Business and Finance

10 Things to Know When Starting a Small Business in Malaysia

Most entrepreneurial-minded prospective small business owners, either newly arrived foreigners or expats already in Malaysia, will find it quite difficult to resist wanting to establish a business in the very bustling commercial environment of this country. Malaysia, being a centre of trade, manufacturing, cultivation, and culture for decades in its strategic location in Southeast Asia, has seen its economy flourish tremendously over time. This has been the case even more so in the last couple of decades, especially since the 1990s where thousands of businesses have started successfully and flourished in just a matter of a few years.

But of course, for every success story, there are certainly failures, too. And it is important to know that although it is relatively easy to start a business in Malaysia, especially a small one, it’s nevertheless vital for a foreigner to know first the preliminaries, advantages, limitations, and legalities involved in starting a business in this country. This article contains basic information to guide you as you delve deeper into this subject or to actually go ahead and start a company.

So do take note of the following things that you should be aware of before taking the plunge and starting your own small business in Malaysia.

1. Get to know and understand Malaysia first

Spend some time getting to know Malaysia and Malaysians before even starting research on what businesses might be viable here. Don’t jump straight into anything if you are still unsure or unfamiliar with the country you want to do business in. Travel around and get a feel for Malaysia, its cities, its rural areas, etc. Make contacts and friends, and familiarise yourself with the country, its foods, cultures, policies, and laws. At the same time, get and stay in touch with the trends, fashions, and tastes.

2.What businesses seem viable in Malaysia, and what are you passionate about?

When a foreigner does enough investigation and speaks to enough people, both locals and foreigners, the ‘big picture’ about Malaysia begins to form in his or her mind. This also means that you will begin to know or at least be in a position to explore what types of businesses are suitable if not viable for a foreigner to do or to invest in this country.

Also knowing what skills, products and services you can offer, taking into account what you are good at, that you have knowledge and experience in, truly counts.  But at the same time. know what your passions are or at least get to know them, so that maybe you can find a correlation between what you really like to do, what you’re good at, and what areas of business opportunities you can find a niche to step into locally. These could take days, weeks or months, even years, but the more familiar you are with Malaysia the better, while keeping in mind that starting small is both wiser and safer. The more you know will not only help you make better choices but will help you overcome the inadvertent painful pitfalls of doing business and even avoid them altogether most times.

3. Find out if the business that you (as a foreigner) want to start in Malaysia is allowed by the government

After you have made a list of possible businesses to start, the next step is to find out is whether a foreigner is permitted to start any of these types of businesses in their respective industries, as the government does impose restrictions to the types of industries a foreigner can enter. But the good news is that there are many industries or areas of business that a foreigner can venture into and start a business whether big or small. Researching and checking with the Company Commission of Malaysia (CCM) or Suruhanjaya Syarikat Malaysia (SSM) on their website or getting a local representative like a company secretary or law firm or accounting firm or business consultancy to advise you, or to make enquiries, or to help you start a business is a good idea.

4. Know what business entities are applicable to the foreigner and their business, where and how to register the business, and types of trade permits and certificates needed

It is important to note that foreigners are not allowed to start unlimited companies, sole proprietor companies, partnerships, enterprises, or LLPs in Malaysia. Foreigners are allowed to start businesses in the form of a private limited company or Sendirian Berhad (Sdn. Bhd.) only – which is a standard Malaysian Private Limited Company (MPLC).

Foreigners are also encouraged to start another type of entity i.e. an international off-shore Labuan International Company, (LIC) which has special features, extra benefits and lesser or fewer prerequisites then other forms of entities. This company can be owned 100% by foreigners and has the lowest paid up capital to run your international business in this country with minimum hassle. There is no need for most trade licenses needed for most types of businesses and without it being compulsory to set up an office (provided there is no need to apply for work permits) in the international free trade zone, of Labuan Island, to operate. There are also more and bigger tax exemptions as well as lower tax rates for the LIC.

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Foreigners can own 100% of the MPLC besides the LIC depending on the nature of the businesses or what industries they are in, where the starting paid-up capital is minimum RM500,000 to RM1,000,000 and minimum USD1.00 to RM250,000 (if work permit needs to be applied for) respectively. If the MPLC has Malaysian partners involved as directors and shareholders, the minimum paid-up capital is RM350,000 (this figure is subject to change and being reviewed currently).

For the MPLC, the family of the applicant and himself can also get a two-year Dependant Visa and Business Visa respectively, in which can be obtained together with the incorporation of the company, within 60 to 90 days or even less. From this, work permits,  (also called the Expatriate Work Permit DP10) can also be applied for 3 to 4 foreign white-collared workers to work in the company. Usually for both the LIC and MPLC, from the time of application to the time that business operations start, where premises have been set-up, trade licenses acquired (if required), work permits obtained, and final visa endorsements done, ranges from 3 months to 6 months and 6 months to 9 months respectively.

