Subsidiaries In Malaysia

Subsidiary companies in Malaysia are business entities owned by a foreign company. This business entity has parent organizations, or a holding company, holding more than 50% of the company’s shares. Other than a few strategic and business sectors, even 100% foreign ownership is possible with the approval of the Malaysian Foreign Investment Committee. 

A subsidiary helps you expand your business by entering the Malaysian market. The parent company is not liable for the subsidiary’s taxation, legalities, and business liabilities. Unlike other forms of business structures, like representative and branch offices, subsidiaries are not subject to strict control by the Malaysian government. Thus, a subsidiary company is a commendable option if you are looking for foreign ownership in Malaysia.

There are three types of business forms that subsidiaries can adopt. However, all subsidiary companies must follow standard incorporation procedures. The fees for the incorporation are different. For instance, if a company is limited by shares, the SSM’s registration fee will be RM 1,000. 

Here are the different incorporation options for subsidiary companies:

• Private company: These are firms that fall under private ownership. Private companies are allowed to have shareholders and may issue stock, but their shares are not traded on public platforms through an IPO (Initial Public Offering)
• Private Limited: These firms are privately held business entities with private stakeholders. In these companies, the liability arrangement has a limited partnership, and the shareholder’s liability can extend up to the number of shares they hold only.
• Public company: These firms sell a portion or total shares to the public through an IPO (Initial Public Offering). Public companies can easily sell stocks (equity) to tap the financial markets or bonds (debt) for raising capital (i.e., cash) for expansion or other projects.

Setting up a subsidiary in Malaysia is a straightforward task. You have to follow the given steps:

• Approval of company name: First, you must finalize the name of your subsidiary company. This can be done by two methods – name reservation and direct incorporation.

1. 1. Name reservation consists of applying for company names online and carries a fee of RM 50.00 for each application. If the company name is approved by the SSM (Companies Commission of Malaysia), the name will be reserved for 30 days. You can apply for incorporation of the company after getting the confirmation of the name.
   2. Direct Incorporation comprises filling up company information and applying for the name simultaneously. As soon as the Companies Commission of Malaysia confirms the name, your application for incorporation is sent for processing.

• Registration of subsidiary company: After your company name is incorporated, you have to register the entity as a subsidiary company with the Companies Commission of Malaysia within 30 days. The registration fee depends on the authorized share capital of your company.
• ‍Registration of office: Once the registration and documentation are completed, you will get a notice to register your office. You have to lease an office or establish a facility within 14 days. Malaysian subsidiaries must have an office that will serve as a medium for official and business communication. Alternatively, you can set up a virtual office by renting another company’s facilities.

Here are the main benefits of setting up a subsidiary in Malaysia:

• Access to a whole new market which increases the scope of your business
• 100% ownership allowed by the Malaysian laws (except in tourism, agriculture, education, and energy sectors)
• A minimum of two individuals is necessary for a legal subsidiary partnership, reducing the complexities of the company’s functioning
• Subsidiaries can be either public or private, as per the convenience of the parent company

You need the following documents to open a subsidiary in Malaysia:

• Identification documents or passports of all the directors and shareholders
• Residential address of the directors and shareholders
• Company particulars from the company’s Registrar
• The board resolution approving the registration
• Certified copies of:

• Certificate of incorporation of the company
• Memorandum and articles of association, or their equivalent
• Memorandum of appointment or power of attorney allowing the Malaysian resident to accept notices on behalf of the company
• Statutory declaration by the agent of the foreign company

Subsidiaries in Malaysia can be registered as one of the following legal entities:

Private Limited

This legal entity is the most popular among foreign investors, as the law allows them to own 100% of the company. However, some sectors, including banking, energy, education, and agriculture, require 50% Malaysian ownership.

Public company

The structure of a public company is similar to a private limited company. The difference is that a public company in Malaysia is listed on the stock exchange and allows the public to purchase its shares. The Securities Commission of Malaysia oversees the public companies in the country.

Sdn. Bhd. (Sendirian Berhad) is the most common type of Malaysian subsidiary. These are fundamentally Private Limited Liability companies that require a minimum of two directors, two shareholders, and one company secretary for incorporation. You will need a licensed company secretary for a Limited Liability Malaysian subsidiary. The company secretary can also be a member of any professional body acknowledged by the Ministry of Domestic Trade Cooperative and Consumerism (now Ministry of Domestic Trade and Consumer Affairs). 

Malaysian subsidiaries also require one of the directors and the company secretary to be residents of Malaysia. Furthermore, foreign entities or investors having more than a 30% share in the subsidiary must get approval from the foreign investment committee.

After the registration of the subsidiary company, there are a few compliance measures you have to take:

• Appoint a secretary within 30 days of the company’s registration with the SSM. Also, the secretary must have an active practicing certificate issued by the SSM.
• After registration, you can open a corporate bank account in Malaysia. Every bank has its fees and offers various benefits.

The taxation and reporting requirements of subsidiaries are the same as local companies. You have to report the financials to the SSM and conduct yearly audits on the company’s accounts. Malaysia taxes medium and small-sized corporations at a lower corporate tax rate of 20% (only until RM 500,000, after which heavier tax is levied). 

Under certain conditions, a subsidiary also qualifies for specific benefits as per the Income Tax Act and Promotion of Investment Act. However, representative and branch offices do not benefit from these tax regulations. 

Tax Incentives for Businesses Setting Up a Subsidiary in Malaysia

Subsidiaries in the food production sector are provided the following tax incentives:

1. A tax deduction equal to the amount invested by the parent company if the subsidiary company has an approved license for food production.
2. 100% tax exemption on the statutory income for up to 10 years on new projects and a maximum of 5 years on expansion projects, provided the Minister approves the subsidiary.

Other Important Considerations

• Choosing a name: To set up a subsidiary company, you need to first think of a company name that will be registered with the Companies Committee of Malaysia (Suruhanjaya Syarikat Malaysia). The subsidiary’s name does not necessarily need to be the same as the holding company.
• Representatives or officers: A Malaysian subsidiary company requires at least one director who is a resident of Malaysia and a corporate shareholder. If there is only one shareholder, the parent company gets the company’s ownership.‍
• Employees and staff: There is no limit to the number of local or foreign employees in a Malaysian subsidiary. However, foreign employees must possess a Malaysian employment visa.

Setting up a subsidiary in Malaysia requires a lot of planning, preparation, and timely execution. There are many laws and regulations you need to follow to establish a presence in Malaysia. Without expert assistance, the entire process can be a hassle. A wise choice in this scenario is to partner with a Malaysia PEO, like Multiplier.

Multiplier’s PEO services assist you in developing global teams in Malaysia while adhering to all the relevant laws. Furthermore, you can hire, onboard, and manage your international team via our digital platform. You can send contracts, allot benefits and pay in local currency seamlessly. Avoid the roadblocks of setting up foreign entities by partnering with Multiplier.