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Malaysia Routes to Market

So you've decided to expand your business in Malaysia and researched your market. Now it's time to decide how you will register or expand the business. What is the best, most viable option for your company, your products, and yourself? Which is the path of least resistance?

All incorporated businesses in Malaysia must be registered with the SSM (Companies Commission). Here are your typical options when expanding a business into Malaysia:

Limited Company (by shares)

This is the most common form of business for foreign investors. There is a maximum of 50 shareholders and the shares cannot be sold to members of the public. The registration fees vary according to the size of the company.

Sole Proprietorship

A business owned by one person, it offers a simple and flexible way to the market. The investor will be personally liable for any losses the business makes. In Malaysia, only a permanent Malaysian resident or citizen is permitted to register this form of company.

Partnership

Like a sole proprietorship, a partner will be liable for any losses the business may make. There must be a minimum of 2 owners and a maximum of 20. At least one member of the company needs to be a permanent Malaysian citizen and the business also requires a permanent office in Malaysia.

International Procurement Centre

A foreign business can use this form of company for the procurement and sale of raw materials, components and finished products in Malaysia and abroad. There must be a minimum capital investment of RM0.5million and a minimum total business spending of RM1.5 per year. The business must use Malaysian ports and airports for exports and it requires a sales turnover of RM50 million by the third year of business. This form of business can be 100% foreign owned.

Free Zones

To encourage foreign investment in certain industries, there are a number of Free Zones. The incentives for setting up your business in a Free Zone include:

• No Duty, sales tax or service tax

• 100% foreign equity

• 100% repatriation of capital and profits (except for certain products)

• Industrial Allowances

• Tariff Extensions

• Export Incentives

• R&D Incentives

Multimedia Super Corridor Status

This is a way for foreign media companies who meet the criteria to use Malaysias advanced communications network and benefit from incentives such as:

• Pioneer Status- No income tax for a period of 5 years

• 100% investment tax allowance

• Eligibility for research and development grants

• Duty free importation of media equipment

Licensing

Licensing is the permission for someone else to use your intellectual property rights: either a patent, trademark, trade secret, or copyright. Different types of license include:

• Non-Exclusive License - A non-exclusive license implies that your intellectual property rights can be awarded to more than one licensee.

• Exclusive License - A little more complex because, although the license may not be exclusive to one licensee, it may be exclusive to a geographic location, a certain product, or limited area of use. For instance, you may grant a licensee exclusive use of the rights in France, yet grant another licensee its use in Germany.

• Patent License - The allowance of another party to use your patented product, design or process.

• Trademark License - Trademark licensing means permission is awarded to a licensee to sell a product or service. However, the licensor retains more control in order to ensure that quality is maintained. Quality control is in place to uphold the image of the brand / product / service / licensor, and therefore sustain customer confidence and satisfaction.

Franchising in Malaysia

Franchising is the licensing out of a business name, product, technique, philosophy, trademark, etc, for a percentage of the income. Instead of setting up new outlets as part of your expansion, you license your existing business blueprint out to franchisees who then set up and manage it for you.

The benefits of franchising your business in Malaysia include: more freedom, as the franchisee takes on major responsibilities; minimal expense; lower cost and higher profits; potential for fast growth; brand building.

Disadvantages of franchising a business in Malaysia: although few, rely predominantly on your franchisees. They include: poor quality franchisees; franchisees not declaring all income; poor performance.

In 1994, The MFA (The Malaysian Franchise Association) was formed to support the implementation of the government programme to promote entrepreneurship through franchising and brands such as Subway have established a presence in Malaysia through franchises.

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