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Setting up a business (Part 2 )/ Guide to Taxation and Investment in Malaysia

Setting up a business

  • Forms of entity

<Requirements for public and private limited companies>

Capital: There must be a minimum of one subscriber holding one share of MYR1 each.There are no legal reserve requirements. Contributions can be made in cash or in kind, withvaluation carried out by an impartial party.

Shareholders: For a private limited company, shareholders are restricted to a maximum of 50, excluding employees and former employees of the company or its subsidiary.

Board of directors: Private limited companies must have at least one director and public companies must have at least two directors that maintain their principal (or only) place of residence in Malaysia (although they need not be Malaysian citizens).

Management, labour: There is no requirement that labour be represented in management or on the board of directors. There are no nationality or residence requirements for management.

Taxes and fees: The formation of a company involves professional fees ranging from MYR2,500 to MYR5,000. There are no taxes on the issuance of shares, bonds or other issues, although stamp duty may be payable. A local company is subject to an incorporation fee of MYR1,000 and a foreign company is subject to an incorporation fee ranging from MYR5,000 to MYR70,000.

Types of shares: Shares must be registered, and ordinary shares in a public company and its subsidiary must carry equal voting rights. Preferential shares are permitted and may carryspecial rights or restrictions on dividends, voting, repayment of capital, etc.

Control: Decisions are made by a simple majority of capital, except in the case of a company limited by guarantee for amendments to the memorandum or articles of association and reductions of share capital, where a three-fourths majority (special resolution) is required.

  • Branch of a foreign corporation

Branches may be established by making an application to the Companies Commission on a prescribed electronic form to ensure the availability of the proposed company’s name, along with payment of a nominal fee. After that, registration documents (i.e., a notice of registration of the foreign company, statute or memorandum and articles of association or other instrument defining its constitution (optional unless for a company limited by guarantee), details of its directors, a statutory declaration by an agent of the foreign company and supporting documents approving the name of the foreign company) must be submitted to the Companies Commission, together with the registration fees, within one month from the date of approval of the company’s name. A branch also must supply the name and address of at least one Malaysian resident who is authorised to accept notices served on the company.

Branches of foreign corporations in Malaysia are generally treated as non-residents in Malaysia for tax purposes. As part of the government’s efforts to encourage foreign companies to incorporate local subsidiaries, certain tax benefits enjoyed by residentcompanies are not available to branches.

Although branch operations are subject to income taxes similar to those levied on resident companies, branches generally are not eligible for tax incentives and must supply proof of income not derived from Malaysia. If a branch does decide to incorporate, it may not carry forward its existing business losses on incorporation.

The tax implications associated with establishing a branch versus a subsidiary depend, in substantial part, on the tax regime imposed by the home country. Where the latter taxes the worldwide income of its residents, a company may initially open a branch (during theloss-making period) and subsequently incorporate a company (when the business begins to make a profit).

A representative office or regional office of a foreign company performing permissible activities in Malaysia is not required to be registered with the Companies Commission.Approval must be obtained, however, from MIDA and is normally valid for two years. Theseoffices are not subject to tax in Malaysia.

Credit to <Guide to Taxation and Investment in Malaysia 2018>Deloitte

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