Foreign-Owned Companies in Malaysia: What You Need to Know Before You Start

Can Foreigners Own a Company in Malaysia?

Yes — and in most industries, foreigners can own 100% of the shares in a Malaysian private limited company (Sdn Bhd). Malaysia does not have a blanket restriction on foreign ownership the way some other countries do.

However, there are important nuances:

• 100% foreign ownership is permitted in most sectors, particularly manufacturing, technology, global services, and wholesale trade
• Foreign shareholders holding 20% or more of the total issued shares will result in the company being taxed at a flat 24% corporate tax rate, instead of the preferential 17% SME rate on the first RM600,000
• Certain industries have specific foreign ownership restrictions — these apply at the licence and permit level, not at incorporation. A company can be incorporated with 100% foreign ownership, but may be unable to obtain the operating licence it needs
• Foreigners cannot own a sole proprietorship or general partnership in Malaysia — these structures are reserved for Malaysian citizens and permanent residents

The Right Structure for Foreign Investors

Foreign investors typically have three options for establishing a presence in Malaysia:

For most foreign entrepreneurs looking to run a real business in Malaysia — generating revenue, hiring staff, signing contracts — the Sdn Bhd is the correct and most practical choice. It provides limited liability protection, a separate legal identity, and the most flexibility for long-term operations.

The Resident Director Requirement

This is one of the most common stumbling blocks for foreign entrepreneurs. Under the Companies Act 2016, every Sdn Bhd must have at least one director who is ordinarily resident in Malaysia. A foreign director living overseas does not satisfy this requirement, even if they are the sole shareholder.

"Ordinarily resident" means the person's primary place of residence is Malaysia — holding an Employment Pass, MM2H visa, or permanent residency (PR) qualifies. Being a foreign national alone does not disqualify someone, provided they are genuinely resident here.

Who can be the resident director?

• A Malaysian citizen or permanent resident
• A foreign national who holds a valid Employment Pass and is resident in Malaysia
• A foreign national holding MM2H (Malaysia My Second Home) or permanent residency
• A nominee director appointed through a licensed corporate secretarial firm (see Part 5 for important limitations)

Industry Restrictions on Foreign Ownership

This is the area most foreign entrepreneurs underestimate. Malaysia allows 100% foreign ownership at the point of incorporation — but many industries impose restrictions through the licensing and permit process. You can incorporate a fully foreign-owned Sdn Bhd, only to find that the licence you need to operate requires local ownership, a Bumiputera equity stake, or a locally resident individual as the licence holder.

These restrictions vary widely by sector and are enforced by different regulatory bodies — not SSM. The key regulators include the Ministry of Tourism, Ministry of Education, Bank Negara Malaysia (BNM), Securities Commission, and various local councils.

The Nominee Director: What It Is and What It Cannot Do

A nominee director is an individual — usually provided by a corporate services firm — who is appointed as a director of your company solely to satisfy the residency requirement under the Companies Act 2016. They are a Malaysian resident on paper, allowing the company to be legally incorporated.

This arrangement is legal and widely used. However, many foreign entrepreneurs misunderstand the scope of what a nominee director can and will do — and this creates serious problems when it comes to running the business.

What a nominee director typically does

• Appears on SSM records as a director to satisfy the residency requirement
• Signs statutory documents required for incorporation and annual compliance
• Is governed by a nominee director agreement that limits their involvement

What a nominee director typically does NOT do

• ✕Act as a representative or applicant in licence or permit applications on behalf of the company
• ✕Attend government offices, ministries, or regulatory bodies on your behalf
• ✕Serve as the "person in charge" (PIC) or responsible person for regulated licences
• ✕Sign commercial agreements or banking documents beyond what is agreed in the nominee agreement
• ✕Be involved in the day-to-day operations of the business

What you should do instead

• Verify your licence requirements first — before incorporating, confirm with the relevant authority whether your business licence can be held by or applied for by a fully foreign-owned company
• Consider a genuine local partner — if your industry requires local involvement in licensing, a genuine Malaysian business partner (with a proper shareholders' agreement) is the most practical solution
• Relocate to Malaysia — if you plan to be actively involved in running the business, obtaining an Employment Pass and becoming resident yourself solves the director residency issue and gives you full operational flexibility
• Get a nominee director agreement in writing — always ensure the scope and limitations of the nominee's role are clearly documented before you appoint them

Banking Challenges for Foreign-Owned Companies

Opening a corporate bank account is one of the most common pain points reported by foreign entrepreneurs in Malaysia — and it is important to understand why before you start.

Malaysian banks are subject to strict anti-money laundering (AML) obligations under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA). As a result, banks conduct thorough background and due diligence checks on all new corporate account applicants — and these checks are significantly more rigorous for foreign-owned or foreign-controlled companies.

