Malaysia’s startup ecosystem is vibrant and growing, and many founders are considering establishing a presence here. As a startup lawyer who regularly advises founders on establishing a startup in Malaysia, I’ve put together eight frequently asked questions (FAQs) that hopefully will help address your most frequent concerns.
What is the usual way for a startup to be established in Malaysia?
A startup is usually formed as a company limited by shares. The usual abbreviation is ‘Sdn Bhd’ (which means ‘Private Limited Company’). If you are running an existing business in your home country, a startup may be formed as a subsidiary of the home country and can be registered with 100 per cent foreign ownership, with the exception of certain business sectors.
A foreigner may also own a company as the sole shareholder. However, if you want to be the sole director of the company, at least one domicile director is needed to form an entity.
What are the options available if I don’t have a domicile director?
If you are running an existing startup in a home country and may not have plans to relocate to Malaysia immediately, you may employ a country manager in Malaysia via an Employer on Record (EoR) before you officially expand your startup to Malaysia.
Alternatively, you may engage a nominee director service to fulfil this legal requirement until you decide to relocate to Malaysia or hire a country manager as one of the directors in Malaysia.
I’m a foreigner who wants to relocate and run my startup from Malaysia. What is the best route for me?
As a foreigner, you may apply for Malaysia Tech Entrepreneur Program (MTEP), a visa programme started in 2017 by Malaysia Digital Economy Corporation (MDEC), a government agency in charge of promoting the digital economy in Malaysia to facilitate work visas for foreigners who want to establish a startup in Malaysia even before formally forming a startup.
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There are two types of passes offered by MTEP, namely — Professional Visit Pass (PVP-MTE) which is valid for one year, and Residence Pass (RP-MTE) — which is valid for up to five years for new foreigners and established foreigners respectively.
What are the roles of a company secretary for my startup?
All companies established in Malaysia are required to have at least one company secretary. We generally advise startups to engage an experienced corporate secretarial firm with considerable past experience in advising startups.
In addition to helping with the entity formation, bank account opening, and statutory filing to the registrar, the Companies Commission of Malaysia (CCM), the corporate secretary may also assist you in other compliance matters like payroll agent to registering for taxes and complying with tax laws.
What about licences? Is there a quick way to find out what licences I need and what the conditions are?
The short answer is, yes. If the product or service you want to launch in Malaysia is already regulated in your home country, chances are it may also likely be regulated in Malaysia. For example, a traveltech startup that plans to operate an online ticketing platform may likely need to be licensed by The Ministry of Tourism, Arts and Culture. If you’re not sure, you will need to consult a startup lawyer before launching the product or service.
Alternatively, you may also explore collaborating with an existing licensee to ease the regulatory burden. However, it is crucial to develop the licensing parameters together with the appropriate legal advice.
What are the tax incentives for a startup established in Malaysia?
A startup may apply for the Malaysia Digital (MD) Tax Incentive which allows the startup to be eligible to either the reduced tax rate. As a startup with an MD status, a startup may opt for an investment tax allowance (ITA) on income derived from the approved activity. The tax incentive is administered by MDEC.
I also plan to hire foreign talents for my startup in Malaysia. What are the legal requirements involved?
If your startup receives the Malaysia Digital (MD) Status, you may obtain MDEC’s services to obtain relevant employment passes for your startup. However, the foreign employee candidate must be a “knowledge worker” (i.e. someone who is at least a diploma holder or an ex-employee in an IT service) with a basic salary of RM5,000 (approximately US$1,212.40) per month.
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If your startup does not have an MD Status, your startup may have to fulfil the normal minimum paid up capital requirement to apply for employment passes. For example, if the startup is 100 per cent owned by a parent company and is not involved in a regulated industry, the usual minimum paid up capital is RM500,000 (approximately US$121,241.50). The employment pass is eligible for certain positions, usually for highly-skilled managerial technical positions which cannot be filled by locals.
I also want to hire locals for my startup. What are the labour laws that I should know?
Malaysia has extensive labour laws that regulate employment relationships, including minimum wage, working hours, and statutory benefits. The Employment Act sets out the minimum entitlements of employees and covers all employees — no matter how much they are paid with exception to those earning above RM4,000 (approximately US$969.70) per month where certain provisions including overtime and layoff benefits are excluded.
Hiring an employee may also come with other obligations, such as registering with the Employees Provident Fund (EPF) and the Social Security Organisation (SOCSO). There are also minimum wage requirements in Malaysia, which varies depending on how your workers are paid and where they are based. Startups must comply with these laws to avoid penalties.
Therefore, you need to consider if you want to create an employment relationship as there are legal implications. In the event of a dispute, the court will look at the arrangement as a whole.
Consult a startup lawyer before hiring so that you are clear about what you can or cannot do with your employees.
Final thoughts
As a founder, establishing a startup in a new jurisdiction may appear daunting and overwhelming — irrespective of how experienced you are. Be that as it may, the reward may be worth it as Malaysia offers numerous advantages including a vibrant startup ecosystem, affordable living expenses, and access to a skilled and diversified workforce.
By understanding these legal requirements and engaging an experienced startup lawyer to guide you during the entity formation, you will increase your startup’s chances of success in the Malaysian market.
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