Subsidiary vs. Branch in Malaysia
Updated on Monday 07th August 2023
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The differences between the subsidiary and the branch in Malaysia lie mainly in the foreign company’s liability. The branch is not a separate legal entity in the country, thus, the foreign company will merely perform its activities through an extension of its head office abroad. The subsidiary is a fully locally incorporated legal entity, with legal rights as well as liabilities, that can enter into agreements and debts just like any other legal entity in Malaysia. The experts at our law firm in Malaysia can help you with detailed information about the registration and taxation principles for each type of company you can incorporate in the country.
Foreign company registration in Malaysia in 2023
All companies in Malaysia must be registered with the Companies Commission of Malaysia. Foreign companies are defined as those types of legal entities that are incorporated outside of the country. These foreign corporations may conduct business activities in Malaysia provided that they register the foreign company in the country or if they incorporate a new, local company.
In order to be registered in Malaysia, foreign companies must provide a copy of their Articles of Association, proof of registration in the country of origin, a special registration form, and proof of appointment/power of attorney for the individual or individuals who will act on behalf of the company in Malaysia. Additional documents may be needed, especially in the case of subsidiaries that need to have their name approved in the country.
According to the Company Law, the SSM must be informed of the name, and residence of each shareholder of the company in Malaysia, as soon as the name is confirmed for a branch in Malaysia, in 30 days. Moreover, information about the name and business address is also required if the shareholder is a company in Malaysia.
Our lawyers in Malaysia can help you draw up and submit the needed documentation as well as provide you with information about any needed translations for documents that are not in English or Malay.
Are you interested in citizenship in Malaysia? Our lawyers can help candidates with the preparation of the required documents, as well as with the explanation of the formalities imposed in this regard. Candidates must provide clear evidence that they have lived in this country for at least 10 years and that they have a basic knowledge of the Malay language. Get in touch with us and discover the services offered by our local attorneys.
Differences between a Malaysian branch and a subsidiary
The branch and the subsidiary are both two good options for foreign companies that want to establish their presence in the Malaysian market in 2023. The choice may depend on the parent company’s available capital as well as the nature of the business. Our team of attorneys in Malaysia highlights the main differences between a branch and a subsidiary in the table below:
|Independence||Dependent on the parent company abroad; will report to it and will perform the same business activities||Independent from the parent company abroad; acts as a separate legal entity|
|Local Structure||Not a separate legal structure in Malaysia; has to be registered nevertheless||Incorporated as a new legal structure in Malaysia; has to follow the usual steps for company formation|
|Accounting management||Will manage its accounts either in connection with the foreign company or separately||Manages the accounting and reporting completely separate from the foreign parent company|
|Ownership||The parent company abroad has a complete ownership interest in its Malaysian branch||The foreign company has limited ownership interest in the Malaysian subsidiary|
Just like in the case of branches in Malaysia, the name reservation is mandatory for subsidiaries in Malaysia. A flat fee of around RM 50 is required in this endeavor. More than that, such a name verification and reservation can be made online with the SSM, with a reservation of 30 days.
Liability is one of the most important concerns when choosing to set up a legal structure in Malaysia. For this purpose, the branch is simply an extension of the parent company abroad. It must have the same name and perform the same business activities and the parent company is completely liable for the debts and obligations of its Malaysian branch. The incorporation costs, as well as the maintenance costs, are lower in this case. Most banks in Malaysia, as well as other financial institutions, will operate via a branch that will serve as a local agency for the larger bank abroad.
The subsidiary is a separate legal entity from the foreign company and it can be incorporated as a local Malaysian company. This means that the subsidiary is not dependent on its foreign counterpart and can engage in its own name in business activities in Malaysia. This company will need to observe all of the local registration, taxation, and reporting requirements. The subsidiary will have a Board of Directors in Malaysia and the individuals who will serve this role can be appointed by the parent company abroad.
Branch and subsidiary taxation in Malaysia
Both the branch and the subsidiary are subject to observing the local laws for the taxation of profits. There is no separate branch tax rate, these two types of establishments are taxed at the corporate income tax rate of 24% and the basis for taxation is territorial, except for certain types of income, such as that from banking and insurance activities, transport by air or sea.
Double taxation relief is possible in Malaysia through a broad network of treats that allow for a single point of taxation when a foreign legal entity derives income from both Malaysia and another jurisdiction. For example, a branch in Malaysia will be protected from being taxed on its profits made in the country both by the Malaysian tax authorities and the tax authorities in the country where the head office of the parent company is located.
For authorized capital ranging between RM 400,001 and RM 500,000, a fee of approximately RM 3,000 is imposed at the time of business registration. Approximately RM 70,000 is the fee for authorized capital surpassing RM 100,000,001 for the subsidiary in Malaysia.
The video below also highlights the main differences between the branch and the subsidiary:
The set-up process, the time, and the costs will differ according to the chosen type of business form, as well as the types of activities and the reporting requirements. We advise investors to seek proper counseling prior to entering the Malaysian market.
For more information about foreign investments in the country please contact the experts at our law firm in Malaysia. Our team can offer assistance for opening branches and subsidiaries in Malaysia, following the 2023 procedures.