How To Set Up A Sdn. Bhd. In Malaysia: A Complete Guide For Foreign Investors (2025)

For foreign investors, Malaysia's Private Limited Company (Sendirian Berhad or Sdn. Bhd.) is the most common and practical vehicle to establish a business presence. A Sdn. Bhd. offers limited liability, credibility with banks and regulators, and flexibility across industries.

Under the Companies Act 2016, every Sdn. Bhd. is a separate legal entity, distinct from its shareholders. This means that investors' liability is limited to the amount unpaid on their shares. With Malaysia permitting 100% foreign ownership in many sectors, the Sdn. Bhd. has become the entry structure of choice for international companies.

This guide walks you through the legal framework, ownership rules, incorporation process, tax obligations, immigration issues, compliance duties, and practical use cases of a Sdn. Bhd. It is written with foreign investors in mind and updated for 2025.

⮕ Not sure yet what type of company you want to set up in Malaysia? Check out our comprehensive guide to setting up a business in Malaysia for foreign investors.

⮕ You already know that you want to set up a Sdn. Bhd. in Malaysia? Go straight to filling out our form here.

Legal Foundation of a Sdn. Bhd.

The basics of a Sdn. Bhd.

A Sdn. Bhd. is governed primarily by the Companies Act 2016 (CA 2016). Its defining features include:

Separate legal entity: It can sue and be sued in its own name.
Limited liability: Shareholders are liable only up to their capital contribution.
Continuity: The company continues even if shareholders change.
Private status: Shares are not offered to the public, and the number of shareholders is capped at 50 (s.42 CA 2016).

Key statutory requirements of a Sdn. Bhd.

At least one director ordinarily resident in Malaysia (s.196 CA 2016).
At least one shareholder (individual or corporate, local or foreign).
At least one qualified company secretary, who must be a Malaysian citizen or permanent resident (s.235 CA 2016).
A registered office in Malaysia (s.46 CA 2016).

Ownership Rules and Capital Requirements of a Sdn. Bhd.

A Sdn. Bhd. can have 100% foreign ownership

Foreign investors can generally hold all shares in a Sdn. Bhd. There are, however, equity restrictions in specific regulated industries such as telecommunications, oil & gas, and wholesale and retail trade (WRT).

Paid-up capital in a Sdn. Bhd.

Technically, the minimum paid-up capital is RM1.
In practice, higher capital is required for credibility with banks, licensing bodies, and immigration authorities.
The Expatriate Services Division (ESD) requires minimum paid-up capital for companies seeking to employ expatriates:
- RM1,000,000 for foreign-owned companies (≥51%) in services/retail.
- RM500,000 for other sectors.

Incorporating a Sdn. Bhd.

Incorporating a Sdn. Bhd. is handled by the Companies Commission of Malaysia (SSM). SSM sets forth detailed guidelines on its website, but you can find an overview here:

Step 1: Name reservation

Apply through SSM's MyCoID portal.
Valid for 30 days (extendable up to 180 days).

Step 2: Prepare incorporation documents

Super form (application for incorporation).
Particulars of directors, shareholders, and secretary.
Constitution (optional – unless special rights/clauses are needed).

Step 3: Lodgement with SSM

Once approved, SSM issues a Notice of Registration as proof of incorporation.

Step 4: Post-incorporation tasks

Appoint company secretary (within 30 days).
Open corporate bank account.
Register for tax and, if applicable, SST.

Timelines

Typically 1–3 weeks, depending on document readiness and shareholder documentation.

Drafting a Constitution Tailored for Your Needs

The reasons for having a tailor-made constitution

Under the Companies Act 2016, a Sdn. Bhd. can operate without a constitution, relying instead on the Act's default rules. Many service providers stop there.

We take a different approach: for foreign-owned subsidiaries, we prepare a tailored constitution. This gives foreign investors the ability to align the governance of their Malaysian subsidiary with their group-wide policies and internal requirements.

A tailored constitution can, for example:

Define clear rules on shareholder decision-making.
Set out reserved matters requiring parent approval.
Provide flexibility in board composition and decision processes.
Enhance minority protection where multiple investors are involved.

⮕ For foreign investors, this ensures that the Malaysian subsidiary operates not just in compliance with local law, but also in harmony with the group's global governance standards.

Why this matters for foreign investors

This is where the advantage of working with a law firm fully comes into play. Drafting a tailored constitution is not just an administrative exercise – it requires understanding how Malaysian law interacts with your group's existing governance structures.

Company secretaries can handle statutory filings, but they often struggle to translate foreign investors' internal requirements into enforceable constitutional provisions. By contrast, as lawyers focusing on foreign clients, we ensure that your Malaysian subsidiary is not only compliant but also aligned with your global governance standards from day one.

⮕ Find out more here on the advantages of having a tailor-made constitution.

Taxation of a Sdn. Bhd.

