian company does not employ. 
• Premium Visa Programme (PVIP): A long-term visa, it requires:
  • Applicants to show offshore income of RM 40,000/month (or RM 480,000 annually), and open a fixed deposit account of RM 1,000,000 in a Malaysian bank.
  • Holders are allowed to work or run a business in Malaysia, subject to regulatory laws.
• Tech / Startup Visa (Malaysia Tech Entrepreneur Programme – MTEP): This is targeted at founders and investors in tech/digital sectors (e.g., AI, FinTech, CleanTech, IoT).
  • 1-year Professional Visit Pass for early-stage founders.
  • 5-year Pass for established entrepreneurs or investors who commit significant capital.

Foreign Investment Restrictions & Business Incentives

While Malaysia is relatively open to foreign direct investment, there are several sensitive or regulated sectors where restrictions or equity limits remain:

• Telecommunications: Foreign ownership is limited. For example, many telecom licenses typically allow up to 49% foreign equity.
• Banking & Finance: Commercial banking historically has strict limits (e.g., some sources cite 30% foreign ownership for certain banking operations).
• Defense / National Interest Sectors: According to OECD reports, sectors like defense and other “national interest” industries are generally restricted.

The country also actively promotes certain sectors by offering attractive incentives via MIDA and other governmental bodies. Key incentivized areas include:

• Green Technology & Renewable Energy:
  • Investment Tax Allowance (ITA) of 100% for qualifying capex in green hydrogen, integrated waste management, and renewable energy
  • For the solar-leasing business, there is up to 70% income tax exemption for up to 10 years, depending on capacity
• High-Technology / Digital Economy:
  • Under Budget 2025, the government introduced a new Incentive Framework to lure high-value investments, especially for semiconductor (“IC design”) activities.
  • There are special tax deductions for R&D and for private education institutions that teach AI, robotics, IoT, data science, FinTech, and sustainable tech.
• Strategic Services / Export-Oriented Activities:
  • Services that are promoted include regional HQ operations (OHQ), international procurement, distribution centers, and other key regional operations.
  • Special status or “pioneer” status can be granted for qualifying service companies, allowing tax exemption or reduced tax liability.

Opening a Bank Account & Managing Cross-Border Payments

When a non-resident founder wants to open a corporate bank account in Malaysia, banks carry out rigorous Know Your Customer (KYC) and due diligence checks. Here’s a breakdown of the typical documentation required:

Key Documents for Corporate Account Opening: 

• Certificate of Incorporation from SSM and company profile.
• Company constitution (if adopted).
• Board resolution authorizing account opening and naming authorized signatories.
• Passport or national ID copies for all directors, signatories, and beneficial owners.
• Proof of residential address for signatures/directors dated recently.
• Proof of Malaysian business address (registered office).
• Business plan, company profile, or description of business operations.

Multi-Currency Accounts & Cross-Border Payments

Here are some multi-currency options:

• Foreign Currency Accounts: Malaysian banks are allowed to open foreign-currency accounts for non-resident companies, giving flexibility to hold and transact in non-RM currencies.
• Ringgit Accounts for Non-Residents: Non-residents may also open “External Accounts” in Ringgit (RM), sometimes called Designated External Accounts (DEA), which are governed by the Malaysian authorities. 
• Managing Cross-Border Payments: Many Malaysian banks have correspondent bank relationships, enabling international wire transfers. These correspondents facilitate cross-border settlement.

Taxation & Compliance for Foreign‑Owned Businesses

Foreign entrepreneurs establishing a company in Malaysia must understand a fairly developed tax regime. Although the system is investor-friendly in many ways, careful planning is required.

