Incorporation vs EoR in Malaysia.

Every company that decides to explore international expansion has two options – establishing a legal entity or employing an EoR.

This article compares both methods to help you decide which expansion model suits your business best.

Incorporating a business in Malaysia

Incorporation is the process of establishing a fixed offshore firm that conducts business with a legal and physical presence in a foreign country. The process typically involves registering the firm with the local government, setting up a branch office or subsidiary company within the host country.

Business entities in Malaysia

Malaysia offers a variety of business entities for every need. A private limited company is the most commonly used entity in Malaysia to conduct business. Below we provide a summary of the main types of entities that can be registered in Malaysia and their major characteristics:

Limited company

This is the most common business structure in Indonesia because of the clarity of their status as legal entities and their flexibility. It offers limited liability, can be fully foreign-owned and supports work visas.

Hiring employees

There are no restrictions on hiring foreign or local staff

Minimum registered capital

In general, the required capital range from a minimum of IDR50,000,000 up to more than IDR10,000,000,000. The amount of capital defines the size of the company, which further determines whether the company is eligible to sponsor a work permit for foreign employees.

Set up time

The process of setting up estimates to three to four weeks.

Representative office

This business entity is ideal for foreign companies seeking to study the Malaysian market for research and business development.

Hiring employees

There are no restrictions on hiring foreign or local staff for a representative office.

Minimum registered capital

No minimum share capital.

Set up time

The process of setting up estimates to three to four weeks.

Branch office

This business entity is ideal for established companies wishing to expand their branch office to Malaysia.

Hiring employees

There are no restrictions on hiring foreign or local staff for a branch office.

Minimum registered capital

No minimum share capital.

Set up time

The process of setting up estimates to three to four weeks.

Using employer of record service in Malaysia

An employer of record (EoR) acts as a third-party organisation that enables a client firm to recruit new talent without establishing an entity in a foreign country.

The EoR has a physical entity in place and will be listed as the legal employer on official documents while all decisions related to hiring, decisions relating to the employee’s role and dismissal will be handled by the client firm.

During a business expansion, an employer of record can assist by providing the following:

One of the main reasons why companies choose to partner with an EoR is the ability to launch their business in another country within a very short period of time – firms can start operating as soon as they have made a hire in a said country.

Other benefits of working with EoR include the following:

• Avoiding the potential risks of being non-compliant with the labour laws and regulations of a host country
• Minimising the risks involved in expanding to new markets due to not having an established subsidiary
• Allowing businesses to expand into multiple countries simultaneously
• Efficient staff recruitment within your new market
• Local HR experts run and keep track of employee payroll on a business’s behalf

• Low setup cost and recurring costs compared to traditional company formation service
• Limited liability – Acclime will become the legal employer of your employee taking away all the liability from your end
• Support with exit strategy with company deregistration, EoR is also a good alternative allowing you to maintain staff even after closing your entity

Incorporation vs EoR in Malaysia: Which one to choose for your business

If you are a business looking to expand to Thailand, do you need to hire staff as a first step? If so, you have the following options, depending on the reason for hiring:

Reason #1: Explore the market

Many businesses expanding to a new market wish to have key business development staff on the ground in order to fully explore the market potential, grow contacts and plan for a successful market entry. Hiring staff and having them legally registered in Malaysia to undertake this kind of work is possible prior to incorporation. Here are some options:

Representative office

• Must employ staff
• Can support work permits for foreigners
• Must rent an office
• Cannot trade (i.e. raise invoices or accept payments)
• Must close and form a limited company or branch if the office needs to trade in the future

PEO providing EoR service

• Legally employ staff
• Low overheads

Reason #2: Support existing customers/suppliers

If the need is to have staff to support your company’s Malaysian customers, conduct marketing activities or work with suppliers on export from Malaysia, there are options to become an employer without setting up a company. These options assume that your company will be conducting invoicing/payments from outside Malaysia.

Representative office

• Must employ staff
• Can support work permits for foreigners
• Must rent an office
• Cannot trade (i.e. raise invoices or accept payment)
• Must close and form a limited company or branch it the office needs to trade in the future

PEO providing EoR service

• Legally employ staff
• Low overheads

Reason #3: Start trading immediately

If your Malaysia expansion project has an immediate need for your business to start invoicing and making payments within Malaysia, you have to incorporate. The options are:

Private limited company (Snd Bhd)

• To register the company, there will need to be a regisitered address, a nominated director and a qualified company secretary in addition to the shareholders. As soon as the company is registered, all compliance requirements become active, from tax registration and reporting to holding the AGM.

Branch office

• 100% owned by foreign company
• Business activities must match those or parent company
• Parent company will have liability
• Takes time to set up

Of course, with either of these options, you may decide to outsource the employer of registration duty and HR requirements to a PEO to reduce administration.

Other important factors to consider

Familiarity with the rules and regulations of Malaysia

When it comes to the regulations regarding international incorporation, one should never assume that everything will operate in the same way as it does in their home country. The laws and regulations might differ greatly from one nation to another and breaking them can result in hefty fines.

Working with an EoR can help reduce that risk while allowing you to concentrate on other aspects of the business expansion.

The scale of your business expansion

It is important to establish how much you are willing to invest in a new market. Determine if this is only an experimental move, or if you strongly believe that this market has great growth potential for your business and is worth your investment.

Keep in mind that you can always start out by working with an EoR to estimate the possible risks and benefits, and if everything goes well for your business, you can proceed with incorporation.

The economic state of Malaysia

While there may be many rewards to reap within a new market, many risks are also involved. Emerging economies offer such opportunities as first-mover advantages or high GDP growth rates, but they can be easily weighed down by political unrest or income inequality.

It’s also important to consider long-term changes in cultural and social beliefs. What may be a popular product or career path today may not resonate with the demographic in the years to come.

Remember, changes in the socioeconomic climate can disrupt even the most well-laid-out business plans. Doing a deep dive into the economic climate and assessing what you may be up against can help protect yourself and your business from potential disruptions.

How Acclime can help

Choosing the best option will mainly depend on the company’s global expansion strategy, the number of new hires, and if the firm is recruiting in multiple countries.

Regardless of your choice here at Acclime, our goal is to stand by you at every stage of your journey. So, whether you decide to partner with an EoR or are willing to seek out support amidst establishing a new legal entity, our various business solutions can be customised to suit your evolving needs perfectly.