Are Foreigners allowed to open Sdn Bhd and hold 100% share in Malaysia?

Fellow foreign investors, have you been wondering what industries in Malaysia are allowed for you to hold 100% equity? Allow us to answer that doubt for you in this article! 

Businesses Popular With Expatriate Investors

On 22nd April 2009, The Malaysian government had made the decision to liberalise the services industry in an effort to boost the sector’s competitiveness, draw in more international investments, experts and technology. Also, the Government liberalised 27 service subsectors without any equity condition imposed due to the potential growth these service sectors exhibit. These sub-sectors include different areas ranging from health and social services, tourism services, transport services, business services and computer and related services.  

A National Committee for Approval of Investments in the Services Industry has been established under MIDA to make it easier for investments to enter the services sector. With the exception of investments in financial services, air travel, utilities, Economic Development Corridors, Multimedia Super Corridor (MSC), Bionexus status companies, and distributive trade, this Committee serves as a focal point for the receipt and processing of applications for investments in the services sector. 

With the objective of promoting investment in the service sector, the Malaysian Investment Development Authority (MIDA) has established the National Committee for the Approval of Service Sector Investments. The committee serves as the focal point for receiving and processing applications for investment in the service sector, in addition to investments in financial services, air travel, utilities, economic development corridors, multimedia super corridors (MSC), biotechnology core (Bionexus) status companies and distribution trade. 

In 2011, the government further opened up another seven service industries, including 18 sub-sectors, allowing foreign ownership of up to 100% in stages.

These include telecommunications services, private hospital services, specialty medical services, dental services, professional services, accounting and taxation, construction services, engineering services, legal services, quantity surveying services, environmental services, branch trade services, education services, courier services and legal services.

Apart from the service sector, Malaysia also welcomes investment in our manufacturing industry and in order to involve more locals in the industry, the government encourages Malaysian investors to open joint ventures with foreign investors.

Since June 2003, foreign investors are allowed to take 100% equity in all new projects and expansion/diversification project investments in existing companies with no restrictions on export levels, products or activities.

Reasons Why Foreign Companies Choose To Start And Expand Their Business in Malaysia

This is mainly because Malaysia is strategically located at the crossroads of Southeast Asia, making it an ideal gateway to the ASEAN markets. The country also offers many business opportunities corresponding to other ASEAN markets and is a welcoming country for foreign investors. And with a booming economy, Malaysia has become one of the top choices for investors in Southeast Asia. As the business hub of Southeast Asia, Malaysia attracts investors from all over the globe. Its excellent transportation network has made Malaysia a treasure trove for investment in Southeast Asia, especially for manufacturing, services and exporters. However, it is not always easy for expatriates to start a business in Malaysia, so you will need the help of this comprehensive guide.

Below are the 8 broad sectors which consist of the mentioned 27 service sub-sectors liberalised by the government: 

Computer and Related Services  

1. Consultancy services related to the installation of computer hardware;  

2. Software implementation services – systems and software consulting services: systems analysis services; systems design services; programming services and systems maintenance services;  

3. Data processing services – input preparation services: data processing and tabulation services; time sharing services and other data processing services;  

4. Data base services;  

5. Maintenance and Repair Services of Computers; and  

6. Other services – data preparation services: training services; data recovery services; and development of creative content. 

Health and Social Services  

1. All veterinary services;  

2. Welfare services delivered through residential institutions to aged and the handicapped;  

3. Welfare services delivered through residential institutions to children;  

4. Child day-care services including day-care services for the handicapped; and 

5. Vocational rehabilitation services for handicapped; 

Tourism Services  

1. Theme Park;  

2. Convention and Exhibition Centre (seating capacity of above 5,000);  

3. Travel Agencies and Tour Operators Services (For inbound travel only);  

4. Hotel and Restaurant services (for 4 and 5 star hotels only);  

5. Food Serving Services (for services provided in 4 and 5 star hotels only);  

6. Beverage Serving Services for consumption on the premises (for services provided in 4 and 5 star hotels only) 

Transport Services  

1. Class C Freight Transportation (Private Carrier License – to transport own goods) 

Sporting and other recreational services  

1. Sporting Services (Sports event promotion and organisation services) 

Business Services  

1. Regional Distribution Centre  

2. International Procurement Centre 

3. Technical Testing and Analysis Services – composition and purity testing and analysis services, testing and analysis services of physical properties, testing and analysis services of integrated mechanical and electrical systems, and technical inspection services and  

4. Management Consulting Services – general, financial (excluding business tax) marketing, human resources, production and public relations services. 