Standard corporate income tax

Flat rate of 24% on taxable profits.

SME preferential rates

If paid-up ordinary share capital is ≤RM2.5m and not more than 20% is owned directly/indirectly by non-Malaysian citizens or foreign companies, the company qualifies as an SME.
SME rates (as of YA 2024):
- 15% on the first RM150,000 of chargeable income.
- 17% on the next RM450,000.
Foreign-owned companies exceeding the 20% foreign shareholding threshold are excluded.

Withholding tax

Payments to non-residents (royalties, interest, technical fees) may attract withholding tax.

SST and other taxes

Service Tax (6%) applies to certain service providers.
Import duties and excise duties may apply depending on business activities.

Immigration and Expatriate Hiring

One major advantage of a Sdn. Bhd. is its eligibility to employ expatriates.

Companies must register with the Expatriate Services Division (ESD).
Minimum paid-up capital applies (MYR 500k – MYR1m as noted above).
Employment Passes (EPs) are tied to company capitalisation, business activity, and justification.
Processing time: typically 3 months from the moment all documents are in place (please note that the process has improved tremendously over the last years, but ESD is often still quite strict when it comes to certain requirements. You should allocate sufficient time).

This makes the Sdn. Bhd. the most practical vehicle for foreign businesses intending to bring in international staff.

Compliance and Governance

Once incorporated, a Sdn. Bhd. must comply with ongoing statutory obligations.

Annual returns

Must be filed with SSM within 30 days of the anniversary of incorporation.

Financial statements

Must be prepared annually.
To be circulated to members within 6 months after financial year end and lodged with SSM within 30 days after circulation (ss.258–259 of the Companies Act 2016).

Audit requirements

Most companies must be audited.
Audit exemption thresholds (for FYs from 1 Jan 2025): revenue ≤ RM3m, assets ≤ RM10m, employees ≤ 30.

Company secretary

Maintains statutory registers and filings. This is an absolute requirement in Malaysia.

Directors' duties

Directors owe fiduciary duties under ss. 210–218 of the Companies Act.
They may be personally liable for breaches.

⮕ See here for further guidance on Director's legal duties in Malaysia.

Local Director Requirement

A foreign-owned Sdn. Bhd. must have at least one resident director.

"Ordinarily resident" means principal place of residence in Malaysia.
Failure to appoint or maintain a resident director can result in non-compliance or strike-off.

⮕ Many foreign investors solve this by engaging professional resident director services. This ensures compliance, continuity, and avoids the risks of informal nominee arrangements. Find out more here to learn how you can comply safely as a foreign investor to Malaysia.

Practical Use Cases of a Sdn. Bhd.

Trading and distribution: Foreign investors establishing local distribution channels.
Services sector: Consulting, IT, engineering, and professional services.
Manufacturing: Setting up production facilities with incentives from MIDA.
Regional headquarters: Using Malaysia as a base for ASEAN operations.

The flexibility of the Sdn. Bhd. makes it the default choice for most operational foreign businesses.

⮕ Is a Sdn. Bhd. the right company for you? Contact us here to let us know how we can assist you.

Case Study: From Representative Office to Sdn. Bhd.

A European SME first set up a Representative Office in Kuala Lumpur to test the market. After 3 years of sourcing suppliers and building relationships, the company decided to expand into direct sales. They incorporated a 100% foreign-owned Sdn. Bhd., met the RM1m paid-up capital threshold, and successfully obtained Employment Passes for their expatriate managers.

The transition gave them full operational capacity in Malaysia, access to tax incentives, and credibility with local banks and partners.

FAQs

Can foreigners own 100% of a Malaysian Sdn. Bhd.?
Yes, in most sectors. Restrictions remain in regulated industries.

What is the minimum capital for incorporation?
Technically RM1, but in practice RM500,000–1,000,000 is required for immigration and licensing.

Do Sdn. Bhd.s need an audit?
Yes, unless they qualify for audit exemption (from 2025: revenue ≤ RM3m, assets ≤ RM10m, ≤30 employees).

How long does incorporation take?
Usually 1–3 weeks, depending on shareholder documentation.

Can a foreigner be the sole director?
Yes, if they are resident in Malaysia with a valid work permit. Otherwise, a professional local director is required.

Conclusion

For foreign investors, the Sdn. Bhd. is the most practical and flexible vehicle to operate in Malaysia. It combines limited liability, broad ownership flexibility, eligibility for expatriate hiring, and credibility with stakeholders.

However, incorporation and compliance require careful planning:

Capitalisation must align with immigration goals.
Resident director requirement must be met responsibly.
Tax and compliance duties must be managed from day one.

With the right support, a Sdn. Bhd. offers a strong, stable foundation for doing business in Malaysia.

The original article was published on Aqran Vijandran's website at How to Set Up a Sdn. Bhd. in Malaysia: A Complete Guide for Foreign Investors (2025).

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.