What to expect

• In-person requirement: Most Malaysian banks require all directors — including foreign directors — to be physically present to open a corporate account. Remote or digital account opening is generally not available for new companies with foreign directors
• Extensive documentation: Banks typically request certified copies of passports, proof of residential address in your home country, business plans or descriptions of the company's activities, source of funds declarations, and evidence of existing business activity
• Longer processing times: Account approval for foreign-owned companies can take 4–8 weeks, compared to 1–2 weeks for Malaysian-owned companies. Some applications are declined without detailed explanation
• Higher scrutiny on source of funds: Banks will want to understand where the company's initial capital and operating funds are coming from, and may ask for bank statements from your country of origin
• Higher minimum deposit requirements: Some banks impose higher initial deposit requirements for foreign-owned companies

Practical tips

• Plan a trip to Malaysia specifically for bank account opening — do not assume it can be done remotely
• Business address requirement: Some banks require the company to have a physical business address or registered business premises before they will process the account application. A virtual office address may be accepted by some banks but not others — confirm this with your preferred bank before applying
• Prepare a clear and concise business description explaining what the company does, who its customers are, and how revenue is generated — banks respond better to clear business models
• Try more than one bank — different banks have different internal risk thresholds for foreign-owned companies. If one bank declines, another may approve
• Engage your company secretary early — a licensed company secretary can help prepare the company documents the bank needs, including board resolutions for account opening

Tax Implications of Foreign Shareholding

The tax structure for foreign-owned Sdn Bhd companies in Malaysia is broadly favourable — but there is one important threshold to be aware of.

This means that if you own 20% or more of the company as a foreign shareholder — which includes owning 100% — your company will be taxed at the flat 24% rate and will not qualify for the preferential 17% SME rate on the first RM600,000 of profit.

How much more tax does this mean in practice?

The difference between the SME rate and the flat 24% rate on the first RM600,000 of chargeable income is significant:

Other tax considerations

• Withholding tax on dividends: Malaysia does not impose withholding tax on dividends paid to shareholders — this is a significant advantage for foreign investors repatriating profits
• No capital gains tax: Malaysia does not have a general capital gains tax (though RPGT applies to property gains)
• SST: Sales and Service Tax applies once your annual taxable turnover exceeds RM500,000 — monitor this threshold as your business grows
• Transfer pricing: If your Malaysian company transacts with related companies overseas, transfer pricing rules apply and documentation is required

Employment Pass for Foreign Directors

If you are a foreign national who wants to actively work in and manage your Malaysian company — rather than just being a shareholder from overseas — you will need to obtain an Employment Pass (EP).

Simply owning shares or being listed as a director does not entitle you to live and work in Malaysia. You must apply for the appropriate work authorisation separately.

Employment Pass eligibility requirements

• Minimum monthly salary of RM5,000 (Category II EP) or RM10,000 (Category I EP)
• The company must be active and have a valid business address
• The company's paid-up capital is taken into consideration — higher capital generally supports stronger EP applications
• Applications are submitted to the Expatriate Services Division (ESD) under the Immigration Department

Alternative: MM2H Platinum Visa

If you do not qualify for or prefer not to apply for an Employment Pass, another option for staying in Malaysia long-term and running your business is the Malaysia My Second Home (MM2H) Platinum programme.

• MM2H Platinum holders are permitted to stay in Malaysia long-term and are allowed to work or run a business
• Minimum fixed deposit requirement: RM1,000,000
• Minimum monthly offshore income: RM40,000
• Applicants must not have any criminal record and must meet health requirements
• This is a long-term social visit pass — it is distinct from an Employment Pass and the requirements differ significantly

Step-by-Step: How to Incorporate as a Foreigner

Step 1 · Verify your industry requirements

Before anything else, confirm whether your intended business activity has foreign ownership restrictions or licensing requirements. This must be done before you commit to any structure — see Part 4 for guidance.

Step 2 · Decide on your shareholding and director structure

Determine who the shareholders and directors will be, what percentage each holds, and how you will satisfy the resident director requirement — through a genuine local partner, your own residency, or a nominee director arrangement.

Step 3 · Proceed with company incorporation

Engage a licensed company secretary to handle the full incorporation process with SSM. Incorporation is typically approved within 2–3 working days of submission. Documents can be signed remotely.

Step 4 · Open a corporate bank account

Plan a physical trip to Malaysia for this step. Bring all original documents and be prepared for a thorough review process. See Part 6 for details on what to expect and prepare.

Step 5 · Look for and secure business premises (if needed)

Depending on your business type, you may need a physical office or operating premises. Note that some banks and licence applications require a verifiable business address — factor this in before finalising your premises.

Step 6 · Apply for operating licences

Apply for all industry-specific licences required to legally operate your business. Do not commence trading before the necessary licences are in place — operating without a required licence carries penalties and can result in forced closure.

Step 7 · Start hiring employees

Once the company is operational, begin recruitment. Register as an employer with EPF, PERKESO, and LHDN before processing your first payroll. Refer to our Malaysia Payroll Guide for a full step-by-step on employer registration.

Step 8 · Apply for Employment Pass (if needed)

If you plan to be based in Malaysia and actively manage the business, apply for your Employment Pass through the Expatriate Services Division (ESD). Given the processing time involved, begin this process as early as possible — ideally before or immediately after incorporation. See Part 8 for the EP and MM2H Platinum options.

Key Things to Verify Before You Proceed

Before incorporating a foreign-owned company in Malaysia, make sure you have honest answers to the following questions:

• Does my intended business activity have foreign ownership restrictions at the licence level — not just at incorporation?
• If I need a nominee director, have I confirmed that the nominee arrangement will be sufficient for my licensing requirements — or will I need a genuine local partner?
• Have I planned for the bank account opening process, including a physical trip to Malaysia and the documentation required?
• Am I comfortable with the 24% corporate tax rate that applies because of my foreign shareholding?
• If I plan to be based in Malaysia, have I factored in the time and requirements for an Employment Pass application?
• Do I have a licensed company secretary appointed or identified — someone who understands the specific needs of foreign-owned companies?