• Corporate Income Tax (CIT): The standard corporate tax rate is 24% for both resident and non-resident companies. For Malaysian-resident SMEs (paid-up capital ≤ RM 2.5 million and gross business income ≤ RM 50 million), preferential rates apply:
  • 15% on the first RM 150,000 chargeable income
  • 17% on the next RM 450,000
  • 24% on income above
• Tax Residency of a Company: A company is considered tax-resident in Malaysia if “management and control” is exercised in Malaysia, typically, where board meetings are held. Resident companies are taxed on income accruing or derived from Malaysia. 
• Withholding Taxes (WHT): For payments made to non-residents, Malaysia imposes withholding tax on certain categories:
  • Royalties: 10%
  • Interest: 15% (though in some cases, e.g., banks, exemptions may apply)
  • Rental of movable property: 10%

Compliance & Reporting Obligations

Here are some compliance obligations that every entrepreneur should follow:

• Self-Assessment System: Malaysia operates on a self-assessment tax system. Companies compute their own chargeable income, file returns, and pay the tax.
• Tax Filings: Non-resident companies must file the Form R. Companies often need to submit an estimate of their tax payable before the year begins. Returns and payments are due within 7 months after the end of the financial year. 
• Penalties & Risk: Non-compliance can lead to penalties, such as late filing, under-reporting, or tax evasion may attract fines or more serious consequences. 

Hiring Employees & Payroll Compliance

Foreign-owned businesses in Malaysia face specific obligations when hiring employees, especially around statutory payroll contributions, immigration, and employment contracts. Below is an overview of key compliance points:

Mandatory Registrations

Here are some mandatory registrations for foreign entrepreneurs:

• Employers must register with the Inland Revenue Board (LHDN) to operate PAYE (PCB / Monthly Tax Deduction). 
• Registration with the Employees Provident Fund (EPF) must be completed within 7 days of hiring the first employee.
• Register with the Social Security Organization (SOCSO) for workplace injury/disability coverage.
• Register with the Employment Insurance System (EIS). This is bundled with SOCSO in many cases. 
• If applicable (industry-specific), pay into the Human Resources Development Fund (HRDF) levy.

Contribution Rates

Here are the contribution rates to consider:

• EPF: Employee contributes 11%, while employer contributes 12–13% depending on the monthly wage.
• SOCSO: Employer pays ~1.75%, employee pays 0.5% for standard employees.
• EIS: Contribution is 0.2% from both employer and employee (for wages up to a certain cap). 
• HRDF: For employers with ≥ 10 employees, there is a 1% monthly levy (in certain sectors).

Employment Contracts & Labor Law Compliance

Here are some employment and labor laws to comply with:

• Employment Contracts: Must generally be in writing, especially for longer-term or full-time hires. Key terms to include are job duties, compensation, working hours, termination notice, probation period, and leave entitlements.
• Work Hours & Overtime: Standard working hours are typically up to 8 hours/day, or 48 hours/week under Employment Act rules.
• Leave Entitlements: Statutory leave, for example, annual leave and sick leave entitlements, apply under Malaysian law.

Setting Up Operations & Staying Compliant

After you incorporate a company in Malaysia, maintaining good standing requires ongoing work. Here are the key elements:

• Registered Office: Every company must have a registered office in Malaysia, which is the legal address for the service of documents and for the keeping of statutory records. 
• Statutory Books & Registers: At the registered office, the company must maintain share registers, director and secretary registers, minutes of board and member meetings, and other statutory registers.
• Change Notifications: If you change where you keep these records, you must notify the Registrar (SSM) within 14 days.

Maintaining Your Business in Good Standing

Running a company in Malaysia involves staying compliant in the long term is crucial. Here are the core ongoing compliance requirements:

• Annual Returns (SSM) & Statutory Filings: Private companies must file their Annual Return with the SSM within 30 days of the company’s incorporation anniversary.
• Audit Requirements: Private companies may qualify for exemption if they meet two of these three: – ≤ RM 3 million in annual revenue, ≤ RM 3 million in total assets, or ≤ 30 employees.
• Corporate Tax & Annual Tax Filings: Companies must file annual corporate tax returns (Form C) with the LHDN.

