Malaysia Legislation

Starting a Business in Malaysia: Guide to Investment in Malaysia

MY03

 

Malaysia is a very attractive business and investment destination in South East Asia, a more cost-effective alternative to cities like Singapore and Hong Kong. The country's diverse nature also makes it easier to find the right talent for your workforce, a great place for business ventures. However, doing business in Malaysia can be a challenge when dealing with diverse backgrounds and ethnicities on top of local regulations and labour laws. To help companies prepare themselves for business and foreigners with investment in Malaysia, Links created a legislative page of the main employment laws and best practices. Please note that all the information listed below are to be used as a general guideline, for more detailed accounts of laws and regulations, please visit the official government websites.

Need HR support for your new business or investment in Malaysia? Get in touch with one of our representatives to see how we can help you elevate your HR function today.

 



 

Company Registration in Malaysia


1. Company Registration

To register a company in Malaysia, the company is required to register with Suruhanjaya Syarikat Malaysia (SSM) and needs at least one director who is at least 18 years of age and is residing in Malaysia.

Requirements to register a sole proprietorship or partnership are:

  • Owner/partner must be a Malaysian Citizen or Permanent Resident of Malaysia
  • Owner/partner must be aged 18 years and above
  • Business must be carried out in Peninsular Malaysia or Federal Territory of Labuan



2. Tax Registration

Every new company must register its Income Tax File with the Inland Revenue Board of Malaysia to obtain a tax reference number. Registration can be done via the e-Daftar website.

Steps as follows:

  1. Fill in the LHDN online registration form 
  2. Upload Sijil Perakuan Pemerbadanan Syarikat and Section 14 - Superform & Particulars of the director/officer.

All documents must be submitted within 14 days from the date of application, otherwise, the e-Daftar application will be cancelled.

 

3. Bank Account set-up

To open a corporate bank account in Malaysia, banks will generally require the following items:

  1. Account application forms signed by the authorized person(s)
  2. Authentic copies of the following documents:
    • Resolution from the Board of Directors approving the opening of corporate bank account(s)
    • Super Form
    • Company’s constitution
    • Certificate of Incorporation
  3. Valid passports or NRIC and proofs of residential addresses
  4. Certificate of Incumbency of the holding company that lists the names of incumbent directors and officers within the organization, and their position within it

Depending on the bank, additional documents may be required, be sure to check carefully with the local bank so you can prepare all the necessary documents beforehand.

 

Benefits of Investing in Malaysia

Infrastructure

Boasting five international airports with air-cargo facilities, seven international seaports, high-quality telecommunication network and vast and well-maintained transportation networks help businesses connect with all parts of the world. Malaysia has some of the best infrastructures in Asia to support the local business community, industrial parks and technology parks are established to support the growth of the manufacturing and advanced tech industry.

 

Geographical Advantages

Located in the heart of South East Asia, Malaysia is an advantageous location, reachable within a few hours of flight from other major cities and economic hubs. Due to its geographical location, Malaysia is also blessed with abundant natural resources such as petroleum, fertile agricultural land, palm oil, timber and rubber, manufacturing companies can benefit from the locational proximity to raw materials and resources. 

 

Attractive Investment Incentives

The Malaysian government offers many incentives for foreign investors to encourage the growth of foreign direct investment in Malaysia. Below are some major incentives offered.

  • Pioneer Status (PS) - 70% to 100% income tax exemption of statutory income for 5 to 10 years for eligible projects.
  • Investment Tax Allowance (ITA) - 60% to 100% allowance on qualifying capital expenditure incurred within 5 to 10 years from the date of the first qualified expenditure is incurred.
  • Double Taxation Avoidance Agreement (DTA) - as at 21 June 2019, Malaysia has signed over 70 DTA with is treaty partners
  • MSC Malaysia Status - for eligible ICT-related and knowledge-driven businesses to gain access to better infrastructure and the right to hire more foreign workers as well as tax allowances and exemptions.
  • Incentives for Operational Headquarters (OHQ) - approved OHQs, providing at least three of the qualifying services to a minimum of three of its offices and related companies outside Malaysia, are eligible for income tax exemption for up to 10 years in certain sources of income.

 

Skilled Workforce

With a total of 73 universities and over 500 colleges, polytechnics and industrial training institutes, the Malaysian educational and training institutes are generating a large pool of skilled and well-educated professionals for various industries. Local Malaysians, especially younger generations, are often multilingual with a majority speaking English.

 

 

Considerations when Starting a Company in Malaysia

Social Security & Mandatory Pension Schemes

Resident employees and employers are obliged to pay a certain amount of the employee's monthly wage into 3 types of social funds body: Employee Provident Fund (EPF), Social Security Organization (SOCSO) & Employment Insurance System (EIS). Non-resident workers are not mandatory to join or excluded in the above schemes.

