Malaysia – AI Global Compliance Guide

Malay Languages

34.5 Million Population

MYR Currency

+3.6% (2023) GDP

Employment by Major Industries

58.6

Service sector

24.0

Industry

6.3

Agriculture

Country profile

Overview

Malaysia is a Southeast Asian country located on the Malay Peninsula and the island of Borneo. The country shares borders with Thailand to the north and is separated by the South China Sea from Vietnam to the northeast and Indonesia to the south and southwest. Malaysia also shares maritime boundaries with the Philippines to the northeast and Brunei to the east. The Malay Peninsula, which extends southward from mainland Asia, is the larger landmass of Malaysia. It borders the Strait of Malacca to the west, which connects the Indian Ocean to the east with the Andaman Sea to the west.

To the east of the Malay Peninsula is the island of Borneo, which is shared with Indonesia and Brunei. The Malaysian part of Borneo, known as East Malaysia, consists of two states: Sabah and Sarawak. Borneo is the third-largest island in the world and is characterized by dense rainforests, rugged mountains, and abundant wildlife. It is separated from the Malay Peninsula by the South China Sea.

Malaysia’s geographical location near the equator gives it a tropical climate, with high temperatures and humidity throughout the year. The country is known for its diverse ecosystems, including lush rainforests, mangrove swamps, and coral reefs.

Malaysia has a rich and complex history that spans thousands of years. The region has been inhabited since prehistoric times, and over the centuries, it has been influenced by various indigenous cultures, Indian and Chinese traders, and European colonial powers.

Early civilizations in the Malay Peninsula and Borneo can be traced back to the 2nd and 3rd centuries BCE. The Malay kingdom of Srivijaya emerged in the 7th century, becoming a powerful maritime empire that controlled trade routes in the region. It was followed by other influential Malay kingdoms, such as the Malacca Sultanate in the 15th century, which played a crucial role in the spice trade and attracted traders from around the world. In the 16th century, European powers arrived in the region, with the Portuguese being the first to establish a presence. They were followed by the Dutch, who gained control over some territories. However, it was the British who ultimately dominated the region. The British East India Company established trading posts in Penang, Malacca, and Singapore in the late 18th century.

The Japanese occupation of Malaysia during World War II from 1942 to 1945 marked a significant turning point. After the war, there was a surge in nationalist sentiment, leading to the formation of the Malayan Union in 1946. However, it faced strong opposition from various ethnic groups, eventually leading to the establishment of the Federation of Malaya in 1948.

The Federation of Malaya gained independence from British colonial rule in 1957 and became the precursor to present-day Malaysia. The country experienced political and social changes, including the formation of the Malaysian Federation in 1963, which included the inclusion of Singapore, Sabah, and Sarawak. However, Singapore separated from Malaysia in 1965 and became an independent nation.

Since its independence, Malaysia has achieved significant economic growth and development. It has become a multi-ethnic and multicultural society, with Malays, Chinese, and Indians forming the largest ethnic groups. The country has embraced modernization while preserving its cultural heritage and natural beauty.

The total area of Malaysia is 330,803 sq. km. and the estimated population is 34.5 million (2024 est.).

Capital City: Kuala Lumpur; population 8,911 thousand of inhabitants (2023 est.). Other big cities include Johor Bahru, George Town and Ipoh.

Political System

Malaysia is a federal parliamentary constitutional monarchy. Its political system is characterized by a unique blend of democratic principles, a constitutional monarchy, and an emphasis on the rights and privileges of the Malay majority. Malaysia is headed by a constitutional monarch, known as the Yang di-Pertuan Agong, who is chosen from among the nine hereditary sultans of the Malay states. The position of the king is largely ceremonial, with limited powers, and the monarch is elected every five years by the Conference of Rulers. The executive power is vested in the Prime Minister, who is the head of government.

The Prime Minister is appointed by the King from among the members of the Parliament. The Prime Minister is responsible for leading the government, making policy decisions, and implementing laws. The Parliament of Malaysia is the legislative body, consisting of two houses: the Dewan Rakyat (House of Representatives) and the Dewan Negara (Senate). The Dewan Rakyat comprises elected members from single-member constituencies, while the Dewan Negara consists of appointed members. The Parliament is responsible for making laws, approving the national budget, and providing oversight of the government.

Malaysia has a multi-party system. The two major political coalitions are the Barisan Nasional (National Front) and the Pakatan Harapan (Alliance of Hope). These coalitions are made up of various political parties representing different interests and ethnic groups. Malaysia practices a policy known as the Bumiputera policy, which aims to promote affirmative action for the majority Malay population and other indigenous groups. This policy grants special privileges in various areas, such as education, employment, and business, to help address historical economic and social imbalances.

It is important to note that the political system in Malaysia has evolved over time, and the country has experienced significant political developments and changes since its independence in 1957.

Legal System

The legal system of Malaysia is a combination of different legal traditions, primarily influenced by English common law, Islamic law (Shariah), and customary law. The legal system is based on a hierarchical structure with different courts and a constitution that serves as the supreme law of the land. The Federal Constitution of Malaysia is the supreme law that establishes the fundamental rights and freedoms of the citizens, outlines the structure and powers of the government, and sets the framework for the legal system. It also provides for the separation of powers among the executive, legislative, and judicial branches. Malaysia inherited its common law system from the British colonial era. The principles of English common law are applied in civil and criminal matters, and court decisions are considered as precedents for future cases. Malaysian courts often refer to English legal principles and judicial decisions as persuasive authority.

Malaysia has a dual legal system, with Islamic law (Shariah) coexisting with civil law. Shariah courts have jurisdiction over Muslims in matters such as family law, marriage, divorce, and inheritance. The application of Shariah law is limited to Muslims, and non-Muslims are subject to civil law.

Laws in Malaysia are enacted by the Parliament and state legislative assemblies. Acts of Parliament and state enactments form the primary source of law. The legislative process involves the introduction of bills, debates, and voting for their passage into law. The laws are codified and cover various areas such as criminal law, commercial law, labor law, and more.

The judiciary in Malaysia functions independently and is responsible for interpreting and applying the law. The hierarchical structure includes various courts:

the Federal Court is the highest court and deals with constitutional matters, important questions of law, and appeals from lower courts.
the Court of Appeal hears appeals from the High Courts and other specialized courts.
the High Court has jurisdiction over civil and criminal cases, and it is the court of first instance for major cases.

Specialized courts, such as the Syariah Courts and Native Courts, handle specific areas of law and cater to the Muslim and indigenous communities, respectively.

Options of Doing Business in Malaysia for a foreign entity expanding abroad

Foreign entities looking to expand their business in Malaysia have several options available to them. Here are the common ways for foreign entities to do business in Malaysia:

Private Limited Company (Sendirian Berhad): Setting up a private limited company is a popular option for foreign entities. It provides limited liability protection to shareholders, and the company has a separate legal identity. Foreign entities can own 100% of the shares in most industries, subject to certain restrictions in specific sectors.
Limited Liability Partnership (LLP): An LLP is a business structure where the foreign entity can form a partnership with local or foreign partners. It provides limited liability protection to its partners and allows for flexibility in managing the business.
Subsidiary: Foreign entities can set up a subsidiary company in Malaysia, which is a separate legal entity from the parent company. The subsidiary company can be wholly owned by the foreign entity and provides limited liability protection. It allows for independent management and operations in Malaysia.
Branch Office: Foreign entities can establish a branch office in Malaysia, which is an extension of the parent company. The branch office can engage in commercial activities, enter into contracts, and earn income. However, the parent company remains fully responsible for the branch’s liabilities.
Representative Office: Foreign companies can establish a representative office in Malaysia to conduct market research, promote their products or services, and establish business contacts. However, representative offices are not allowed to engage in any commercial activities or generate revenue.
Sole proprietor / Individual contractor: In Malaysia, a sole proprietorship is a business structure in which an individual operates a business on their own without partners or shareholders. It is the simplest form of business entity and is often chosen by small businesses and individual contractors. As a sole proprietor, the individual has unlimited personal liability for the debts, obligations, and losses of the business. This means that personal assets can be used to settle business debts if necessary. It is important to consider the financial risks associated with this business structure.
GEOR (Global Employer of Record) – a B2B service provider that acts as the legal employer of workers on behalf of a business worldwide. GEOR enables foreign companies to employ workers in a foreign country without establishing a legal entity in that country. They act as the legal employer, handling employment-related responsibilities while the client company maintains operational control over the employees.

Each type of business vehicles has its own advantages and disadvantages, and the choice of business entity will depend on various factors, such as the size and nature of the business, the level of liability protection required, and the tax and regulatory environment in Malaysia.

Private Limited Company in Malaysia

Setting Up a Private Limited Company in Malaysia

Setting up a private limited company, also known as a Sendirian Berhad (Sdn. Bhd.), is a common business structure in Malaysia. Here are the steps involved in setting up a private limited company in Malaysia:

Company Name Reservation: Choose a unique name for the company and submit it to the Companies Commission of Malaysia (SSM) for name reservation. The proposed name should comply with SSM guidelines and not infringe upon any existing trademarks or intellectual property rights. The online system now automatically checks for trademark conflicts against the MyIPO database, reducing chances of name disputes later.
Directors and Shareholders: A minimum of one director and one shareholder is required to set up a private limited company. The director(s) must be at least 18 years old, residing in Malaysia, and not bankrupt or disqualified from being a company director. Shareholders can be individuals or corporate entities, and there is no restriction on foreign ownership. SSM mandates directors to submit a valid MyKad/MyPR (Malaysian ID or Permanent Resident card) for verification via MyCoID 2.0. Foreign directors require valid passports and must appoint a local company secretary. Directors must also comply with fit and proper person tests as part of SSM compliance checks.
Paid-Up Capital: Determine the amount of paid-up capital for the company. There is no minimum requirement, but it is advisable to have a sufficient capital amount for the intended business operations. Certain regulated industries (e.g., financial services, insurance) require minimum paid-up capital as prescribed by sector regulators.
Company Constitution: Prepare the company’s constitution, also known as the Memorandum and Articles of Association (M&A). The M&A outlines the company’s objectives, share capital, internal governance rules, and other relevant provisions. The MyCoID 2.0 system (SSM Core) provides standardized templates, but companies can submit bespoke constitutions if desired.
Registered Office and Company Secretary: A registered office address in Malaysia must be provided for official correspondence. Additionally, appoint a company secretary. Company secretaries must be licensed by SSM (no longer just members of approved professional bodies).
Incorporation Documents: Prepare the necessary documents for company incorporation, including Form 13A (Declaration of Compliance), Form 48A (Statutory Declaration by a Director or Promoter), and Form 6 (Notice of Registration). These documents will require details such as the company’s registered office address, directors’ and shareholders’ information, share capital, and the company constitution. Forms (13A, 48A, 6) are now submitted via the MyCoID 2.0 portal, fully digitized. Supporting documents for directors and shareholders must be uploaded, and digital signatures are increasingly accepted.
Submission to SSM: Compile all the required documents and submit them to the SSM, along with the applicable registration fees. The SSM will review the documents, and upon approval, issue the Certificate of Incorporation. Review process is largely automated, often taking 1-3 working days after submission if all documents are in order. Real-time status tracking is available via the online portal.
Post-Incorporation Procedures: After incorporation, complete other post-incorporation procedures such as opening a bank account, obtaining necessary licenses or permits, registering for taxes, and fulfilling any industry-specific requirements.