Rental/Leasing Services without Operators  

1. Rental/Leasing services of ships that excludes cabotage and offshore trades  

2. Rental of cargo vessels without crew (Bareboat Charter) for international shipping. 

Supporting and Auxiliary Transport Services  

1. Maritime Agency services  

2. Vessel salvage and refloating services 

As the Government will be gradually liberalise the other services subsectors, on the following 2011, the government continued their liberalisation to an extra of 7 broad sectors, including another 18 sub-sectors in 2011 that permits foreigners to hold 100% share in phases. These sub-sectors are shown in the following: 

Telecommunications 

1. Telecommunication services (network service providers and network facilities providers licences) 

2. Telecommunication Services (Application Service Providers licence) 

Healthcare 

1. Private hospital services 

2. Medical specialist services 

3. Dental specialist services 

Professional Services 

1. Accounting and taxation 

2. Architectural services 

3. Engineering services 

4. Legal services 

5. Quantity surveying services 

Environmental Services 

1. Incineration services 

Distributive Trade Services 

1. Departmental stores and specialty stores 

Education Services 

1. Private higher education with university status 

2. International schools 

3. Technical and vocational secondary education services 

4. Technical and vocational secondary education services for students with special needs 

5. Skills training centre 

Courier Services 

1. Complementing the growth and development in the manufacturing sector, the Government is intensifying its efforts to promote and develop the services sector. The Government will be progressively undertaking liberalisation of the other services sub-sector on an on-going basis. 

***Kindly refer to MITI website for more information on liberalisation of services sector. 

The Required Process of Registering a Company

Step 1: Sort out which businesses expats can work in and make your choices!

The first step is of course to have a clear understanding of the type of business that a foreign investor can set up. Because there are several different types of business entities in Malaysia, and the type of business entity you choose will affect compliance requirements, tax structure, etc. 

IMPORTANT! Foreign investors can only choose to set up a [Private Limited Company] (SDN. BHD.) in Malaysia; if they wish to set up a Sole Proprietorship or Partnership, unless they are granted Permanent Residency (PR) in Malaysia.

Step 2: After Making Your Choice, Register Your Company!

The incorporation of companies in Malaysia is handled by the government agency, the Companies Commission of Malaysia (SSM). Note that all information must be filled up in either Malay or English. The following is the procedure for incorporation of a Malaysian company:

1. Naming Your Company

2. Search for the company name before registration to ensure that the desired company name is not in use

3. Submit the registration documents to SSM within 3 months after the company name is approved 

4. Payment of the registration fee for the business entity of your choice (including the office/store deposit and the first deposit in your bank account) 

5. Apply for a business license, such as a wholesale and retail trade (WRT) license (see list of business licenses and application procedures) 

6. Open a company bank account 

Conditions for Establishing a Private Limited Company

As mentioned above, foreign investors in Malaysia can only choose to set up a private limited company (SDN. BHD.). And according to the Companies Act 2016, the basic conditions for foreigners to open a company in Malaysia are the same as those for Malaysians. The conditions are as follows:

• At least one subscriber of the company’s shares (article 14 of the Companies Act);
• At least one local director (Article 122);
• The company secretary may be:
  • Members of professional bodies specified by the Ministry of Domestic Trade, Cooperatives and Consumerism; OR
  • Individuals authorized by the Companies Commission of Malaysia (SSM)
• Minimum paid-up capital of RM1;
• Both the directors and the secretary of the company shall have their principal or sole residence in Malaysia.

How Should the Equity be Allocated?

Under the Companies Act 2016, there is no prescribed equity ratio for Malaysian incorporated companies, but in order to allow more local people to participate in business activities, the government encourages Malaysian investors to open joint ventures with foreign investors.