5.  Familiarise yourself with the laws, customs and policies that apply to foreigners for business startups.

After going through and exercising the above four steps, you will have ideally narrowed down your choices  to one or two businesses to consider. The next step is to get to know more about the business, such as taxation (e.g., Goods and Services Tax (GST) and labour laws of Malaysia as well as the local council regulations and permits given by certain government bodies, agencies, and authorities that apply to the chosen business.

Generally, it is good to find out with depth the privileges and penalties, advantages and disadvantages, as well as the benefits and limitations of doing business in Malaysia as a foreigner for the entity and business chosen.

6. Research and understand the market of the business that you want to go into.

If the business is say, import and export, it is only logical to know both the local as well as overseas markets you are thinking of doing business in. If the business’s target market is basically in Malaysia only, then of course, it is important to research and understand everything related to your business locally.

If you’re thinking of opening a restaurant, you should decide whether to cater to the lower income, or middle-to-upper income market, or whether you wants to cater to the lunch hour office crowd market or even to the vegetarian food market, etc. Then really observe, learn and understand all that is involved in this category of food and beverage, for example the 6 Ps, i.e., pricing, place (location), product, people (type of customers and workers needed), promotion (type required) and even package (if it applies e.g. combo set or set lunch).

It is also crucial to know who and how strong are your competitors, of which really applies to all types of businesses and industries and even other areas of life. Getting to know the strengths and weaknesses of products and services of not only your own company, but also that of your competitors, by doing a SWOT Analysis which is a useful and important exercise.

7. Determine the amount of investment and time needed, as well as projected Return on Investment (ROI)

Costs, like company registration fees, trade licensing fees, e.g., Wholesale and Retail Trade (WRT) permit fees, and local council licenses and permits for advertising and premise signboards are all forthcoming. Meanwhile other costs like office/shop renovation, furniture and fittings, rental and deposits for the premise as well as initial deposit needed to open a bank account (usually varies between RM1,000 to RM5,000 for different banks) do apply, also.

The amount of funds needed to operate the business – including staff salaries, employees’ provident fund (EPF), company vehicles, supplies, raw material and machinery needs, utility bills, etc. – until the business becomes profitable should be made ready and available.

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Last but not least are the cost needed for the deposit and monthly payments for landlines and broadband services. It is good to know or at least estimate what the ROI of your business may be as this will give added direction, drive,  and time schedules to work around on. But in actual fact, there will be more unseen costs that will crop up when starting and running a business.

8. Research and understand with more depth, the jargon, slang, likes and dislikes, habits, superstitions, like ‘Feng Shui’, and the ‘Dos & Don’ts’ of various races, classes and walks of life of the locals.

As a multi-racial and multicultural nation, Malaysia presents expats with a range of complex social facets. Though these can sometimes be a challenge for foreigners to fully understand, the diversity in the country – to say nothing of the fusion of varying cultures and influences – should not be ignored by the expat business owner, but rather embraced and even used to a business advantage when possible. An example would be knowing what one race likes, while what another race deems as taboo, and a third race considers as neutral may be advantageous to the foreign business owner when determining a marketing strategy, shop location, etc.

Additional examples: honorific titles used in Malaysia like Datuk, Encik, Puan, or dress codes for different occasions for different races, e.g., wearing red-coloured clothes for Chinese New Year or batik shirts for a an important dinner function. It would also certainly benefit the expat to know, if not fully comprehend, the true but often confusing essence of the country.

9. Know where and how to source for all the resources needed by your potential business

Whether a foreign business owner wants the best in quality or a merely standard item, brand-new furniture or secondhand, or a brand new office space or an old shoplot, knowing where, when, and how to find what is needed – and to do so at a fair price – is of great importance.

It could also make or break a company when it comes to sourcing for supplies, suppliers, contractors, and vendors as well as even more saliently, business contacts, and leads, as these parties are extremely important factors of business. Having various comprehensive lists for different sourcing purposes with backups will help save time, money, worry, and frustration in the long run.

10. Survey and know the best locations for setting up your business

Just as research, research, and more research is important, so is, location, location, and best location, crucial to any business, except maybe for an internet-based business. Not only is the country that one has their business that is important, but also the actual town, area, street, and address number, right down to the suite or office lot number.

Convenience, ease of finding, traffic flow, logistics, transportation, parking, and proximity to various other facilities and amenities are some of the important points to consider. An import and export company that’s located in a commercial hub, while being close to a port with industrial and warehousing facilities, as well as being well serviced by good roads and infra is a great example. Another example would be a grocery store selling imported foodstuff from a certain foreign country that’s close by or within the area where the residents there are of the same ethnic group of that foreign country.

Therefore, it is important to do the due diligence in order to know more of what is vital to starting a business in Malaysia and this of course, applies universally too. There is no such thing as knowing too much or doing too much research either, as all knowledge and information will at some point prove to be useful if not crucial, if not in the short term, then in the long run. As mentioned from the start, this article is just a simple aid to help orientate the potential foreign business person or expat in the basic steps of doing business in Malaysia and even in other countries, while the rest is really up to you!

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