It is recommended to seek guidance from professionals such as company secretaries or business consultants who are familiar with the incorporation process in Malaysia.

Costs

The costs associated with registering a Private Limited Company (Sdn. Bhd.) in Malaysia can vary depending on various factors, such as the authorized share capital, professional fees, and any additional services required. Here are some of the common costs involved:

Name Reservation: MYR 50 (unchanged).
Incorporation Fee: Now starts from MYR 1,000 for authorized capital up to RM400,000, with incremental fees beyond that up to RM70,000. SSM has streamlined fees to favor smaller companies.
Stamp Duty: MYR 1 per RM1,000 or part thereof on authorized capital remains.
Professional Fees: Company secretary fees have increased slightly due to stricter licensing and compliance roles, ranging from MYR 800 to MYR 2,000 depending on service scope.
Additional Costs: Include mandatory annual audit fees (if applicable), accounting, and compliance software subscriptions (common in 2025 for digital compliance).

It’s worth noting that the above costs are approximate and can vary depending on the individual circumstances and any changes to the relevant regulations.

Timelines

Incorporation can often be completed in 3 to 5 working days if all documents are ready and compliant. Post-incorporation steps like bank account opening can take 1-3 weeks, depending on the bank and documentation.

Closing of a Private Limited Company in Malaysia

Closing a Private Limited Company (Sdn. Bhd.) in Malaysia involves several steps and compliance with legal requirements. Here are the general steps for closing a company:

Board Resolution: Hold a board meeting and pass a resolution to propose the closure of the company. The resolution should be recorded and documented in the company’s minutes. With digital record-keeping becoming more standard, companies often maintain electronic minutes via secured platforms, but original signed minutes are still required for official submissions.
Extraordinary General Meeting (EGM): Convene an EGM to obtain shareholders’ approval for the closure. Shareholders must be provided with sufficient notice of the meeting, and a special resolution must be passed to approve the closure. Virtual or hybrid EGMs (online + physical) are now accepted under Malaysia’s Companies Act amendments, provided proper notice and authentication are ensured.
Settlement of Liabilities: Settle all outstanding debts, liabilities, and obligations of the company. This includes settling creditors’ claims, paying employee salaries, taxes, and other outstanding dues. It is crucial to ensure that all financial obligations are addressed before proceeding with the closure.
Dissolution Application: Prepare the necessary documents for the dissolution application, including Form 525 (Declaration of Solvency or Insolvency) and Form 514A (Notice of Resolution to Wind Up). These forms should be submitted to the Companies Commission of Malaysia (SSM).
Advertisement: Place an advertisement in a local newspaper to announce the company’s intention to be dissolved. The advertisement must run for at least 30 days from the date of submission of the dissolution application. For strike off applications, SSM publishes notices online rather than requiring a newspaper advertisement.
Objections and Striking Off: If there are no objections or issues raised during the advertisement period, the SSM will proceed with striking off the company from the register. The company will be considered dissolved upon the issuance of the gazette notification. The objection period for strike off is typically 60 days from notice publication.
Tax Clearance: Obtain tax clearance from the Inland Revenue Board (IRB) by submitting the necessary forms and settling any outstanding tax obligations. IRB issues tax clearance letters digitally through the e-filing system. Tax clearance is required prior to striking off or winding up.
Cessation of Operations: Cease all business activities and wind up the company’s affairs, including the disposal of assets and settlement of any remaining legal or contractual matters.

It is important to consult with a professional company secretary, accountant, or legal advisor experienced in company closures to ensure compliance with all legal requirements and procedures.

Costs

The costs associated with closing a Private Limited Company (Sdn. Bhd.) in Malaysia can vary depending on factors such as the complexity of the company’s affairs, outstanding obligations, and the services required. Here are some potential costs to consider:

Professional Fees: Remain variable; company secretaries now often provide strike off application services at competitive fixed rates (~MYR 1,000-3,000).
Tax Clearance: Usually no direct fee but depends on tax liabilities.
Advertisement: For strike off, usually no physical newspaper ad cost, but winding up may require paid ads.
Miscellaneous: Costs related to settling liabilities, legal advice, audit fees (if final accounts/audit needed).

It is important to note that the above costs are approximate and can vary depending on the specific circumstances and any changes to the relevant regulations. The complexity of the company’s affairs and the amount of work required can also influence the overall costs.

Timelines

Strike Off: Usually completed within 3 to 6 months, including notice period and tax clearance.

Members’ Voluntary Winding Up: Typically takes 6 to 12 months due to more complex legal and court requirements.

Compulsory Winding Up: Timeline varies greatly depending on court proceedings.

Limited Liability Partnership in Malaysia

Setting Up a Limited Liability Partnership in Malaysia

Setting up a Limited Liability Partnership (LLP) in Malaysia involves several steps and compliance with legal requirements. Below is a summary of the process:

Name Reservation: Choose a unique name for your LLP and submit it to the Companies Commission of Malaysia (SSM) for name reservation. The proposed name should comply with SSM guidelines and not infringe upon any existing trademarks or intellectual property rights. SSM’s online MyLLP portal supports instant or near-instant name reservation, often completed within the same day unless further review is needed.
LLP Agreement: Prepare an LLP Agreement, which is a legally binding document that outlines the rights, responsibilities, and obligations of the partners. The LLP Agreement should include details such as capital contributions, profit-sharing ratios, decision-making processes, and procedures for adding or removing partners. While the LLP Agreement is mandatory, it is not filed with SSM but must be maintained at the registered office and made available upon request.
Registered Office and Compliance Officer: A registered office address in Malaysia must be provided for official correspondence. Additionally, appoint a Compliance Officer who meets the requirements – must be a resident in Malaysia, over 18, and meet the qualifications prescribed by SSM (e.g., member of approved professional bodies).
Partners: LLPs require a minimum of two partners and can have both individual and corporate partners. The partners must be at least 18 years old, of sound mind, and not disqualified from being a partner. At least one partner must be a resident in Malaysia (resident individual or corporate with a Malaysian-resident director/representative).
Registration Documents: Prepare the necessary registration documents, including Form 1 (Application for Registration of LLP), Form 2 (LLP Agreement), and Form 3 (Particulars of Partners). These forms will require details such as the LLP’s registered office address, partners’ information, capital contributions, and profit-sharing ratios. Form 2 (LLP Agreement) is submitted electronically but the full agreement need not be attached unless requested.
Submission to SSM: Compile all the required documents and submit them to the SSM, along with the applicable registration fees. The SSM will review the documents, and upon approval, issue the Certificate of Registration. Most of the process is done via the MyLLP online portal, making submissions faster and easier.
Post-Registration Procedures: After registration, complete other post-registration procedures such as obtaining necessary licenses or permits, registering for taxes, and fulfilling any industry-specific requirements. Register with LHDN (Inland Revenue Board) for tax purposes immediately after incorporation.

Costs

The costs associated with setting up a Limited Liability Partnership (LLP) in Malaysia can vary depending on several factors, such as the complexity of the LLP structure, the services required, and the engagement of professional assistance. Here are some potential costs to consider:

Name Reservation: Approximately RM 30-50 (about EUR 6-10), usually lower than EUR 7, reflecting current SSM fees.
Registration Fee: Flat fee of RM 500 for registration regardless of capital contribution (there is no minimum capital requirement for LLPs).
Professional Fees: Vary depending on services; many providers offer packages from RM 1,000-3,000 for full registration and compliance setup.
LLP Agreement Drafting: Fees vary depending on complexity; some templates are available, but professional customization is recommended.
Miscellaneous: Costs for licenses, tax registrations, and other post-registration activities will depend on the business specifics.

It is important to note that these costs are approximate and can vary based on factors such as the service providers they engage, changes in regulations, and the complexity of the LLP structure.

Timelines

The timeline for setting up a Limited Liability Partnership (LLP) in Malaysia can vary depending on factors such as the completeness of documentation, the responsiveness of authorities, and the efficiency in fulfilling requirements. Here is a general overview of the estimated timeline:

Name Reservation: Usually completed within 1 working day on MyLLP portal.
LLP Agreement Preparation: Variable; simple agreements can be drafted in days, complex ones may take weeks.
Document Preparation: 1-3 days depending on availability of partner details.
Submission and Processing: SSM generally processes registrations within 1 to 3 working days after receiving complete documents.
Certificate of Registration: Issued electronically via MyLLP portal, usually within 1-3 working days post approval.

Closing a Limited Liability Partnership in Malaysia

Closing a Limited Liability Partnership (LLP) in Malaysia involves several steps, especially if there are foreign partners involved. Below is a general outline of the process:

Board Resolution: The partners should convene a meeting and pass a resolution to wind up the LLP. This resolution should be duly recorded and documented.
Appointment of Liquidator: According to the LLP Act 2012, a liquidator needs to be appointed to manage the winding-up process. The liquidator can be a partner or an external professional licensed to act as a liquidator.
Notice to Suruhanjaya Syarikat Malaysia (SSM): Within 30 days of the resolution to wind up, the LLP must lodge a notice with SSM informing them of the decision. The notice is typically submitted via Form 13 (Notice of Resolution to Wind Up LLP) through the MyLLP portal or directly to SSM. This notice includes details such as the LLP’s name, registration number, and the date of commencement of winding-up.
Settlement of Debts and Liabilities: The LLP must settle all its debts and liabilities. This includes notifying creditors, settling outstanding payments, and ensuring all financial matters are resolved.
Asset Distribution: Any remaining assets after settling debts should be distributed among partners according to their profit-sharing ratios, unless otherwise agreed.
Tax Clearance: Obtain a Tax Clearance Letter from the Inland Revenue Board (Lembaga Hasil Dalam Negeri Malaysia)certifying all tax matters are settled before SSM will approve deregistration.
Cancellation of Registration: Once all these steps are completed and the affairs of the LLP are fully wound up, the LLP must apply to SSM for the cancellation of its registration. This involves submitting a final declaration and the necessary forms to SSM. Submit Form 17 (Application for Cancellation of LLP Registration) along with liquidation statements and tax clearance documents.
Publication: Upon cancellation, SSM will publish a notice in the Gazette indicating the LLP has been dissolved.