Depending on the type of business activity, the regulator/agency may impose specific equity conditions when a business applies for approval, business license, permit or registration.

And with the liberalization of equity policies, foreign investors are usually allowed to hold 100% of shares in most industries, except for strategic industries related to national interests such as water, telecommunications, ports, and energy.

Nevertheless, it is advisable for foreigners to first check whether the business activity is allowed to be conducted in Malaysia and the requirements for setting up a foreign company in Malaysia.

What Business License Should be Applied For?

Business licenses in Malaysia can be divided into 3 categories, which are general licenses, industry specific licenses and activity licenses. Each industry has specific regulations issued by the relevant government department which may limit the foreign equity ratio of the company, higher paid-up capital requirements, and the need to obtain regulatory approval before commencing operations.

The first type of license, the General License, is the one that investors must apply for once they decide to start a business in Malaysia. This license is applicable to all business matters including company registration, company and employee income tax registration, employee provident fund, social security, human resource development fund, business premises license and signage license.

However, bear in mind that businesses in Malaysia must apply for a business premises license and a signage license from their respective state governments and the application requirements may vary from one local government to another.

The second type of license, the industry-specific license; this license is designated by the government, specific to a particular industry, involves the main policies to regulate the development of certain industries in accordance with national development policies. These include:

• Licenses related to manufacturing;
• Licenses related to wholesale and retail trade;
• Licenses related to the telecommunications industry;
• Licenses related to the broadcasting industry;
• Licenses related to the oil extraction industry;
• Licenses related to the construction industry;
• Licenses related to the banking industry.

The third and final type of license; the special activity license, also known as a license to regulate a specific activity, applies to one or more industries. This type of license requires investors to comply with a series of specific guidelines designed to protect the interests of citizens, employment, employee safety, the environment, and public safety. This license applies to the following matters:

• Mechanical certificate of competence;
• Approval of foreign employees;
• Approval for installation/modification of air pollution control equipment (baghouse and chimney);
• Approval of building plans;
• Sales tax license.

Besides the three types of business licenses mentioned above, the most common license required by foreign companies is the WRT license.

The WRT license is applicable to distribution trade services in Malaysia with foreign participation (i.e. 51% foreign ownership and above), including wholesalers, retailers, franchisees, direct sellers, suppliers, and commission agents or other representatives, such as representatives of international trading companies, who sell goods in the domestic market.

The above industries must apply for a WRT license before applying for a Professional Work Permit. The minimum paid-up capital requirement to apply for a WRT license is RM1,000,000 and the company must also establish a full business premises, i.e. have a valid lease agreement, telephone line, etc.

Lastly, we would like to remind all expatriates who are interested in doing business in Malaysia that owning a company in Malaysia does not mean that the foreign investor/director can stay in Malaysia for a long period of time and still needs to apply for a work permit.

Also, refer here for the list of countries “blacklisted”  by Bank Negara Malaysia, and are not allowed to run businesses in Malaysia:
https://bossboleh.com/articles/statements-on-high-risk-and-other-monitored-jurisdictionsby-fatf

You can read up more about it here:  
https://bossboleh.com/articles/dbkl-shuts-down-597-business-premises-run-by-foreigners

Can Anyone Help with the Tedious Process of Registering a Company?

Setting up a business in Malaysia as a foreigner is not easy and it is important to find the right and reliable professional assistance!

For example Boss Boleh, a platform that provides the most professional cloud company secretary services, as the name suggests is no need to leave home, can also help you register a good company!

With a reliable and professional support team, the process becomes effortless. We will assist you in setting up your company in Malaysia, from company registration, business license application to opening bank account matters. With the assistance of Boss Boleh’s Cloud Company secretarial service platform, you can expand and run your business in Malaysia with confidence.

Simply visit www.bossboleh.com, fill in the relevant information and pay online. Passport/Identification card is certified online.

We’ll take care of the rest for you!

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Want to know more about starting a Sdn Bhd? What’s the best way to start one, and what should you be mindful of? Register and find out in our upcoming webinar!

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