Establishing a representative office (RO) in Malaysia is often the fastest and most cost-effective way to have a legal entity and study the local market before determining viable opportunities. However, the RO is prohibited from earning any revenue and is limited to mainly market research, information gathering, and developing trade contacts in Malaysia.
Malaysia is fast competing with Singapore to attract foreign businesses seeking a strategic location to headquarter their Asian operations.
The country’s proximity with other ASEAN markets, competitive operation costs, and strong supply chain linkages underscore Malaysia’s importance as a regional hub. Establishing a representative office is the fastest way of establishing a legal entity and studying the local market before determining if setting up operations in Malaysia is a viable proposition.
Foreign businesses should also know that the RO is a non-trading entity and is thus not governed by the regulations under the Companies Act 2016. The RO is not permitted to earn any revenue in Malaysia.
How do I set up a representative office in Malaysia?
Most applications (excluding tourism, banking, and finance) are submitted to the Malaysian Investment Development Authority (MIDA).
Applications for ROs in banking and finance must be submitted to the Central Bank of Malaysia, and RO applications for tourism services must be submitted to the country’s Ministry of Tourism.
What are the required documents for setting up the representative office in Malaysia?
All documents must be certified by the notary and must be in the English language. The required documents include:
Company profile of the parent company;
A completed application form stating the purpose of establishment, the activities of the proposed RO, the benefits the RO will bring to Malaysia, and the estimated cash flow and human resources requirements;
Copy of the parent company’s certificate of incorporation;
A copy of the parent company’s latest annual reports and audited accounts from the last two years;
Tenancy agreement for their business address in Malaysia;
Copy of passport for the approved expatriate;
Copy of their resume;
Copies of employment testimonials; and
One passport-size recent photo.
What are the permissible activities of a representative office in Malaysia?
The RO can undertake any of the following activities:
Gathering information on investment opportunities in Malaysia and the region;
Identifying components, sources of raw materials, or suppliers;
Undertake market research and development;
Act as a coordination center for the parent company’s affiliates, agents, and subsidiaries in the region; and
Other activities that do not result in commercial transactions.
What activities are representative offices not permitted to do in Malaysia?
In addition to commercial activities, ROs are also prohibited from:
Signing business contracts;
Participate in the daily operations of any subsidiaries or branches in Malaysia; and
Lease warehousing facilities.
What is the duration of the RO?
A company can establish the RO for a minimum of two years, which can be considered for extension depending on the company’s commitment to operating expenditure and based on the merits of each case.
For government entities or trade associations, the RO duration is for a maximum of five years, which can also be extended based on the merits of each case.
What is the operational expenditure to set up an RO in Malaysia?
The ROs operational expenditure must be at least 300,000 ringgit (US$71,000) per annum. Further, the RO needs to be financed from sources outside of Malaysia.
The RO is eligible for expatriate hiring, although expatriates can only be considered for managerial and technical posts. Further, the expatriate must be currently working for the parent company or within the group or subsidiary.
Their tax is based on the portion of chargeable income attributed to the number of days they are in Malaysia.
Related Reading: Doing Business In ASEAN 2022