Doing Business in Malaysia

I won’t call myself an entrepreneur. I am just a software engineer who has been experimenting with different ways of creating value with my software skills, and making some money while also having some fun.

Some background:

• I started my first business with some university mates to build websites in the early 2000s, like many people who came up in this industry, I suppose
• The first few years post-graduation worked in Malaysia and then moved to China for a couple of years, and then back to Malaysia to do my first startup
• The startup was a Private Limited company (a “Sdn. Bhd.” company in Malaysian terms), and we got some funding to kick things off
• After a few years, we shut it down as the business failed and I went back to do some contracting work
• To make things simple, I setup a Sole Proprietorship to deal with my contracting work
• And after 1 year, there was an opportunity to create a consulting firm with some friends, so we started a Private Limited company
• After a few years, there was an opportunity to join a tech startup, and we got acqui-hired, and that Private Limited company was then wound down

Recently, after a 6 months break, I wanted to do a bit of consulting work, and I needed a legal entity to support this, so I started to research a bit into this. To my surprised, a lot has changed in Malaysia since I started my company way back then.

The cool thing is that there is this new entity type called Limited Liability Partnership (LLP) that is like a hybrid between the Sole Proprietorship and the Private Limited company. Taking a step back maybe I should explain what are the main differences. For a Sole Proprietorship, it is a very simple to set it up, and also you don’t have requirements to do audits, and have a company secretary and things like that. But the issue is that the liability is not limited. On the other hand a Private Limited company, as per the name, you have limited liability, up to your paid up capital (if I am not wrong), but you have more requirements to do things like audits, and need to have a company secretary to do your annual filings and annual general meetings. These activites, which are normally done by a separate company that provide such services typically require a fee of few thousands of Malaysian Ringgits, annually. A LLP setup do not require one to do audits, and such, so it is also cheaper to run and maintain, especially for simple businesses.

So I started off looking how to set things up, and to my surprise, a lot of things can be done digitally.

1. You can setup a LLP in Malaysia, 100% digitally on a website provided by the Suruhanjaya Syarikat Malaysia (SSM), which is the Companies Commission of Malaysia a statutory board that regulates corporate and business affairs in Malaysia.

2. Once that is done, you can then go and setup your bank accounts. A lot of banks do have their signup forms online, but then the process becomes offline. Someone will (potentially) come and contact you to get more details. And typically, you need to appear at the bank and do a bunch of Know Your Customer (KYC) type of activities. This was a bit off putting, as the bank I contacted, didn’t even contact me back, and I had to send multiple emails times to get some reply. At the end of the day, the best way to deal with banks in Malaysia is going into some branch in person.

3. Malaysia’s tax authority Lembaga Hasil Dalam Negeri (LHDN) has pretty good online services. You can register and get your tax number for your business, pay your taxes and deal with all tax related stuff online. LHDN even provides an invoicing system, that I have been using to create invoices, as Malaysia is moving towards making it mandatory from this year onwards.

4. If you need to, you can go and deal with your normal employee related things like Employees Provident Fund (EPF), which is a federal statutory body that manages compulsory savings plan and retirement planning for private sector workers. You can probably register one now (I hope, YMMV), but I had issues and had to go to the office, maybe it was related to the fact that my entity is a LLP. (Thinking back, the LLP Act was enacted in 2012, so it has been 13 years….). For Social Security Organization (SOCSO) that provides financial and medical aid to employees, you can do it 100% online.
   
   Another cool thing I found out is that EPF provides a payroll system that automates all your compensation related matters which means your LHDN (i.e. taxes), EPF and SOCSO contributions are automatically dealt with. It is actually a pretty well design system for small businesses.

So all in all, I would rate a B+ grade in terms of ease to do business in Malaysia from an online serviecs point of view. The major hurdle (for me) is getting a business bank account, which you can’t do online. As a small business, there are many free digital tools provided by the government to make things quite easy. One obvious thing is you still need to do your own research to ensure that for whatever business you want to setup and run, there are probably different things you need to be prepared for like, Sales and Service Tax (SST), or other licenses that you might need.