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  • Writer's pictureSezzvyniia James

How foreign companies can carry on business in Malaysia

The Companies Act 2016 governs the operation of companies in Malaysia. According to Division 1 of Part V of the Act, a foreign company is not allowed to conduct business in the country unless it is registered as a foreign company or incorporates a local subsidiary company with the Companies Commission of Malaysia.

Foreign companies have the option of registering as a representative office, branch office or subsidiary company. It is essential for foreign companies to carefully assess the options available to them and choose the one that best aligns with their business objectives and industry.

Registration of the Foreign Company as a Branch Office

A branch office is not a separate legal entity as it is an extension of the foreign parent company and must conduct the same business activities as the foreign parent company.

Establishing a Representative Office

A representative office is a type of entity that enables foreign parent companies in manufacturing and services industries to examine and evaluate business and market prospects in Malaysia, and decide if it's appropriate to establish their business in the country. This office is authorised to conduct research, business promotion, liaison activities and other non-commercial activities, but it is prohibited from engaging in any activities that would result in actual commercial transactions.

Unlike a branch office, the establishment of a representative office does not require incorporation under the Companies Act 2016, but prior approval from the Government of Malaysia is required.

The required application and supporting documents for a representative office must be submitted to one of the following depending on the industry sector:

  • Malaysian Investment Development Authority for general application (Excluding banking, financial and tourism services)

  • Bank Negara Malaysia for banking and financial services

  • Ministry of Tourism, Malaysia for tourism services

Incorporation of a Local Subsidiary Company

A local subsidiary company of the foreign parent company can be incorporated in the form of a private limited company by shares, otherwise known as Sendirian Berhad (in short, “Sdn Bhd”) in Malaysia. A Sendirian Berhad is a separate legal entity from the foreign parent company and can conduct or carry on any and all business activities.

Shares in a Sendirian Berhad can be issued to individuals and corporate bodies. Although a Sendirian Berhad allows for 100% foreign ownership, the foreign parent company must be aware of regulations or requirements in certain strategic industries for a Sendirian Berhad to have a minimum local or Bumiputera equity, such as the oil and gas, telecommunications, water and electricity industries.

The Malaysian Government has traditionally been open to foreign direct investments, which are crucial for the country's economic growth. When planning to establish a presence in Malaysia, it's important for a foreign parent company to consider various factors, such as the type of business and industry.

If you're interested in learning more about the procedures, requirements and prohibitions of foreign companies carrying on business in Malaysia, get in touch with our consultants at JS Partners via WhatsApp

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