Expansion of Business Across the Borders: In Malaysia

Plethora of companies looking to expand their businesses overseas and no doubt one of the countries that will cross in the minds of any business owner would be Malaysia. Not only due to the ease of integration since most residents in the capital of Malaysia do share common spoken language, but also due to the low imposition of requirements when compared to its neighbouring countries namely Australia and Singapore. Its relatively lower cost to incorporate and run its operations are also a deciding factor for most businesses looking to establish presence overseas.

It may be intimidating as there are more than a handful matters to deliberate and settle before the business can properly run its course including its incorporation, licences to procure, and the hiring of employees.

EMPLOYMENT

Like Hong Kong, Malaysia do share similar benefits provided under the Employment Act 1955 and its recent amendments including the Employment (Amendment) Act 2022 and Employment (Amendment of First Schedule) Order 2022 including but not limited to the maternity and paternity leaves given. Malaysia also has its very own mandatory provident fund namely the Employees Provident Fund and other mandatory contributions which employers are prudent to make including human resources development levy, employment injury scheme, invalidity pension scheme and employment insurance system.

It is really not surprising that there is no substantial discrepancy in the employment laws between Malaysia and Hong Kong since they are both commonwealth countries after all, but foreigners looking to establish in Malaysia shall take note on several minor hurdles provided in the employment laws such as the need to obtain prior approval in respect to the employment of a foreign employees in Malaysia and the recent revision to the maximum working hours in Malaysia from 48 to 45 hours per week.

LICENSING REGIME

• General Licences

One tip a foreigner pondering to commence business in Malaysia should take note of is that aside from the obvious licences required to conduct the sector/industry-specific activities, the business premises and signboard/advertisement licences would also be required if one is establishing a physical office. It is also state specific, for instance, if one intends to set up its office in Kuala Lumpur, a business registration and advertisement licences shall be procured from the Kuala Lumpur City Council (Dewan Bandaraya Kuala Lumpur), and each municipal or city council has its own set of by-laws necessary to be adhered to. For reference, there are approximately 19 city councils (dewan bandaraya), 39 municipal councils (majlis bandaran), 92 district councils (majlis daerah kerajaan tempatan) and 5 modified local authorities in Malaysia.

• Activity-specific Licences

Generally, most businesses will run its operations in factory or commercial property as it is illegal and may be liable to fines by the relevant authorities if it were to be operated in residential property, but it is also not uncommon for businesses to operate in residential premises (i.e. kindergarten) as long as steps are taken to convert the residential property to commercial via application with the relevant municipal/city councils to which the property is located.

It is also common to require both the Fire and Rescue Department (Jabatan Bomba dan Penyelamat) and the Ministry of Health’s permission before commencing operations in the property.

COMMENCING TECH-RELATED BUSINESS IN MALAYSIA AS A FOREIGNER

In Malaysia, to incorporate a private limited company (Sendirian Berhad) will require a minimum of one director whereby the director must either (a) be a resident/citizen, or (b) has a primary place of residence in Malaysia. If a foreigner intends to set up an information technology (IT)-related company in Malaysia with absolute (100%) foreigner directorship, he/she is still required to fulfil the aforementioned requirement. Therefore, a resident director is required to incorporate a new company in Malaysia. This requirement can be achieved through nominee director services.

It is not to say that a foreigner commencing such company in Malaysia do not have its perks since the current programme entitled Malaysia Tech Entrepreneur Programme (MTEP) (https://mdec.my/mtep/) makes it easier for foreigner whether entering as an IT start-up, professional or investor are able to process and procure the working pass directly via Malaysia Digital Economy Corporation (MDEC) instead of the hassle like any other industries in Malaysia are facing.

MTEP is an initiative by the Malaysian government to attract foreign tech entrepreneurs (founders & co-founders) from all around the world and help them set up and develop their start-ups in Malaysia. The focal point to this is that it does not require for the said foreigner to be in Malaysia to apply for MTEP and it is open to all nationalities.

MTEP is a pass specially to attract IT business whether it is a tech start-up entrepreneur, experienced tech entrepreneur or tech investor to work or invest in the tech industries in Malaysia. Malaysia currently offers 1-year pass for new entrepreneurs and a 5-years pass for established entrepreneurs or investors along with its dependents. With this pass, it is no longer required for the tech entrepreneur to procure separately an employment pass.

As for the estimated timeline in procuring working pass vide the MTEP route, it is a relatively swift process since the application can be done online, and the application process takes approximately four weeks. Application will first be processed by MDEC, and thereafter the issuance of pass will be done within two weeks by the Malaysian Immigration Office in Malaysia.

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