Costs

SSM filing fees vary by service but are generally moderate (around RM 50-200 per form).

Tax clearance itself does not have a direct fee but may require payment of any outstanding taxes or penalties.

Publication in the Gazette involves administrative costs (usually a few hundred ringgit).

Professional fees for liquidators, accountants, or lawyers assisting the process should also be considered.

Timelines

If the LLP’s affairs are straightforward, and there are no significant debts or complications, the entire process could be completed within 3 to 6 months. Complex financial arrangements, disputes with creditors, or unresolved tax matters can extend the timeline significantly, potentially taking 6 months to a year or more.

Subsidiary, branch, or representative office of a foreign company

A Subsidiary in Malaysia

Setting Up a Subsidiary

A private limited company (Sdn. Bhd.) is the most common form of subsidiary in Malaysia. It is a separate legal entity providing limited liability protection to its shareholders. Registering a foreign-owned subsidiary requires careful planning and compliance with Malaysian laws and regulatory requirements. Below are the key steps and considerations:

Company Name Reservation: Choose a unique company name and submit it for reservation through the Companies Commission of Malaysia (SSM) via the online MyCoID system. Ensure the name complies with SSM guidelines and does not infringe upon trademarks or intellectual property rights. The reservation process typically takes 1-2 business days unless further review is required.
Appointment of Local Directors and Shareholders: Malaysian law mandates at least one director who is a resident of Malaysia. A resident director can be a Malaysian citizen, permanent resident, or an individual with a valid employment or professional visit pass. Shareholders can be individuals or corporate entities, foreign or local, and foreign ownership can be 100%, subject to sector-specific restrictions under Malaysia’s foreign investment policies.
Engage a Company Secretary: Appoint a qualified company secretary registered with SSM within 30 days of incorporation. The company secretary ensures compliance with corporate governance and statutory requirements and maintains company records.
Minimum Paid-Up Capital: There is generally no minimum paid-up capital for incorporation, but certain industries impose specific capital requirements. The typical minimum capital is RM1, while sectors like banking, insurance, and finance require higher paid-up capital according to regulatory standards. It is advisable to consult professionals to determine the appropriate capital level for the business.
Legal Documentation: Prepare the company constitution, which outlines the company’s objectives, governance structure, and internal rules. This replaces the traditional Memorandum and Articles of Association (M&A). Additionally, prepare statutory declarations and supporting forms such as Form 48A (Director’s Statutory Declaration) and Form 24 (Return of Allotment of Shares).
Registered Office Address: Provide a physical registered office address within Malaysia for official correspondence. Virtual office addresses are permissible if they meet SSM’s requirements.
Submission and Approval: Submit all incorporation documents and applicable fees through the MyCoID portal. SSM will review the application and, if all requirements are met, issue the Certificate of Incorporation typically within 1-3 business days.
Tax Registration: Register the subsidiary with the Inland Revenue Board of Malaysia (LHDN/IRBM) for corporate income tax. Register for Sales and Services Tax (SST) if applicable, as Malaysia replaced GST with SST in 2018. Also, register for the Employees Provident Fund (EPF), Social Security Organization (SOCSO), and Monthly Tax Deduction (MTD) schemes if employing staff.
Licenses and Permits: Identify and obtain any industry-specific licenses or permits required to legally operate the business. Consult relevant regulatory bodies for sectors such as manufacturing, finance, telecommunications, and food services.
Employment and Immigration: If hiring foreign employees, obtain the necessary work permits or employment passes from the Malaysia Expatriate Services Division (ESD), Malaysia Digital Economy Corporation (MDEC), or other relevant agencies. Comply with the Employment Act 1955 and Immigration Act 1959/63 for both local and foreign staff.
Compliance and Reporting. Ensure ongoing compliance with statutory obligations including:
• Filing annual returns with SSM (within 30 days of the company’s anniversary).
• Preparing and maintaining financial statements in accordance with Malaysian Financial Reporting Standards (MFRS).
• Submitting tax returns and fulfilling tax obligations.
• Complying with anti-money laundering (AML) and other relevant regulations.

Please refer to the relevant part of the text for the costs and timelines of incorporating and dissolving a Private Limited Company in Malaysia for foreign investors.

A Branch in Malaysia

Setting Up a Branch

Establishing a branch office in Malaysia involves specific regulatory and compliance steps under Malaysian law. Below is an updated outline of the process:

1. Compliance and Regulatory Approval: Approval must be obtained from the Companies Commission of Malaysia (SSM, formerly CCM) under the Companies Act 2016. A name search should be conducted to ensure the proposed branch name is available and complies with SSM naming guidelines. The name is then reserved through the MyCoID online system.

2. Documentation and Legal Requirements. The following documents must be prepared and submitted:

A certified copy of the foreign company’s Constitution (or Memorandum and Articles of Association if applicable).
A board resolution from the foreign company authorizing the establishment of the branch in Malaysia.
Power of attorney appointing a local authorized representative who is resident in Malaysia and authorized to accept legal notices and service on behalf of the branch.
Completed Form 79 (Application for Registration of Branch Office).
Statutory declaration by the appointed local representative.
Payment of registration fees as prescribed by SSM.

3. Local Requirements: A resident agent (local authorized representative) who is ordinarily resident in Malaysia must be appointed. This agent acts as the official contact point for service of legal documents and government correspondence.

The audited financial statements of the foreign company for the most recent financial year must be submitted to SSM as part of the registration process.

4. Post-Registration Compliance

The branch must be registered with the Inland Revenue Board of Malaysia (LHDN) to obtain a tax identification number (TIN) and comply with Malaysian tax regulations.
Depending on the branch’s business activities, relevant licenses or permits must be obtained from regulatory bodies such as the Malaysian Investment Development Authority (MIDA) or other sector-specific authorities.
A corporate bank account should be opened in Malaysia for operational and transactional purposes.
Compliance with Malaysian employment laws is required if local or foreign employees are hired, including work permits and statutory contributions (EPF, SOCSO).

5. Ongoing Compliance

Annual returns and audited financial statements must be filed with SSM within the stipulated deadlines.
The branch must comply with Malaysian tax obligations, including filing tax returns and payment of corporate income tax on income attributable to its Malaysian operations.
Proper accounting records must be maintained in Malaysia as required by law.

Costs

The name reservation fee with SSM is approximately MYR 50.
Registration fees for the branch office depend on the authorized capital and can vary.
Overall initial costs, including professional fees (legal, secretarial, accounting), registration, and setup, typically range from MYR 4,000 to MYR 10,000 or more, depending on the complexity and services engaged.

Timeline

The registration process for a branch office typically takes 1 to 3 months, depending on the completeness of documentation, regulatory processing times, and any sector-specific approvals required.

Closing a Branch

Closing a branch office in Malaysia involves several steps and compliance with regulatory requirements. Below is a general outline of the process:

Board Resolution and Decision Making: Hold a meeting of the board of directors or the relevant decision-making body of the foreign company to discuss and pass a resolution to close the branch office in Malaysia. Record the decision to wind up the branch office in the form of a board resolution or other appropriate documentation.
Notification and Compliance: Notify relevant authorities, including the Companies Commission of Malaysia (CCM), about the decision to close the branch office. This is typically done by submitting a notice of closure along with necessary documents. Ensure all compliance matters with CCM are up to date, such as filing of annual returns and financial statements.
Settlement of Affairs: Pay off or settle any outstanding debts, liabilities, and obligations of the branch office. This includes notifying creditors and ensuring all financial matters are resolved. Dispose of or transfer any remaining assets of the branch office as per the company’s internal policies and Malaysian regulations.
Tax Clearance and Finalization: Obtain tax clearance from the Inland Revenue Board of Malaysia (LHDN) to confirm that all taxes and liabilities related to the branch office have been settled. Prepare final accounts and financial statements of the branch office up to the date of closure.
Termination and Cancellation: Submit an application to CCM for the cancellation of registration of the branch office. This involves submitting specific forms and declarations. Upon cancellation, CCM will publish a notice in the Gazette indicating the closure of the branch office.
Miscellaneous Steps: Close the branch office’s bank accounts and settle any related matters. If the branch office holds any permits or licenses, ensure these are cancelled or transferred appropriately.

Costs

A fee payable to the Companies Commission of Malaysia (CCM) for processing the cancellation of registration of the branch office. As of the latest updates, this fee can range from MYR 500 to MYR 1,000 or more, depending on the circumstances. There may be administrative fees associated with obtaining tax clearance from the Inland Revenue Board of Malaysia (LHDN). These fees are typically nominal but should be accounted for. If required, costs related to publishing the closure notice in the Gazette.

Timelines

Submitting the closure application to CCM and other relevant authorities. The processing time by CCM can vary, but typically it takes around 1 to 3 months for them to process the application and issue the closure confirmation. Obtaining tax clearance from LHDN can take several weeks to process, depending on the tax compliance status of the branch office. It is advisable to initiate this process early in the closure timeline. Once all approvals and clearances are obtained, finalizing the closure with CCM and any required publication in the Gazette can add another few weeks to the timeline.

A Representative Office (RO) in Malaysia

Setting Up a Representative Office (RO)

Establishing a Representative Office (RO) in Malaysia for a foreign company involves compliance with specific procedures and regulatory requirements. Below is a detailed outline of the process:

1. Eligibility: A foreign company must meet certain criteria to establish an RO in Malaysia. The RO is primarily intended for non-commercial activities such as market research, liaison, promotional activities, and gathering business information. The RO cannot engage in any profit-generating or trading activities.

2. Application and Approval: Approval must be obtained from the Malaysian Investment Development Authority (MIDA), the principal agency responsible for industrial promotion and coordination in Malaysia. The foreign company must prepare and submit a detailed application to MIDA, including:

Company background and profile
Proposed activities and objectives of the RO
Supporting documentation, such as audited financial statements, incorporation certificates, and board resolutions authorizing the establishment of the RO.

3. Documentation and Local Representative

A local resident must be appointed to act as the RO’s representative, responsible for overseeing operations and liaising with Malaysian authorities.
The foreign company must provide audited financial statements for the most recent financial year.
Other documents typically include a letter of authorization, memorandum of understanding (if applicable), and proof of office lease.

4. Post-Approval Registration. Upon receiving MIDA’s approval, the RO must:

Complete registration formalities with MIDA.
Register with the Inland Revenue Board of Malaysia (LHDN) for tax purposes and obtain a tax identification number (TIN). Although the RO is non-revenue generating, registration is required for compliance.
Obtain any additional licenses or permits relevant to its operations, if applicable.

5. Operational Considerations

Secure suitable office premises within Malaysia, as a physical address is mandatory for registration and official correspondence.
Open a corporate bank account in Malaysia for operational expenses, such as staff salaries and office costs.
Hire local staff as necessary, complying with Malaysian labor laws and immigration requirements if foreign staff are involved.

