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Business Inception Guide

The inception of your idea in the venture of business in Malaysia is very much depends on the business involved and the manner in which the business is operated. The following reference information provided is briefly focus on the compliance of regulatory requirement, protection of interest and seed money by way of limited liability, taxation implication, withdrawal during the gestation or incubation period.

The forms in which business usually take place are elaborated as:-

Individual Very often before the inception period, exploration of business transactions were carried out by individual and the transactions are not recurring on a frequent basis. This situation is commonly referred as “trial and error” period and generally includes the business of commission or consultation in nature or petty trader.

Except for the commercial terms agreed upon between the individual and the relevant party, there is no assurance on the extent of liability which may occurred on the individual.

Malaysian involved in this mode of business will have no legal implication in terms of regulatory compliance. However, non-Malaysian would subject to the approval by the immigration law of Malaysia.

The current taxation system in Malaysia is based on income derived and accrued within the territory of Malaysia. Hence, income derived and accrued within the territory of Malaysia would be subjected to tax regardless of the legality of the business. The business of such nature is sometime referred as “hit and run” in some cases and the withdrawal would not have any cost.
Sole Proprietorship/Partnership Businesses that are operated under sole proprietorship or partnership are governed by the BRA. Only Malaysian citizens and permanent residents are allowed to operate under sole proprietorship or partnership as provided under BRA.

Under this form of business, the assurance in the extent of liability is equivalent to business operated under individual’s name - i.e. unlimited liability.

The taxation implication is similar to personal income tax and enjoys a gradual tax rate on income earned from the sole proprietorship or the income distributed from the partnership.

Currently, the inception and withdrawal of sole proprietorship and partnership will have a cost below RM1,500 and both inception and withdrawal shall be registered with the department under the BRA.

The BRA does not require audit to be performed on the accounts of the sole proprietorship or partnership nor do they need to be submitted to the department of BRA. However, records of business shall be kept in accordance to the rulings issued under MIT for verification.
Limited Liability Partnership (“LLP”) LLP is a new concept of business vehicle which is a hybrid company-partnership with the conventional partnership features and SB privileges.

Any two (2) or more persons associated for carrying on any lawful business with a view to profit may form a limited liability partnership in accordance with the terms of the limited liability partnership agreement by filing an application for registration to the Registrar of Companies.
SB SB is governed by the CA and the liability is limited to the extent of the issued and paid up share capital of the SB.

The forming of SB require one (1) individual shareholder with a minimum issued and paid up capital of RM1.00 and with one (1) Director.

The taxes of a SB is governed by the MIT and SME enjoys a lower tax rate at 18% for the first RM500,000 of chargeable income earned and thereafter, at 24%. The non SME is tax at a flat rate of 24% on all chargeable income earned.

Currently, the inception and withdrawal may have the following cost:-
Inception : RM3,000 to RM4,000
Withdrawal by way of voluntary winding-up : RM15,000 to RM20,000

On an annual basis or at a time specifically allowed by the CA or MIT, a SB is required to submit an audited accounts and tax return to the relevant department on the prescribe date.

Apart from the above general form of business inception, venture of business in Malaysia can take the form of a BHD, representative office and others which are not in common, which has separate provision of Acts, regulations and guidelines within the form. Business can also be operated or carried out in the designated tax haven of Labuan, Malaysia.

One of the areas which are of concern is the following common licensing requirements for business operating within the territory of Malaysia:-

In addition to the above, businesses are requires to register with Royal Malaysian Customs of business revenue exceed or expected to exceed RM500,000 over a 12 months period. It is also important for business venturers to have a more comprehensive understanding of withholding tax applicable at time for cross-border transactions. Professional advice is required in order to avoid any complication.