Foreign business owners planning on expanding their business to Malaysia typically would choose either to register company in Malaysia (register Sdn Bhd) or to open a branch office. Both options allow commercial activities to immediately commence once officially registered.
However, a foreign business that wishes to conduct more survey or research to assess Malaysia’s business environment, or develop more business relations with local industries, may choose to first set up a regional/representative office before proceeding to open a branch. The differences between these two entities are highlighted below, especially where legal and compliance issues are concerned.
Regional Office / Representative Office
A Regional/Representative Office can allow a foreign entity to further understand the prospects of doing business in Malaysia before channeling more resources to invest in a more permanent structure. Such an office is prohibited from undertaking any commercial activities, and only represents the foreign head office in performing certain designated functions, which include gathering information on investment opportunities to develop trade relations, promoting the export of Malaysian goods and products and conducting any relevant R&D activities. Its operation is completely funded through sources outside Malaysia.
A Regional/Representative Office is not incorporated under the Companies Act. Instead, the application to set up one is subject to approval by the Malaysian Investment Development Authority (MIDA), and its eligibility criteria include a minimum of RM300,000 per annum for operational expenditure. The initial approved duration is usually two years, after which any extension will be subject to submitted justifications and further assessment by the Malaysian authority.
In order to carry out commercial transactions in Malaysia, a foreign entity may set up a Branch Office (or a new Malaysian company). A Malaysian branch is considered an extension of the foreign company and not a separate legal entity. It must have the same name as its parent entity, which is also liable for all the debts and liabilities of the branch office. Also, as control and management is vested with the parent company, a branch office is considered a non-resident entity in Malaysia, and therefore will not be regarded as resident in Malaysia for tax purposes and will not be eligible for any tax exemptions and incentives available to local companies.
A Branch Office must be officially incorporated with Suruhanjaya Syarikat Malaysia (SSM) before commencing business operations within Malaysia. A Branch Office also requires the appointment of least one agent who is ordinarily resident in Malaysia.
Register Company in Malaysia
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