6. Compliance and Reporting

The RO must submit annual activity reports to MIDA detailing its activities and compliance status.
ROs are strictly prohibited from engaging in revenue-generating, trading, or contractual activities on behalf of the foreign company.
MIDA approval is generally granted for a fixed period (usually one to two years), with renewal subject to review and reapplication.

Costs

A non-refundable application fee is payable to MIDA upon submission, typically ranging from MYR 1,000 to MYR 2,000 depending on the sector and complexity.
Additional costs may include fees for engaging corporate lawyers, company secretaries, or business consultants to assist with the application process and ongoing compliance.
Office rental, staff salaries, and bank charges also contribute to operational costs.

Timeline

The approval process by MIDA generally takes 1 to 3 months, depending on application completeness and the agency’s workload.
Following approval, setting up office premises, opening bank accounts, and registering with tax authorities can take an additional 1 to 2 months.
Overall, the process from application submission to full operational readiness typically ranges from 2 to 5 months.

Closing a Representative Office (RO)

Closing a Representative Office (RO) in Malaysia involves several steps and compliance with regulatory requirements. Below is a detailed outline of the process:

Board Resolution and Decision Making: Hold a meeting of the board of directors or the relevant decision-making body of the foreign company to discuss and pass a resolution to close the RO in Malaysia. Record the decision to wind up the RO in the form of a board resolution or other appropriate documentation.
Notification and Compliance: Notify relevant authorities, including the Malaysian Investment Development Authority (MIDA), about the decision to close the RO. This is typically done by submitting a notice of closure along with necessary documents. Ensure all compliance matters with MIDA are up to date, including submission of any required reports or notifications.
Settlement of Affairs: Pay off or settle any outstanding debts, liabilities, and obligations of the RO. This includes notifying creditors and ensuring all financial matters are resolved. Dispose of or transfer any remaining assets of the RO as per the company’s internal policies and Malaysian regulations.
Tax Clearance and Finalization: Obtain tax clearance from the Inland Revenue Board of Malaysia (LHDN) to confirm that all taxes and liabilities related to the RO have been settled. Prepare final accounts and financial statements of the RO up to the date of closure.
Termination and Cancellation: Submit an application to MIDA for the cancellation of registration of the RO. This involves submitting specific forms and declarations, including confirmation of tax clearance. Upon cancellation, MIDA will update its records and the RO will cease to be registered as an entity in Malaysia.
Miscellaneous Steps: Close the RO’s bank accounts and settle any related matters. If the RO holds any permits or licenses, ensure these are cancelled or transferred appropriately.

Costs

Costs for engaging a corporate lawyer, company secretary, or business consultant to assist with the closure process, prepare necessary documents, and liaise with authorities. Fees can vary based on the scope of services required and the complexity of the closure. Typically, legal fees can range from MYR 3,000 to MYR 5,000 or more. A fee payable to the Malaysian Investment Development Authority (MIDA) for processing the cancellation of registration of the RO. As of the latest updates, this fee can range from MYR 500 to MYR 1,000 or more. There may be administrative fees associated with obtaining tax clearance from the Inland Revenue Board of Malaysia (LHDN). These fees are typically nominal but should be accounted for.

Timelines

MIDA typically takes 1 to 3 months to process the application for cancellation of registration, depending on the completeness of the submission and MIDA’s workload. Obtaining tax clearance from LHDN can take several weeks to process, depending on the tax compliance status of the RO. It is advisable to initiate this process early in the closure timeline.

Independent Contractor/ Sole Proprietor

Sole Proprietor

In Malaysia, a Sole Proprietor and an Independent Contractor are distinct business structures or employment arrangements with specific characteristics:

Sole Proprietorship
A Sole Proprietorship is a business owned and operated by a single individual. It is the simplest business structure, where the owner assumes full responsibility for the business operations and liabilities. Registration is done through the Companies Commission of Malaysia (CCM) under the Registration of Businesses Act 1956. The proprietor must be a Malaysian citizen or permanent resident, aged 18 years and above. The registration process involves choosing and registering a business name, submitting the necessary documents, and paying a registration fee. The proprietor has unlimited liability, meaning personal assets can be used to settle business debts if the business becomes insolvent.

Independent Contractor
An Independent Contractor (also known as a freelancer or self-employed individual) provides services to clients or businesses under a contract but is not considered an employee. The relationship is governed by a service agreement or contract, outlining terms, deliverables, payment, and duration. Independent Contractors enjoy greater flexibility in how they perform their work but are responsible for their own taxes, insurance, and business expenses.

Setting Up as a Sole Proprietor in Malaysia

Any individual who is a Malaysian citizen or a permanent resident (non-citizen) aged 18 years and above can register as a Sole Proprietor. Below is a detailed description of the process:

Business Name Search and Reservation

Conduct a business name search through CCM to ensure the proposed name is unique and complies with naming guidelines.
The search and reservation can be done online via the MyCoID portal or in person at CCM offices.
Name reservation is valid for 30 days and can be extended if necessary.

Registration Process. Prepare the following documents:

Completed Business Registration Form (Form A)
Copy of proprietor’s identity card (MyKad) or passport
Supporting documents such as tenancy agreement (if business premises are rented) or a landlord’s consent letter
Submit the application and documents through MyCoID or at CCM counters.
Pay the registration fee. As of 2025, the fee is MYR 30 for registration and MYR 60 for the issuance of the Business Registration Certificate.

Post-Registration Steps

Receive the Business Registration Certificate from CCM, which serves as proof of registration.
Register with the Inland Revenue Board of Malaysia (LHDN) for tax purposes to obtain a tax identification number (TIN).
Open a business bank account under the sole proprietorship’s name.
Comply with ongoing regulatory obligations, including submitting annual returns to CCM and tax filings to LHDN.
Note: Sole Proprietorship registration does not expire, but any changes (e.g., business name, address, activities) must be updated promptly with CCM.

Costs

Registration Fee: Typically MYR 30 to MYR 60 depending on services.

Name Search Fee: Approximately MYR 30 or more.

Professional Fees: Optional fees for engaging lawyers, company secretaries, or consultants; vary by scope and provider.

Licenses and Permits: Additional costs may apply depending on the nature of the business and required licenses.

Timelines

Name Search: Instant or within minutes online.

Application Submission: Can be done immediately after name approval.

Processing Time: Usually 1-2 working days for registration approval and issuance of certificate, assuming all documents are in order.

Employee Misclassification Risk

Employee misclassification is the practice of companies inappropriately classifying workers as independent contractors rather than employees to avoid costs and administrative burdens associated with the latter. Companies do this to save money on things like benefits, payroll taxes, and unemployment insurance. Employee misclassification refers to an employment situation in which either an employer or an employee intentionally misrepresents the true nature of their working relationship.

The distinction between independent contractors and full-time employees is important because it affects issues such as tax obligations, benefits, and labor laws. Here are some factors that can help distinguish between the two:

1. Control over Work

Does the company have the right to direct how, when, and where the worker does his or her job? If the worker is free from control and direction in carrying out the duties under the contract and in practice, then the worker is likely an independent contractor. At the same time, full-time employees typically have more control and are subject to the direction and control of their employer.

2. Skill Level

How much training was required for a position? – The more training a company requires its employees to have, the less likely that company is going to hire an independent contractor. The skill level of an independent contractor is often directly related to the type of work they do, in that there’s a certain expectation that they have a more specialized level of expertise than a full-time employee. An independent contractor is hired with their specialized skills in mind, while a full-time employee is generally hired to perform a specific job function within your company.

3. Financial Control & Tax Obligations

Are the business aspects of a worker’s job controlled by an employer or are they in control of their own finances? Tax obligations are one of the major differences between independent contractors and full-time employees. Independent contractors are responsible for paying their own taxes, while employers are required to withhold taxes from the pay of full-time employees.

4. Benefits

Full-time employees are often eligible for benefits such as health insurance, retirement plans, and paid time off. When an employee is misclassified, that person may not have access to various benefits, such as health insurance and pension plans. Independent contractors are typically responsible for their own benefits and social security.

5. Duration of Work

Full-time employees are typically hired for a longer period of time, while independent contractors are often hired for specific projects or short-term work.

6. Type of Relationship

Is there a written contract or agreement that outlines what will be done and how much will be paid? When you treat someone as an independent contractor, they are not part of your company’s payroll. Rather, they operate as freelancers paid for their services—no matter how many hours they log in an average week. Independent contractors are often hired for specific projects or jobs that will end at some point and are not an ongoing source of work.

In Malaysia, there are guidelines and tests to determine the classification of employment status, although they may not be explicitly referred to as “employment misclassification tests.” The classification of employment status is important as it determines the rights, benefits, and legal obligations for both employers and employees. The main factors considered in determining employment status in Malaysia are:

Control Test: This test examines the level of control and supervision exercised by the employer over the worker. If the employer has significant control over the worker’s tasks, working hours, and methods of work, the worker is more likely to be classified as an employee.
Integration Test: This test assesses the degree to which the worker is integrated into the employer’s business. If the worker is an integral part of the employer’s operations and is economically dependent on the employer, they are more likely to be considered an employee.
Multiple Engagement Test: If a worker is engaged by multiple employers for different tasks or projects, it may indicate that they are self-employed or an independent contractor.
Entrepreneurial Test: This test evaluates whether the worker assumes financial risks and enjoys profit-sharing opportunities. If the worker operates independently, takes financial risks, and has the potential to make a profit or loss, they may be classified as self-employed or an independent contractor.

It is important to note that the determination of employment status in Malaysia is based on the interpretation of various labor laws, regulations, and court decisions. The specific circumstances of each employment relationship will be considered in assessing the classification. The Industrial Relations Department, the Ministry of Human Resources, and the Social Security Organization (SOCSO) are among the government bodies responsible for labor and employment matters in Malaysia.

Misclassifying employees as independent contractors can result in various consequences and liabilities for employers, including:

Back taxes: Employers may have to pay back taxes at the national, state, and local levels.
Back benefits: Employers may be responsible for providing backdated benefits to the employee, such as medical insurance, worker’s compensation, vacation pay, and sick leave.
Legal penalties: Employers may be subject to legal fines, including liquidated damages and attorney fees. In some cases, misclassification can lead to class action lawsuits.
Damage to reputation: In addition to financial and legal repercussions, employers risk damage to their reputation among peers and potential hires.

How Global Employer of Record Can Help Address Worker Misclassification Risk?

Global Employer of Record (EOR) service providers can help employers operating internationally address the risk of worker misclassification by providing expert guidance and support on compliance with local labor laws and regulations. Here are some ways that EOR service providers can help.