Finding Local Partners, Accelerators & Support Networks

To scale and localize effectively in Malaysia, foreign entrepreneurs should tap into the rich ecosystem of accelerators, public-private bodies, and corporate partners. Below are some of the key players and how you can engage them.

• MIDA (Malaysian Investment Development Authority): Actively supports foreign investors through its Business Facilitation unit. It helps with connecting to local technology providers, research institutes, and access to incentives. 
• MRANTI / Technology Park Malaysia (TPM): MRANTI (Malaysian Research Accelerator for Technology & Innovation) is the merged entity of MaGIC and TPM. It offers incubation, R&D support, and innovation infrastructure. 
• Malaysia Debt Ventures (MDV): A government-backed financier that provides venture debt to technology-driven startups, a useful non-dilutive source of capital.  

How to Close or Sell Your Business in Malaysia?

When deciding to exit a business in Malaysia, foreign or local owners typically have two main paths:

• Strike‑Off (Deregistration): If the company is inactive, has no assets or liabilities, and all statutory filings are up to date, you can apply to have it struck off the register under Section 550 of the Companies Act 2016. The process involves: 
  • Board resolution
  • Submitting Form 550 (or relevant forms) to SSM
  • Public notice through the Gazette
  • 60-day objection period
• Voluntary Liquidation (Winding-Up): This is more formal and appropriate when the company has either assets or liabilities (or both).
  • For solvent companies: 
    • Shareholders pass a special resolution (≥ 75%), and directors make a Declaration of Solvency.
    • A licensed liquidator is appointed. Their duties include: selling assets, settling liabilities (creditors, tax/employee obligations), and distributing any residual funds to shareholders. 
    • Once liquidation is complete, the company is dissolved, but tax clearance from LHDN is usually required before final dissolution. 
  • For insolvent companies:
    • Creditors’ Voluntary Liquidation (CVL): Creditors nominate the liquidator; liabilities are paid as far as possible.
    • Compulsory Liquidation: Court‑ordered, especially when a company can’t pay its debts.

Key Obligations Before & During Closure

When exiting, you need to handle several obligations carefully:

• Tax Clearance: You must settle company tax obligations with LHDN.
• Employee Obligations:
  • Pay outstanding EPF (employees’ retirement fund), SOCSO, HRDF, etc.
  • Terminate statutory contributions properly and obtain clearance.
• Notify Stakeholders: Inform regulators (SSM), creditors, employees, customers, and suppliers. Close bank accounts and cancel licenses/permits.
• Public Notice: For liquidation, publish a notice in a newspaper and in the government gazette.
• Record Retention: Maintain statutory books and financial records even after dissolution (usually several years).

Challenges Foreigners Commonly Face

When foreign entrepreneurs set up or run businesses in Malaysia, they often encounter a variety of legal, operational, cultural, and financial challenges. Below are some of the most common issues:

• Regulatory & Bureaucratic Hurdles: Foreign investors often struggle with complex licensing and permit processes. Sector-specific permits (e.g., for trade, food, or health-related businesses) add further complexity.
• Banking & Financial Constraints: Opening a corporate bank account is difficult as many banks require physical presence, detailed KYC, and scrutiny of foreign-owned entities.
• Immigration & Work Permit Challenges: Understanding visas can be complex. Foreign entrepreneurs must select from multiple permit types (Investor, Employment, etc.), each with stringent requirements. 
• Equity / Ownership & Local Representation: The requirement for a locally resident director is common, which can be difficult for those without local contacts or representative networks. 

Why Choose a Cross‑Border Platform Instead of Fragmented Local Agents?

When expanding internationally, many founders face a choice, either rely on a patchwork of local agents in each market or use a cross-border/global business-expansion platform that centralizes many functions. 

Here’s why the latter often makes more strategic sense, especially for ambitious, scaling ventures.