For more information, please visit the official website:

Employee Provident Fund (EPF) 

Social Security Organization (SOCSO)

Employment Insurance System (EIS)

 

Employment Law in Malaysia


Work Permits

Any foreign national who is not a citizen of Malaysia intending to enter and reside in Malaysia as a permanent resident may apply for an Entry Permit in accordance with Section 10, of the Immigration Act and Regulation 4, Immigration Regulations 1963. There are four categories of entry permit applications in Malaysiaー Investors, Expert, Professional and Spouse of Malaysian Citizen. Each application is assessed by a points system following seven criteria, the minimum passing score is 65. 

Foreign workers are only permitted to work in specified sectionsー Manufacturing, Construction, Plantation, Agriculture and Services, and must come from approved source countries. If you are engaging foreigners to work please read the terms and conditions on the Immigration Department of Malaysia website.

 

Minimum Wages 

The current minimum wage is RM1, 100 nationwide.

MINIMUM WAGES RATE

           (As per Guidelines on the Implementation of the Minimum Wages Order 2018 [P.U (A) 265/2018])

Monthly Daily Hourly
RM 1,100 Number of working days in a week RM 5.29
6 RM 42.31
5 RM 50.77
4 RM 63.46

 (Source: http://www.nhrc.com.my/minimum-wages#.XK1gVSgzbIU )

 

Maximum Working Hours

The Malaysian Employment Act defines a workweek as 48 hours, with a maximum of 8 working hours per day. An employee shall not be required to work for more than 5 consecutive hours without a break or leisure period of at least 30 minutes.

(Source: Section 60A of the Employment Act, 1955)

 

Paid Annual Leave

Annual leave entitlement depends on the years of service with an employer. One’s years of service begins from the day the employee starts working with the employer.

Years of Service

Days of Leave

(every 12 months of continuous service)

< 2 years  8
> 2 years and < 5 years 12
> 5 years and more 16

 

 

 

 

 

(Source: Section 60E of the Employment Act, 1955)

 

Rest Day

The employer must provide 1 rest day of one whole day per week.
      • A rest day comprises 1 whole day (midnight to midnight).
      • Unless under exceptional circumstances that are agreed upon, an employer cannot compel their employees to work on a rest day.
      • An employee who is required to work on a rest day shall be paid at least one additional day wages at his ordinary rate of pay. 

(Source: Section 59 of the Employment Act, 1955)

 

Termination

    1. Advance notice in writing is required as per agreed terms in the employment contract. The notice period can be offset with annual leave.
    2. Termination without notice will require pay compensation in lieu of notice.
    3. If the termination is due to misconduct, employers must hold an inquiry before taking any disciplinary action.
    4. Employers are not allowed to terminate an employee during their maternity leave unless it is due to closure of the business.

(Source:  Employment (Termination and Lay-Off Benefits) Regulations 1980)

 

Payment for Overtime Work, Work on Rest Day & Public Holiday

According to the Ministry of Human Resources, the following overtime payments apply to anyone with a monthly salary below RM2,000:

  1. Normal working days: One-and-a-half times the hourly rate of pay
  2. Rest Day: Two times the hourly rate of pay
  3. Public Holiday: Three times the hourly rate of pay

Work on a rest day

(a) In the case where an employee employed on a daily, hourly or other similar rates of pay who works on a rest day, he/she shall be paid for any period of work—

  • which does not exceed half the normal hours of work, one day's wages at the ordinary rate of pay; or
  • which is more than half but does not exceed his normal hours of work, two days' wages at the ordinary rate of pay.

(b) In the case where an employee employed on a monthly rate of pay who works on a rest day, he shall be paid for any period of work—

  • which does not exceed half his normal hours of work, wages equivalent to half the ordinary rate of pay for work done on that day; or
  • which is more than half but does not exceed his normal hours of work, one day's wages at the ordinary rate of pay for work done on that day.

(c) For any work carried out in excess of the normal hours of work on a rest day by an employee mentioned in (a) or (b), he shall be paid at a rate which is not less than two times his hourly rate of pay.

(d) In the case of an employee employed on piece rates who works on a rest day, he shall be paid twice his ordinary rate per piece. 

 

Work on Public Holiday

  1. hourly rates in excess of the normal hours of work on a paid public holiday, the employee shall be paid at a rate which is not less than three times his hourly rate of pay.
  2. For any overtime work carried out by an employee on piece rates in excess of the normal hours of work on any paid holiday, the employee shall be paid not less than three times the ordinary rate per piece.

(Source: Section 60 of the Employment Act, 1955)



Severance Payment & Long Service Payment

Employees who have served the company for at least 12 months are eligible for retrenchment benefits.

An employer is liable to pay termination/ lay-off benefits calculated in accordance with regulations of provisions to an employee who has been employed under a continuous contract of service no less than twelve months under specific conditions.

The amount of severance pay an employee is entitled to is subjected to the provisions of these regulations. In any case, the employer must pay the payable amount to the employee no later than 7 days after the termination date.