1. Compliance with Local Laws in 190 Countries

Global Employer of Record has expertise in local labor laws and regulations and can help employers ensure compliance with worker classification rules in different jurisdictions. They can guide whether a worker should be classified as an employee or an independent contractor. They can also assist with the necessary paperwork and documentation to ensure compliance.

2. Worker Misclassification Risk Management

Global EOR service providers can help employers manage the risks associated with worker misclassification by supporting tax compliance, workers’ compensation insurance, and other regulatory requirements. They can also help employers stay up-to-date with changes to labor laws and regulations in different countries.

3. Flexibility

A Global EOR can offer flexible employment solutions for international workers, such as short-term assignments, contract work, or permanent employment, depending on the needs of the employer and the worker. This flexibility can help employers manage their workforce more effectively while minimizing the risk of worker misclassification.

4. Administrative Support

A Global Employer of Record can handle administrative tasks related to employment, such as payroll processing, benefits administration, and compliance reporting. This can help employers focus on their core business activities while ensuring that their international workforce is managed effectively and compliantly.

Global EOR can help employers navigate the complex and ever-changing landscape of worker classification laws and regulations across different jurisdictions. By leveraging the expertise and support of a Global EOR, employers can reduce the risk of worker misclassification and ensure compliance with local labor laws and regulations.

Permanent Establishment (PE) Risks

Permanent Establishment (PE) is a concept in international taxation that refers to a fixed place of business through which an enterprise carries out its business activities. A PE can be a branch, office, factory, warehouse, or any other fixed place of business where the enterprise carries out its business activities, either wholly or partially.

When an enterprise operates through a (Permanent Establishment) PE in a country other than its home country, it may become subject to the tax laws of that country. This means that the income generated by a PE is potentially taxable in the country where the business is located and in the country where the business is incorporated. Only income attributable to local activity should be subject to local tax, which can be determined through a profit attribution exercise. However, consideration must also be given to whether there is an applicable double tax treaty between the two countries. If an enterprise is found to have a PE in a foreign country, it may be subject to tax on the profits earned in that country, as well as penalties and interest for failing to comply with the tax laws of that country. To avoid permanent establishment risk, enterprises must carefully assess their business activities in foreign countries and ensure that they do not create a fixed place of business or exceed the allowable time limit for employee presence in that country. They should also seek professional advice to understand the tax laws of foreign countries where they operate.

An organization will have a permanent establishment (PE) if any of the following applies:

The business has a physical presence in a foreign country.
The business is regularly present through employees or agents.
A sale is made from a fixed place of business.
The business is engaged in continuous and systematic activities in the foreign country.

If an enterprise wants to maintain direct control over everything from accounting procedures to staff management, it may choose to establish a foreign legal entity. This option allows the enterprise greater control over its operations in the foreign country, including hiring and managing employees, implementing its accounting procedures, and maintaining its banking relationships. However, establishing a foreign legal entity can be costly and time-consuming. In addition, it requires the enterprise to comply with the legal and regulatory requirements of the foreign country, which may differ significantly from those of the home country.

Alternatively, an enterprise may choose to outsource some of its operations, except for managing assets and collecting profits. This option allows businesses to focus on their core competencies while outsourcing non-core activities to specialized service providers.

Using a Global Employer of Record (EOR) can be an effective way for multinational employers to prevent or address Permanent Establishment (PE) risks. This third-party global employment solution enables compliance with local employment and tax laws while avoiding the establishment of a legal entity and taxable presence in the country.

PEO (Professional Employer Organization) / EOR (Employer of Records)

A Global Employer of Record

A Global Employer of Record (GEOR) is a B2B service provider that acts as the legal employer of workers on behalf of a business worldwide. The GEOR takes on the responsibility of hiring and managing the employees, including handling payroll, benefits, taxes, and compliance with local labor laws and regulations across the globe. Essentially, a GEOR assumes the role of the employer of the workers in the target countries, while the business retains control over the work that the employees do.

When a business engages a GEOR, it enters into an agreement with the GEOR that outlines the terms of the relationship, including the services to be provided, the fees to be paid, and the responsibilities of each party. The business typically provides the GEOR with information about the workers it wishes to hire, such as their job duties and compensation, and the GEOR handles the administrative and legal aspects of employing the workers.

Below are some typical benefits for leveraging the Global EOR model:

Compliance: GEOR ensures compliance with local labor laws and regulations in different countries and across jurisdictions.

Payroll Management: a reliable GEOR provides payroll management services that include tax management, social security, employee benefits, and payment processing.

Recruitment and Onboarding: GEORs can also manage the recruitment process for you, from sourcing candidates, conducting interviews, and managing the onboarding process.

Risk Management: Under GEOR, the client company has a reduced risk of exposure to employment-related claims and lawsuits in countries where they have no legal entity.

Flexibility: It offers flexibility for companies to expand or reduce their workforce in various countries, depending on their business needs.

Cultural Adaptation: GEORs provide support and guidance on cultural adaptation and local norms, which helps companies better navigate the unique HR complexities in different countries.

HR Back-Office Support: GEORs offer additional HR back-office support services that include employee handbooks, performance management, and termination support.

Expertise: GEORs bring expertise in global employment laws and regulations, with a team of local experts in various fields to ensure compliance and legal requirements are met for each employee.

A GEOR can play a strategic role in advising businesses on which new markets to enter and how to test those markets. With their expertise and knowledge of local employment laws, regulations, and business practices across multiple jurisdictions, a GEOR can help businesses make informed decisions about which markets to prioritize and how to navigate the labour, tax, or immigration law complexities of entering those markets.

For example, a GEOR can provide businesses with insights into local labor markets, such as talent availability, compensation levels, mandatory benefits, employer burden, ongoing tax intelligence, ongoing compliance intelligence, multi-country payroll budgeting, talent location intelligence, helping them identify the most promising markets to enter and develop a competitive hiring strategy to attract and retain top global talent.

Additionally, a GEOR can advise businesses on the regulatory and compliance landscape in new markets, including local labor laws, employment tax regulations, and employment-related liabilities. This can help businesses avoid global payroll budgeting errors, mitigate permanent establishment, employee misclassification, and under-taxation risks and ensure compliance with local regulations, avoiding potential negative legal and financial consequences. A GEOR like Acumen International can take on all the responsibilities of hiring an employee for you, including the legal and bureaucratic hurdles, and manage the entire employment process.

GEOR services can be highly beneficial for businesses expanding abroad, especially if they are looking to establish a presence in a new country quickly and cost-effectively.

A GEOR can provide businesses with access to local networks and resources, including local vendors, service providers, and industry associations. This can help businesses build relationships and establish a presence in new markets more quickly and efficiently. By working with a GEOR, businesses can focus on their core operations and growth strategies, rather than getting bogged down in administrative and legal details.

A Global Employer of Record (GEOR) can act as a temporary global employment vehicle for businesses exploring new markets or establishing a legal entity in a target country. By providing access to its in-country employment infrastructure, a GEOR can help ensure a smooth and successful transition to a new legal entity.

International businesses without subsidiaries may also use this service if they hire only one employee abroad for specialized roles, such as business development managers who scout for new business opportunities in foreign markets or sales directors who manage sales teams working remotely from other countries.

On the other hand, here are the services not included in GEOR solutions:

Quality control of employees’ work and their promotion;
Decisions regarding contract termination and compensation, except for legal document processing;
Project management.

A company expanding into a new country may find that an GEOR is not the best solution for more than 15 employees. It may consider incorporating an entity and hiring local experts to help manage the payroll process. In that case, the GEOR may only be an interim solution to get employees hired quickly.

Suppose you plan on hiring foreign workers to provide services or generate sales over $100,000 annually in any country. In that case, you should consider setting up an overseas subsidiary or branch office. Doing so will help to mitigate the risk of permanent establishment.

Acumen International’s mission is to provide services that make the world a smaller place. It aims to help businesses of all sizes in any industry reach international growth and expansion through various services.

Looking to hire employees quickly and efficiently in any of 190 countries? Acumen International can help with our Express Global Employment solution. Comprehensive Global EOR Service Portfolio of Acumen International supports employment cycle, guaranteeing compliance and 24/7 support at each of its’ steps:

Recruitment: talent skilled in highly specialized areas, executive search, contingency workforce

Global mobility: employee work visa and work permit sponsorship, dependent visa, visa extensions, application for a sponsor license for a foreign national, relocation assistance

Checks: health, criminal record, background, education

Onboarding: employee agreement drafting, compliant worker onboarding on your behalf, account setup in the payroll and HR systems, employee data entry and records maintenance, probation periods management

Payroll administration: in-country registration with statutory bodies, day-to-day payroll management, pay slips with required frequency, accruals, allowances, 13th and 14th salary

Working time and PTO processing: working hours, overtime, public holidays, annual leave, parental leave, sick leave, additional leave

Benefits administration: health insurance, workers’ compensation, unemployment insurance, share plans for executives, bonuses and equipment provision, expenses reimbursement and business trips processing, dental treatment.

Tax administration and reporting: employer and employee taxes and contributions, withholding tax, local tax payments and reporting to local authorities, end of financial year reporting.

Offboarding: employment agreement termination, dismissal – by the employer, resignation – by the employee, termination by mutual agreement, notice period handling, final settlement and severance payment, de-registration with statutory bodies.

Get in touch with our team, follow the links below:

https://expressglobalemployment.com/new-market-expansion/

https://expressglobalemployment.com/solutions/why-choose-our-solution/

Taxation

Taxes on corporate income

The corporate income tax (CIT) is paid by resident companies on their income sourced in Malaysia and on certain foreign-source income, by nonresident companies – only on their income sourced in Malaysia.  

The standard CIT rate is 24%. 

The increased CIT rate of 38% applies to petroleum companies. 

The reduced CIT rate of 15% applies to small and medium-sized companies on the first MYR150,000 and a rate of 17% on income from MYR150,000 to MYR600,000. Small and medium-sized companies are companies with paid-up capital of not more than MYR2.5 million and gross income from business sources of not more than MYR50 million.

No additional municipal or local income taxes are levied on corporate income.

Value added tax or local sales taxes

The sales tax and service tax apply to certain taxable goods and services in Malaysia. 

The standard sales tax rate is 10%. 

The reduced sales tax rates of 5% and 0% apply in the following cases:

5% on certain basic foodstuffs, building materials, telecoms and IT, etc. 
0% on motor vehicles, trucks, bicycles, meat, seafood, vegetables, unprocessed food, antibiotics, tiles, bricks, etc.

The standard service tax rate is 6%. 

The specific service tax rate of MYR25 per year applies to the provision of credit card or charge card services. 

Withholding tax

The general withholding tax (WHT) rates are: 

15% on interest paid to nonresident individuals and nonresident companies (certain interest are exempt from WHT) 
10% on royalties paid to nonresident individuals and nonresident companies 
10% on technical service fees paid to nonresident individuals and nonresident companies

The above rates can be reduced or eliminated by double tax treaties if certain conditions are met. 