• Integrated & Scalable Expertise: Combines legal, tax, payroll, banking, and compliance services under one roof. This reduces the complexity of coordinating multiple local providers and avoids gaps or overlaps.
• Cost Efficiency & Economies of Scale: By aggregating demand across clients, cross-border platforms can negotiate better rates, use shared infrastructure, and pass on savings. 
• Risk Mitigation & Compliance Control: Cross-border platforms are often well-versed in regulatory compliance across multiple markets. They can help you understand complex legal and tax requirements, reducing the risk of non-compliance.
• Access to Global Talent & Specialized Skills: These platforms often provide access to a global talent pool, helping you hire specialists (legal, tech, operations) from different regions. 

How Commenda Helps You Start and Scale Globally

Commenda unifies all your cross-border legal, tax, and compliance needs on a single platform, no more fractured agents or missed deadlines.

• One-Click Incorporation in Multiple Jurisdictions: Offers guided workflows that let you incorporate entities in several countries with ease.
• Global VAT & U.S. Sales Tax Management: Handles complex tax compliance, including VAT/GST and U.S. sales tax (nexus detection, tax-rate logic, automated filings), integrated with your accounting or ERP system.
• Automated Compliance Tracking & Reminders: Get real-time alerts, filing reminders, and a centralized dashboard for all your entities’ regulatory and reporting obligations. 
• Dedicated Support for Cross-Border Entities: Provides a unified platform for global entity management, from structuring ownership and cap tables to maintaining governance documents.
• Transfer Pricing & Audit-Ready Documentation: Automates OECD-compliant transfer-pricing reports and offers expert guidance and documentation. 

Book a demo today and start your business in Malaysia to scale globally with Commenda.

FAQs

1. Can foreigners own 100% of a company in Malaysia?

Yes, for most business activities, foreigners can fully own a private limited company (Sdn Bhd). However, some regulated sectors (e.g., banking, telecommunications, certain wholesale/retail) may impose restrictions or require higher paid‑up capital. 

2. What are the visa or residency requirements to start a business?

To sponsor expatriates or key management, many foreign‑owned companies set up an Sdn Bhd and apply via the Expatriate Services Division (ESD). The paid-up capital often matters for visa eligibility.

3. What’s the minimum capital needed to start a business in Malaysia?

Legally, a Sdn Bhd can be incorporated with as little as RM 1 paid‑up capital. Practically, for foreign-owned companies, especially those planning to hire expatriates or secure certain licenses, higher paid-up capital is often required.

4. How are foreign‑owned companies taxed in Malaysia?

Corporate income tax for non-resident (and resident) companies is 24%. SMEs (with paid-up capital of ≤ RM 2.5 million and meeting certain criteria) qualify for lower rates. 

5. What incentives are available for foreign investors?

The Malaysian Investment Development Authority (MIDA) offers incentives like Pioneer Status (tax exemptions) and Investment Tax Allowance (ITA) for capital expenditure in qualifying industries.

6. How can I open a bank account as a non-resident?

After incorporation, you’ll need a local bank account. Malaysian banks typically require KYC documentation, such as a passport, company incorporation documents, proof of address, board resolution, etc.

7. What are the ongoing compliance obligations for foreign businesses?

• Annual Return: File with SSM (Companies Commission of Malaysia) each year.
• Financial Statements: Prepare and lodge audited (unless exempt) financial statements; companies must keep statutory records. 
• Tax Filings: Submit corporate tax returns, make estimated payments, and withhold taxes for cross‑border payments. 
• Secretarial Requirements: Appoint a qualified company secretary and maintain registers.

8. How does Commenda simplify cross‑border incorporation and global tax compliance?

Commenda offers one-click incorporation across multiple countries, helping you form a Malaysian entity and others from a single platform. It handles global VAT, U.S. Sales Tax, and complex tax registrations, consolidating tax obligations in one dashboard.