(Source:  Employment (Termination and Lay-Off Benefits) Regulations 1980

 

Employees


Benefits In Kind (BIK)

Employers have a duty to report the value of BIK provided to employees to the tax authority in the respective employees’ EA form, a yearly remuneration statement, as well as the company’s E form annually.

Taxes are collected from employees through a compulsory monthly deduction from their remuneration and submitted to the Inland Revenue Board of Malaysia by the 15th of the following month under the Monthly Tax Deduction (MTD) system.



Share Options

Gains and profits arising from Employee Share Option Scheme (ESOS) are subject to tax.

If the share option exercised by the employee is received in the form of cash and not shares, tax will be imposed on the date the option is exercised.

An employer must ensure MTD for the perquisite is calculated based on the Additional Remuneration Formula in the month the perquisite is received. For more on MTD Calculation for ESOS, please see the guidelines from IRBM.

 

New Employees

For every new employee, you are required to register for a tax number and under EPF, SOCSO and EIS for monthly contributions.

To register, fill in the relevant forms and submit online or over the statutory board counters.

  1. EPF (form
  2. SOCSO (form
  3. EIS (form
  4. Tax (form)


Discrimination Laws

Ministry Of Human Resources (MOHR) is a ministry of the Government of Malaysia that is responsible for skills development, labour, occupational safety and health, trade unions, industrial relations, industrial court, labour market information and analysis, social security.

Employers are expected to follow the guideline from Ministry Of Human Resources (MOHR).

 





Statutory Benefits


According to the Malaysia Employment Act, every female employee is entitled to 60  consecutive days of maternity leave subject to all maternity leave requirements in the Malaysia Employment Act.  

Maternity Leave entitlement for cases below:

  • The benefit is applied in the case of miscarriage or medical termination of pregnancy (provided that at least 22 weeks of pregnancy).
  • The benefit is not applied if it is a voluntary termination.
  • Any rest day or public holiday and sick leave that falls due during the maternity leave is counted as part of the maternity leave and will not give rise to any additional leave or payment.

(Source: Employment Act, 1955)  

 

Paternity Leave

Male employees are eligible to 2 working days leave for each birth of their own child up to 5 surviving children. The benefit will not be applicable to the birth of the sixth child and births afterwards.



Sickness

Malaysia employees who have completed their probation are entitled to paid sick leave.

1. Where no hospitalization is necessary:

Year in Service Minimum Entitlement
1st to 2nd 14
3rd to 5th 18
6th and above 22

2. Sixty days in the aggregate in each calendar year if hospitalization is necessary, and is certified by a registered medical practitioner or medical officer to be ill enough to need to be hospitalized for any reason whatsoever.
 
For further details, please see the Sick Leave section under the Malaysia Employment Act, 1955.
 



 

Tax


Financial Filing

Based on a self-assessment regime, corporations should file a tax return within seven months from the end of the company’s financial year. Assessment of taxable income is on a current-year basis.


Tax Payment to Authority

Tax payments should be processed electronically and settled in monthly instalments.

 

Annual Employer Returns

EA form & E form

Submission Methods

LHDN E-Portal

 





Payments


Bank Accounts and Paying Salaries

Salaries are paid electronically via bank giro transfers to the employee bank accounts by producing a file and sending it to the bank.  A local in-country bank account is required.

 

13th Month and Bonus Payments

Bonuses are treated as ‘Additional Wages’ along with commissions etc.  

The Annual Wage Component is made up of the Annual Wage Supplement (AWS) and any other annual bonuses.

 

Timetable

Period covered – January - December.

An employer is to complete the E form and EA form and provide to the employees by 1st March each year.  Employees are to file the returns no later than 30th April each year.

 

Submission Methods

LHDN E-Portal

 





Local Information


Malaysia Public Holidays 2020

Public Holidays may differ depending on the state or territory. Make sure to check according to the location in question. National holidays are as follows:

New Year’s Day (i) 

1 January

Chinese New Year

25 January

Chinese New Year Holiday

26 January

Chinese New Year Holiday (ii)

27 January

Labour Day

1 May

Wesak Day

7 May

Nuzul Al-Quran (iii)

10 May

Hari Raya Aidilfitri

24 May

Hari Raya Aidilfitri Holiday

25 May

Hari Raya Aidilfitri Holiday (iv)

26 May

Agong's Birthday

6 June

Hari Raya Haji

31 July

Awal Muharram

20 August

Merdeka Day

31 August

Malaysia Day

16 September

Prophet Muhammad's Birthday

29 October

Deepavali (v)

14 November

Christmas Day

25 December

(i) except Johor, Kedah, Kelantan, Perlis & Terengganu
(ii) except Johor & Kedah
(iii) except Johor, Kedah, Melaka, Negeri Sembilan, Sabah & Sarawak
(iv) except Johor, Kedah, Kelantan & Terengganu
(v) except Sarawak

Local office working hours and Time Zone

General Working Hours: 08:30-17:30

Standard time zone: UTC/GMT +8 hours

 
 
 
 
 
 
 
 

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