Dividends paid to both residents and nonresidents, interest, royalties, technical service fees paid to resident companies and resident individuals are exempt from WHT.   

There is no branch remittance tax in Malaysia.   

Employment related taxes

Employee taxes and contributions

Personal income tax

The personal income tax (PIT) is paid by resident and nonresident individuals on their income sourced in Malaysia. Income sourced outside Malaysia is only taxable if it is received by a resident individual through a partnership in Malaysia.

The rates

PIT is imposed on employment income at the following tax rates (for 2024 Year of Assessment – for tax filing in 2025):

exempt from PIT annual income up to MYR5,000
1% for annual income above MYR5,000 and up to MYR20,000
3% for annual income above MYR20,000 and up to MYR35,000
6% for annual income above MYR35,000 and up to MYR50,000
11% for annual income above MYR50,000 and up to MYR70,000
19% for annual income above MYR70,000 and up to MYR100,000
25% for annual income above MYR100,000 and up to MYR400,000
26% for annual income above MYR400,000 and up to MYR600,000
28% for annual income above MYR600,000 and up to MYR2,000,000
30% for annual income above MYR2,000,000

Muslim employees in Malaysia are required to contribute Zakat levied on their employment income (approx. 2.5%).

The taxable base and deductions

The taxable base for PIT is calculated from the gross employment income. Resident individuals are entitled to certain personal deductions and personal reliefs, which reduce the taxable base for PIT. Personal deductions include (among others):

employee SOCSO contributions (up to MYR350)
employee EPF contributions (up to MYR4,000)

The personal relief for single individuals is MYR9,000 per year. Effective YA 2025, a 2% tax is imposed on the excess of MYR100,000 dividend income received by individual shareholders (resident and non-residents) from resident companies.

Employees Provident Fund (EPF) contributions

The EPF contributions are paid only by Malaysian citizens and permanent residents working in Malaysia. Foreign nationals and non-permanent residents are exempt from EPF contributions (can be paid voluntarily).

The rates for the employee EPF contributions are the following:

11% for employees below 60 years of age
Foreign Employees: Effective 2025, mandatory EPF contributions for foreign employees and their employers are set at 2% each.
0% for Malaysian citizens 60 years of age and above

The base of the EPF contributions is calculated from the gross employment income of the employee. There is no maximum base (payroll cap) for calculating the EPF contributions.

Social Security Organization (SOCSO) contributions 

The SOCSO contributions are paid only by Malaysian citizens and permanent residents working in Malaysia. Foreign nationals and non-permanent residents are exempt from SOCSO contributions (can be paid voluntarily).

SOCSO contributions consist of the Employment Injury Scheme (EIS) and the Invalidity Scheme (IS) contributions.

The rates for the employee SOCSO contributions are the following:

0.5% for employees below 60 years of age
0% for employees 60 years of age and above

The base of the SOCSO contributions is calculated from the gross employment income of the employee. Effective from 1 October 2024, the wage ceiling for SOCSO contributions increased from MYR5,000 to MYR6,000 per month.

Employment Insurance System (EIS) contributions

The EIS contributions are paid only by Malaysian citizens and permanent residents working in Malaysia.

The rate of the employee EIS contributions is 0.2%.

The base of the EIS contributions is calculated from the gross employment income of the employee. The maximum monthly salary used for calculating EIS contributions is capped at RM6,000 from October 1, 2024.

The tax residence

A tax resident is an individual who:

is physically present in Malaysia for at least 182 days during a calendar year, or
is physically present in Malaysia for at least 182 days during the second half of the immediately preceding year or the first half of the immediately following year, or
is physically present in Malaysia for at least 90 days during a calendar year and for at least 90 days in any three of the four preceding years, or
has been a resident for the three preceding years.

Tax treatment for nonresidents 

The employment income of nonresidents is subject to PIT at a flat rate of 30%. Nonresidents are not eligible for personal deductions and personal reliefs. 

Foreign nationals and non-permanent residents are exempt from mandatory EPF, SOCSO, and EIS contributions. They may contribute voluntarily. 

Nonresidents employed for not more than 60 days in a calendar year in Malaysia can be exempt from PIT on their employment income sourced in Malaysia. 

Employer taxes and contributions

Employees Provident Fund (EPF) contributions

The rates for the employer EPF contributions are the following (for employees below 60 years of age): 

12% for employees with a monthly employment income of more than MYR5,000 
13% for employees with a monthly employment income of up to MYR5,000

The rates for the employer EPF contributions are the following (for employees 60 years of age and above): 

4% for Malaysian citizens 
6% for permanent residents with a monthly employment income of more than MYR5,000 
6.5% for permanent residents with a monthly employment income of up to MYR5,000

Effective 2025, mandatory EPF contributions for foreign employees and their employers are set at 2% each.

The base of the EPF contributions is calculated from the gross employment income of the employee. There is no maximum base (payroll cap) for calculating the EPF contributions. 

Social Security Organization (SOCSO) contributions 

The rates for the employer SOCSO contributions are the following: 

1.75% for employees below 60 years of age 
1.25% for employees 60 years of age and above

Employment Insurance System (EIS) contributions   

The rate of the employer EIS contributions is 0.2%. 

The base of the EIS contributions is calculated from the gross employment income of the employee. The maximum monthly base for calculating the EIS contributions is MYR6,000.

Human Resource Development Corporation (HRD Corp) levy 

The rate of the employer HRD Corp levy is 1% – for employers with at least ten employees, and 0.5% – for employers with five to nine employees. 

The base of the HRD Corp levy is calculated from the gross employment income of the employee. There is no maximum base (payroll cap) for calculating the HRD Corp levy.

Employment Regulation

Sources of employment law

The main sources of employment law in Malaysia are as follows: 

the Constitution of Malaysia
the international treaty(s) and convention(s)
the statutes and acts of the Parliament
the ministerial orders or regulations
the case law
the employment agreement(s)
the collective bargaining agreement(s)

The main labor laws and regulations in Malaysia include the following: 

the Employment Act, as amended (‘EA’)
the Industrial Relations Act
the Occupational Safety and Health Act
the Employees Provident Fund Act
the Employees Social Security Act
the Employment Insurance System Act
the Holidays Act
the Weekly Holidays Act
the Employment (Part-time Employees) Regulations
the Employment (Limitation of Overtime Work) Regulations
the Minimum Wages Order
the Employment (Termination and Lay-Off Benefits) Regulations
the Personal Data Protection Act
the Contracts Act

Effective January 2023, the EA applies to all categories of employees. Employees whose wages exceed MYR4,000 per month are exempt from certain sections of the EA regulating overtime payments, work on rest days and public holidays, allowance for shift-based work, statutory entitlement to termination and lay-off benefits.

Hiring of employees

Types of employment agreements

There are two main types of employment agreements in Malaysia: 

Indefinite employment agreements 
Fixed-term employment agreements

The indefinite employment agreement has no termination date. Under the indefinite employment agreement, an employee can be terminated according to the termination procedure specified in the employment agreement or envisaged by the law. The parties should serve a notice to terminate the indefinite employment agreement. The notice period should be the same for both the employer and the employee.

The written form is not mandatory for the indefinite employment agreement.

Under the indefinite employment agreement, an employee can be hired full-time or part-time. Part-time employees are granted the same rights and protection as full-time employees.

The fixed-term employment agreement can be concluded if the parties have agreed on a temporary period of employment. Under the fixed-term employment agreement, an employee is employed for a specific term or for the duration of completion of a project. The law does not set limitations on the maximum duration of the fixed-term employment agreement. Fixed-term employment agreements concluded for a specific period longer than one month or for a particular project that may take more than a month to complete must be in writing. The courts may treat a fixed-term contract as a permanent one if there is evidence of continuous renewal without genuine justification.

The fixed-term employment agreement ends on the termination date specified in the agreement or when the project specified in the agreement is completed.

In addition to the above types of employment arrangements, the law recognizes the apprenticeship agreement. The apprenticeship agreement is concluded between the employee and employer, under which the employer agrees to provide systematic training to the employee for a set period of time. The duration of apprenticeship programs is limited to a minimum of six months and a maximum of 24 months. The apprenticeship agreement must be concluded in writing.

Legislation: Sections 2, 10, 11, 12 of the EA, the Employment (Part-time Employees) Regulations.

Minimum provisions of the employment agreement

The law does not specify the minimum provisions that must be included in the employment agreement. At the same time, the law specifies that if any terms and conditions of the employment agreement are less favorable than what is outlined in the law or any associated regulations, they are considered void. These unfavorable terms should be replaced by those specified in the law.

The written employment agreement must include a provision setting out the manner and the procedure, according to which the employment agreement will be terminated.

Legislation: Sections 7, 10 of the EA.

Non-competition clause

Under the Contracts Act, any agreement that restricts someone from engaging in a lawful profession, trade, or business is void to that extent. However, a seller of a business’s goodwill can agree with the buyer to abstain from engaging in a similar business within certain geographical boundaries. This agreement stands as long as the buyer or anyone inheriting the goodwill continues a similar business in that area. These limitations must seem reasonable to the court, considering the nature of the business.

Thus, non-competition restriction can be enforceable only during the term of employment, the post-employment non-compete agreements are deemed unenforceable.

Legislation: Section 28 of the Contracts Act.

Written employment agreement

The employment agreement can be oral or concluded in writing. However, a fixed-term employment agreement concluded for a specific period longer than one month or for a particular project that may take more than a month to complete must be in writing. The apprenticeship agreement must also be concluded in writing. While employment agreements can be oral, employers are strongly encouraged to provide them in writing, especially in light of expanded EA coverage to all employees

Legislation: Sections 2, 10 of the EA.

E-employment agreement

Electronic signatures are legally recognized in Malaysia.

Employment agreements can be signed with electronic signatures in compliance with the Digital Signature Act and the Electronic Commerce Act.

Employment agreements signed using an e-signature are as legally binding as employment agreements signed with a handwritten signature, provided that certain requirements for e-signatures are met.

Legislation: the Digital Signature Act and the Electronic Commerce Act.

Language requirement for employment agreement 

There is no legal requirement for the employment agreement to be written in the official language of Malaysia (Malaysian). 

The employment agreement should be written in any language the employer and the employee can understand. In practice, employment agreements are often concluded in English. The employment agreement can be bilingual (e.g., written in the Malaysian language and in English).

Hiring checks 

Medical check 

There is no legal requirement for conducting a medical check. However, a medical check can be conducted to assess whether the employee’s state of health is appropriate to do work for certain positions. Medical checks must be made by the employer in full compliance with the Personal Data Protection Act. 

Criminal background check

Criminal background checks are not addressed in labor law. In practice, criminal background check can be performed for certain categories of employees if this condition is stipulated in the employment agreement. The employer must conduct a criminal background check in full compliance with the personal data protection laws and privacy restrictions.

References and education background checks

Background checks are not addressed in labor law. However, the employer can carry out reference and education background checks to the extent necessary to assess the employee’s qualifications, experiences, and skills directly linked to the position. Reference and education background checks are subject to the data protection laws and privacy restrictions. 

Legislation: the Personal Data Protection Act.

Probation period 

There is no legal requirement to establish a probation period. However, the parties can agree on a probation period. It is a common practice that the probation period lasts from one to three months for non-executive employees and up to six months – for executive employees. The details of a probation period are usually written in the employment agreement. 

During the probation period, employees are granted the same rights and protection as permanent employees, and they cannot be terminated without just cause or excuse. 

If the employee’s employment has not been terminated or confirmed at the end of the probation period, they remain a probationer even after the period has ended. The law does not regulate the maximum duration of probation, but courts may assess reasonableness and procedural fairness in disputes.

Working time and time off

Regular working hours

The regular working hours are 8 hours per day and 45 hours per week, with a maximum of 45 hours per week under any arrangement.

If the employee works less than 8 hours per day, the parties can agree to make up the remaining hours on other normal working days, but not more than 9 hours in one day and not more than 45 hours in a week.

Employees are entitled to a rest period of:

a minimum of 30 minutes per day after five consecutive hours of work,
a minimum of one day per week.

If an employee is engaged in work that must be performed continuously, they may be obligated to work for eight consecutive hours, provided that they are given a meal break of at least 45 minutes.

Under the Employment (Part-time Employees) Regulations, part-time employees are employees who work between 30 and 70% of the working hours of full-time employees. Part-time employees are granted the same rights and protection as full-time employees (i.e., overtime payment, annual and sick leave, public holidays).

Legislation: Section 60A of the EA, the Employment (Part-time Employees) Regulations.

Overtime working hours

Employees may be required to work overtime or on a rest day under the following circumstances:

work needs to be performed that is essential to the community, national defense, or security,
there has been a workplace-related accident or a risk of potential accidents,
urgent work needs to be performed on the workplace premises or equipment,
there has been an unforeseeable disruption of work.

The overtime work must not exceed 72 hours per month.

Work above normal working hours must be paid as overtime work at the following rates:

at least 150% of the normal hourly wage – for overtime work on ordinary working days,
at least 300% of the normal hourly wage – for work outside normal working hours (in excess of 8 hours of work) on public holidays,
full day’s pay – for work up to a half day on scheduled rest days and weekends,
two days’ pay – for work between a half day and a full day on scheduled rest days and weekends.

The above statutory overtime regulations may not apply to employees who are not covered by the EA. For these employees, overtime regulations may depend on the company policy or applicable collective bargaining or employment agreement. Employees earning above MYR4,000 are exempt from overtime entitlements unless their contract explicitly grants such benefits.

Legislation: Section 60A of the EA, the Employment (Limitation of Overtime Work) Regulations.

Annual leave

The entitlement to annual leave depends on the employee’s length of continuous employment, as follows:

eight days for every twelve months of continuous employment if the employee has worked for the employer for less than two years,
twelve days for every twelve months of continuous employment if the employee has worked for the employer for two years or more but less than five years,
sixteen days for every twelve months of continuous employment if the employee has worked for the employer for five years or more.

Employees with less than one year of employment are entitled to paid annual leave on a pro-rata basis.

At their discretion, employers can grant more days of paid annual leave than envisaged by the law.

By agreement between the employee and the employer, the unused days of annual leave can be accumulated and carried forward to the following year. It is allowed to make the payment in lieu of the untaken annual leave, provided that there is written consent from the employee.

In case of employment termination, employees are entitled to the payment in lieu of the untaken annual leave prorated accordingly.

Legislation: Section 60E of the EA.

Additional leave 

There are no additional statutory leaves. However, employers can grant additional leaves at their discretion in the following cases: 

employee’s marriage, 
death of a close relative, 
education purposes, etc.

Sick leave

Employees are entitled to sick leave paid by the employer. The entitlement to sick leave depends on the employee’s length of continuous employment, as follows:

14 days in a calendar year – if the employee has worked for less than two years,
18 days in a calendar year – if the employee has worked for at least two years but less than five years,
22 days in a calendar year – if the employee has worked for at least five years and more.

If hospitalization is required, employees are entitled to 60 days of paid sick leave in a calendar year in addition to the above sick leave.

To be eligible for paid sick leave, the employee must provide the employer with a medical certificate confirming their incapacity to work.

Legislation: Section 60F of the EA.

Parental (maternity/ paternity) leave

Maternity leave

Female employees are entitled to 98 days of paid maternity leave for each child.  

To be eligible for maternity leave, an employee must meet the following requirements: 

to be employed for a period of at least 90 days during nine months prior to the delivery date, and  
to be employed at any time within the four months immediately prior to the delivery date.

The limitation on the number of children has been abolished. All eligible employees are entitled to maternity/paternity leave regardless of the number of children. 

The employee is obliged to inform her employer about the date on which they plan to commence maternity leave at least 60 days in advance. The notification can be written or oral. If the employee fails to notify the employer, the payment of a maternity benefit can be postponed until the notice is submitted.

Paternity leave

Male employees are entitled to 7 days of paid paternity leave for each child.  

To be eligible for paternity leave, an employee must meet the following requirements: 

to be the spouse of the birth mother of a child, 
to be employed with the same employer for a minimum of 12 months immediately before his paternity leave begins, 
to inform his employer about the pregnancy within 30 days of the expected delivery date or as soon as possible after childbirth.

Employees who already have five children or more are not eligible for paternity leave. 

Parental leave

There are no statutory parental leaves. 

Legislation: Sections 37-42 of the EA. 

Public holidays

The public holidays in Malaysia are as follows: 

New Year – 1 January
Chinese New Year (2 days) – dates variable
Federal Territory Day – 1 February
Thaipusam – date variable
Hari Raya Puasa (2 days) – dates variable
Labour Day – 1 May
Wesak Day – date variable
Birthday of Seri Paduka Baginda Yang di-Pertuan Agong – date variable
Hari Raya Haji – date variable
Awal Muharram – date variable
Independence Day (Hari Merdeka) – 31 August
Malaysia Day (Hari Malaysia) – 16 September
Prophet Muhammad’s Birthday – date variable
Deepavali – date variable
Christmas Day – 25 December

Legislation: Section 60D of the EA.

Compensation

Statutory minimum salary

As of 2025, the statutory minimum wage is MYR1,500 per month across most sectors and regions, including SMEs, unless officially exempted.

Legislation: the Minimum Wages Order.

Mandatory bonus / 13, 14th salaries

There is no legal requirement to pay 13^th and 14^th salaries in Malaysia. The employer can pay the 13^th and 14^th salaries at their discretion. It is customary to pay the 13^th salary at the end of the year. 

Voluntary bonus

Employers can pay voluntary bonuses at their discretion. The payment of bonuses is usually stipulated in the employment agreement, and the conditions for payment are defined in the agreement.

Payroll frequency

The payroll frequency is at least monthly. Salary should be paid not later than the seventh day after the last day of any salary period. 

Legislation: Sections 18, 19 of the EA. 

Salary currency

Salary is paid in a local currency – the Malaysian ringgit (MYR). 

Benefits

Mandatory benefits

Employees are provided with the following mandatory statutory benefits covered by the Employees Provident Fund (EPF) and the Employment Insurance System (EIS): 

retirement pension benefit
unemployment benefits and re-employment placement programs
medical benefits
temporary and permanent disablement benefits
dependent’s benefit or survivor’s pension
invalidity pension
rehabilitation benefits
funeral benefits
educational benefits

Legislation: the Employees Provident Fund Act, the Employees Social Security Act, the Employment Insurance System Act, the Workmen’s Compensation Act.

Voluntary benefits

In addition to the mandatory benefits, employers usually provide their employees with the following benefits: 

private health insurance 
life insurance 
accident insurance 
parking or gas allowance 
housing, transport allowances, school fees, etc. (for expatriate employees) 
participation in the company’s incentive schemes (e.g., performance bonuses or rewards, profit-sharing schemes, etc.).

Grounds for termination

Employment relations can be terminated:

at the employer’s initiative
at the employee’s initiative
on the expiry date of a fixed-term employment agreement

The employment agreement must include a written provision setting out the manner and the procedure, according to which the employment relationship will be terminated.

Employment relations can be terminated at the employer’s initiative based on the following grounds:

with notice

Employment relations can be terminated at the employer’s initiative by serving the notice to the employee (employment is terminated after the specified period) or by making a payment in lieu of notice (employment is terminated immediately). Both employers and employees should have equal notice periods for terminating employment relations, regardless of whether the periods are specified in the employment agreement or not. If the employment agreement does not specify the notice period, then statutory periods for notice must be observed.

Generally, an employer can terminate the employment relations without the need for any specific reason or grounds for dismissal. However, this freedom should not be misunderstood as giving employers the right to do so based on prohibited grounds. Prohibited grounds could include discrimination based on gender, race, religion, or any other protected characteristic. Therefore, while the law may not require a specific ground for termination, the termination of employment relations cannot be based on discriminatory or prohibited grounds.

without notice

Employment relations can be terminated by the employer without notice and without payment in lieu of notice based on the following grounds:

willful breach of the employment agreement,
grounds of misconduct,
unjustified absence from work,
the employee has been found guilty of sexual harassment.

Employment relations can be terminated at the employee’s initiative by serving notice to the employer. If the employment agreement does not specify the notice period, then statutory periods for notice must be observed. Instead of giving the required notice period, employees have the option to make a payment equal to the amount of wages that they would have received during the notice period.

The employee can terminate their employment agreement without prior notice in case of an immediate threat of violence or disease to the employee or their dependents, which was not known at the time of employment, or in case of willful breach of the employment agreement by the employer.

The fixed-term employment agreement that is concluded for a specific duration or for the accomplishment of a particular task will end when either the duration of the contract has expired, or the specified work has been completed.

Legislation: Sections 11-15 of the EA.

Notice period

Both employers and employees should have equal notice periods for terminating employment relations, regardless of whether the periods are specified in the employment agreement or not. If the employment agreement does not specify the notice period, then the following statutory periods for notice must be observed:

four weeks – if the employee has been employed for less than two years,
six weeks – if the employee has been employed for two years or more but less than five years,
eight weeks – if the employee has been employed for five years or more.

Both parties have the option to make the payment in lieu of notice.

The employment relations can be terminated without the notice period or payment in lieu of notice in the cases envisaged by the law.

Legislation: Section 12 of the EA.

Severance payment

There is a legal requirement to provide the employee with a severance payment in case of termination. Severance benefits only apply to employees covered by the Employment Act. Employees outside this scope rely on their contract or collective agreement. The amount of severance payment depends on the employee’s length of employment, as follows:

10 days’ basic salary for the first two years of employment,
15 days’ basic salary for each year of two to five years of employment,
20 days’ basic salary for each year of employment exceeding five years.

The payment of severance payment is not required in case of dismissal on the ground of the employee’s misconduct or if the employee’s length of employment is less than one year.

In addition to the severance payment, employees are entitled to the following termination payments:

outstanding salary and bonuses,
payment in lieu of advance notice, if no notice is given,
payment in lieu of untaken days of annual leave prorated accordingly.

Legislation: Sections 3, 4, 6 of the Employment (Termination and Lay-Off Benefits) Regulations.

Immigration procedure for expatriate employees

Permits to hire expatriate employees

To hire expatriate employees in Malaysia, employers must obtain the necessary permits and approvals. The main types of permits required are:

1. Employment Pass (EP)

The Employment Pass is for expatriates holding key managerial positions or highly skilled roles. It is typically issued for periods ranging from one to five years.

Eligibility Criteria:

Job position must be at the managerial, executive, or technical level.
Minimum monthly salary requirement is MYR 5,000.
Expatriate must have relevant qualifications and experience.

2. Professional Visit Pass (PVP)

The Professional Visit Pass is for foreign professionals visiting Malaysia for short-term assignments, such as consultancy work, technical training, or project collaboration. The duration is typically up to 12 months.

Eligibility Criteria:

The applicant must be a foreign professional with the necessary qualifications and expertise.

3. Dependant Pass

The Dependant Pass is for spouses and children of Employment Pass holders. This pass allows dependents to reside in Malaysia for the duration of the principal pass holder’s stay.

Eligibility Criteria:

Dependant must be a spouse or child of the Employment Pass holder.

4. Residence Pass-Talent (RP-T)

The Residence Pass-Talent is for highly qualified expatriates who want to live and work in Malaysia for up to 10 years. It is aimed at individuals with significant skills and experience in key industries.

Eligibility Criteria:

Must have worked in Malaysia for at least three years on an Employment Pass.
Minimum annual salary requirement is MYR 144,000.
Strong professional background with relevant qualifications and experience.

Update (2026):

The Government of Malaysia has introduced a new Expatriate Employment Policy that will significantly reshape how foreign professionals are hired and retained from mid-2026. This policy was approved by the Malaysian Cabinet in late 2025 and formally announced in early 2026.

Higher Minimum Salary Thresholds for Employment Pass (EP)

Effective 1 June 2026, the minimum salary requirements for Malaysia’s Employment Pass (EP) categories will be significantly increased, making it more selective for expatriate hires:

EP Category Revised Minimum Monthly Salary (from 1 Jun 2026)

Category I: RM 20,000+ (previously RM10,000+)
Category II: RM 10,000–19,999 (previously RM5,000–9,999)
Category III: RM 5,000–9,999 (previously RM3,000–4,999)

In some sectors such as manufacturing and manufacturing-related services, the Category III threshold is set at RM7,000–9,999.

These changes apply to all new EP applications and renewals submitted from 1 June 2026 onwards.

Procedure & Timeline

The procedure and timeline for obtaining employment permits for expatriate employees in Malaysia involves several steps. Here is a detailed overview of the process and typical timeline:

Procedure

1. Pre-Application Preparation:

Job Offer and Employment Contract: The Malaysian employer must issue a job offer and an employment contract to the expatriate.
Document Collection: Necessary documents including the expatriate’s passport, educational and professional certificates, passport-sized photographs, and any other relevant documents.

2. Employer Registration with Expatriate Services Division (ESD):

Company Registration: The Malaysian employer must register with the Expatriate Services Division (ESD) of the Immigration Department of Malaysia.
Submission of Documents: Company registration documents, company profile, and other required information to ESD.
Processing Time: Registration typically takes 5-10 working days.

3. Employment Pass Application:

Submission of Application: Once the company is registered with ESD, submit the Employment Pass application through the ESD online portal.

Required Documents:

Completed application form.
Copy of the employment contract.
Copy of the expatriate’s passport.
Educational and professional certificates.
Detailed job description and organizational chart.
Passport-sized photographs.
Company’s registration documents.

Processing Time: The processing time for the Employment Pass application is typically 2-4 weeks.

4. Approval and Issuance of Employment Pass:

Approval Notification: Once the Employment Pass application is approved, an approval letter will be issued.
Visa with Reference (VDR): The expatriate may need to apply for a Visa with Reference (VDR) from the Malaysian consulate or embassy in their home country, if applicable.
Entry into Malaysia: Upon receiving the VDR, the expatriate can enter Malaysia.
Issuance of Employment Pass: After arriving in Malaysia, the expatriate must visit the Immigration Department to obtain the Employment Pass sticker in their passport.

5. Professional Visit Pass (if applicable):

For short-term assignments, submit the Professional Visit Pass application with the necessary documents similar to the Employment Pass.
The processing time is also typically 2-4 weeks.

6. Dependant Pass Application (if applicable):

Submit the Dependant Pass application for the expatriate’s spouse and children, along with necessary documents like birth or marriage certificates and passport copies.
Processing time is typically 1-2 weeks.

Timeline

Preparation of Documents: 1-2 weeks
Employer Registration with ESD: 1-2 weeks
Employment Pass Application Submission and Processing: 2-4 weeks
Approval and Issuance of Employment Pass: 1-2 weeks
Professional Visit Pass (if applicable): 2-4 weeks
Dependant Pass (if applicable): 1-2 weeks

Total Estimated Timeline

From start to finish, the entire process for obtaining an employment permit for an expatriate employee in Malaysia typically takes around 6-10 weeks, depending on the efficiency of document preparation, processing times at various stages, and whether additional passes (such as Dependant Passes) are required.

Update: Effective March 1, 2025, all applicants for new Employment Passes, Dependent Passes, Professional Visit Passes, and other immigration categories processed through the MyXpats Centre must download and carry a printed copy of the ePass when traveling. This digital ePass replaces the physical endorsement sticker previously affixed to the passport as proof of immigration status.

Documents

To obtain employment permits for expatriate employees in Malaysia, several documents are required at various stages of the application process. Below is a detailed list of the necessary documents:

Documents for Employer Registration with Expatriate Services Division (ESD)

1. Company Registration Documents:

Certificate of Incorporation (Form 9 or Section 17).
Latest Company Profile from the Companies Commission of Malaysia (SSM).
Latest audited financial statements.
Company’s organizational chart.

2. Supporting Documents:

Justification for hiring expatriates.
Detailed description of business activities.
Copy of the company’s tax return (Form e-C).
Letter of Undertaking from the company.

Documents for Employment Pass (EP) Application

Application Form: Completed Employment Pass application form.

Passport: Copy of the expatriate’s passport, valid for at least 18 months.

Photographs: Passport-sized photographs (white background, 35mm x 50mm).

Employment Contract: Copy of the signed employment contract or offer letter.

Job Description: Detailed job description and responsibilities.

Educational and Professional Qualifications: Copies of educational certificates, diplomas, and degrees. Professional qualifications and memberships (if applicable).

Proof of Experience: Letters of reference or previous employment certificates.

Company Documents:

Copy of the company’s Certificate of Incorporation (Form 9 or Section 17).
Company’s latest audited financial statements.
Company’s organizational chart.
Copy of the company’s tax return (Form e-C).

Additional Documents:

Detailed resume or curriculum vitae (CV) of the expatriate.
Justification letter for hiring an expatriate over a local employee.
Approval letter from relevant regulatory bodies (if applicable).

Documents for Professional Visit Pass (PVP) Application

Application Form: Completed Professional Visit Pass application form.

Passport: Copy of the expatriate’s passport, valid for at least 12 months.

Photographs: Passport-sized photographs (white background, 35mm x 50mm).

Invitation Letter: Invitation letter from the Malaysian company specifying the purpose and duration of the visit.

Supporting Documents:

Detailed itinerary of the work or project in Malaysia.
Proof of professional qualifications and expertise.
Copy of the expatriate’s employment contract or agreement (if applicable).

Documents for Dependant Pass Application (if applicable)

Application Form: Completed Dependant Pass application form.

Passport: Copy of the dependent’s passport, valid for at least 12 months.

Photographs: Passport-sized photographs (white background, 35mm x 50mm).

Relationship Proof:

Copy of the marriage certificate for spouses.
Copy of birth certificates for children.

Principal’s Employment Pass: Copy of the principal Employment Pass holder’s passport and Employment Pass.

Additional Documents (if applicable)

Professional License: If the job role requires a professional license (e.g., medical professionals), a copy of the license or certification.
Medical Examination Report: Medical fitness certificate, if required by the Malaysian authorities.

Ensuring all documents are complete and accurately submitted will help expedite the permit application process. For the latest and most specific requirements, it is recommended to check with the Expatriate Services Division (ESD) of the Immigration Department of Malaysia.

Costs

The costs and fees associated with hiring expatriate employees in Malaysia can vary based on several factors, including the nature of the employment, the type of work, and the specific requirements for obtaining work permits and visas.

Employment Pass (EP) Processing Fee: Employers are typically required to pay a processing fee for each Employment Pass application. The fee varies depending on the duration of the pass and the category of employment.
Security Bond: Employers may need to provide a security bond as part of the Employment Pass application process. The amount of the bond varies based on factors such as the nationality of the expatriate employee and the type of work.
Visa Processing Fee: Expatriate employees may require a visa to enter Malaysia. The visa processing fee depends on the type of visa and the applicant’s nationality.
Professional Fees: Employers often engage legal or immigration consultants to assist with the application process. These professional fees can vary based on the complexity of the case and the services provided.
Medical Examination: Expatriate employees may be required to undergo a medical examination as part of the visa application process. The cost of the medical examination varies depending on the medical facility and the tests required.
Levy or Tax: Employers may be subject to a levy or tax for hiring expatriate employees. The amount of the levy or tax depends on factors such as the duration of employment and the type of work.
Dependent Pass Fees: If expatriate employees wish to bring their dependents to Malaysia, additional fees may apply for Dependent Pass applications.
Renewal Fees: Work permits and visas typically have a validity period and may need to be renewed periodically. Renewal fees apply for extending the validity of work permits and visas.
Health Insurance: Expatriate employees may require health insurance coverage during their stay in Malaysia. The cost of health insurance varies based on the coverage and the insurance provider.
Relocation Expenses: Employers may provide relocation assistance to expatriate employees, covering expenses such as accommodation, transportation, and settling-in allowances.

It’s important to note that the actual costs can change, and new regulations may be introduced. Additionally, specific costs will depend on the unique circumstances of each expatriate assignment.

Useful link: https://www.imi.gov.my/