Top four common challenges when starting a business in Malaysia.

Starting a business in Malaysia offers significant opportunities for foreign entrepreneurs, thanks to the country’s strategic location, diverse economy and supportive policies for investment. Malaysia’s growing markets in technology, manufacturing, healthcare, tourism and services present attractive prospects for both small and large-scale ventures.

However, foreign entrepreneurs often face a unique set of challenges, including navigating complex immigration and work permit requirements, opening corporate bank accounts, complying with licensing and regulatory obligations, and obtaining industry-specific certifications such as Halal. Being aware of these hurdles in advance allows entrepreneurs to plan effectively, allocate resources efficiently, and implement strategies that minimise delays, reduce risks, and ensure smoother business operations in the Malaysian market.

This guide explores some of the common challenges foreign entrepreneurs face when starting a business in Malaysia.

Applying for work permits

The Malaysian government has established various categories of permits to accommodate different types of business professionals. Understanding these categories and their requirements is essential for a smooth entry into the Malaysian business landscape.

Requirements for work permit application

There are four main categories of entry permits available to foreigners under Section 10 of the Immigration Act and Regulation 4, Immigration Regulations 1963:

Investor

For those planning to invest substantial capital in a Malaysian business, the investor category is most appropriate. Key requirements include:

• A minimum of USD 2 million fixed deposit at any bank in Malaysia, which can only be withdrawn after five years
• Proof of investment funds
• A comprehensive business plan
• Evidence of the business’s potential to create local employment opportunities
• Proof of the applicant’s business acumen and relevant experience
• One Malaysian sponsor

Employment/Professional pass

Employment Pass (EP)

This category is for individuals with specialised skills or knowledge that are in high demand in Malaysia. Requirements include:

• A job offer from a Malaysian registered company with paid salary in MYR
• Relevant professional experience related to job offer
• Degree holders must have at least three years of related work experience
• Diploma holders must have at least five years of related work experience
• Technical Certificate holders must have at least seven years’ work experience in relevant fields
• EP categories:
  • EP Category I: RM 10,000 and above (contract up to five years)
  • EP category II: RM 5,000 to RM 9,999 (contract up to two years)
  • EP category III: RM 3,000 to RM 4,999 (not exceed 12 months and renewable a maximum of two times)
• Documents required:
  • Stamped employment contract
  • Job description
  • Passport copy (all pages)
  • Highest education certificate
  • Passport sized photograph with sky blue background
  • Updated resume

Professional Visit Pass

This pass allows professionals to provide short-term services in Malaysia for up to 12 months, tailored to the specific requirements of the project or service.

• Maximum duration 12 months with no extension/renewal allowed
• Documents required:
  • Passport copy (all pages)
  • Passport sized photograph with sky blue background
  • Updated resume
  • Application letter
  • Stamped personal bond/security bond
  • Letter of Award (LoA)/Memorandum of Understanding (MOU)
  • Any relevant supporting documents

Long term social visit pass

EP holders can apply for a Long-Term Social Visit Pass for their spouse, parents, parents-in-law, children over 18 or legally adopted children over 18. The pass allows a legal stay of up to five years. The basic requirements include:

• Proof of income (latest three months’ payslips/bank statements)
• Relevant immigration forms (ie. Form Imm.12, Form Imm.38 and etc)
• Proof of residential address (i.e. Utility bill)
• Stamped security bond
• Passport sized-photographs
• Identification Card for Malaysian sponsor
• Other documents (if required)

Additional requirements include:

• Marriage certificate
• Affidavit of oath
• A letter of sponsorship from the Malaysian spouse
• Postcard size wedding photos
• Children birth certificate (if any)

For children of Malaysian citizens below six years old, the parent must be the sponsor.

Point system

Malaysia employs a point-based system to evaluate entry permit applications for categories other than investors, experts, professionals and spouses of Malaysian citizens.

Points are awarded based on various criteria, including:

• Age (younger applicants generally receive more points)
• Qualifications and work experience
• Duration of stay in Malaysia
• Familiarity with the Malaysia Institute
• The value of investments
• Working experience in Malaysia
• Language proficiency (particularly in Bahasa Malaysia and English)

Applicants must achieve a minimum score of 65 points to be eligible to submit an application for an entry permit.

List of relevant agencies in Malaysia that issue support letter for work permit/professional passes

Legal implications

It is crucial to note that entering Malaysia without a valid work permit is a serious offence. According to Section 6(3) of the Immigration Act 1959/63, foreigners who enter Malaysia without a valid entry permit face a penalty of a fine not exceeding RM 10,000 or imprisonment of not more than five years, or both.

Navigating the work permit application process can be complex and time-consuming. It is advisable to start the process well in advance of your planned business launch and consider seeking assistance from local legal experts or immigration consultants familiar with Malaysian regulations.

Opening a corporate bank account

Opening a corporate bank account is crucial for conducting business operations, managing finances and establishing credibility with local partners and customers. However, the process can be more complicated than many foreign entrepreneurs anticipate.

Main local banks in Malaysia

While there are numerous banks operating in Malaysia, four main local banks are popular choices for business accounts:

• CIMB
• Maybank
• Public Bank
• RHB Bank

Challenges in opening a corporate bank account

Stringent documentation requirements

Malaysian banks have strict Know Your Customer (KYC) and Anti-Money Laundering (AML) policies. The list of required documentation includes the following:

• Company registration documents
• Memorandum and Articles of Association
• Board resolution authorising the account opening
• Proof of business address
• Passports and visas of all directors and significant shareholders
• Business plan and projected financials

Physical presence requirement

Many Malaysian banks require all directors, or at least the main signatory, to be physically present in Malaysia to open a bank account. While this can pose logistical challenges for foreign entrepreneurs, it is generally advantageous to be physically present in Malaysia during the application process.

Minimum deposit requirements

Some banks impose substantial minimum deposit requirements for corporate accounts, which can strain the initial capital of new businesses.

Approval time

The account approval process can be lengthy, often taking several weeks or even months, which can delay business operations.

Language barrier

While English is widely spoken in business circles, some bank documentation may be in Bahasa Malaysia, necessitating translation services.

Bank policies

It is important to note that some banks may not allow foreigners to open accounts at all. Additionally, most local banks in Malaysia will require an introduction from an existing customer of the bank.

Obtaining related business licences

What are general licences?

General licences are basic permits required for most businesses operating in Malaysia, regardless of their specific industry. These typically include:

What are activity-specific licences?

Some business activities require specific licences, regardless of the primary industry. These may include:

Challenges in obtaining business licences

The process of obtaining business licences in Malaysia can be complex, as different agencies are responsible for issuing various licences. Understanding which licences are required and which authority to approach can be daunting, and securing all necessary approvals may be time-consuming, potentially delaying business operations. Licensing requirements can also change, requiring businesses to stay informed and adapt accordingly. While many government agencies provide English-language services, some documentation and procedures are primarily in Bahasa Malaysia, which can add an additional layer of difficulty. Furthermore, the cumulative cost of obtaining multiple licences can be significant, particularly for small businesses or startups.

Securing Halal certification

In a country where the majority of the population is Muslim, obtaining Halal certification can be crucial for businesses in the food, cosmetics and pharmaceutical industries. Halal certification not only opens up a larger market within Malaysia but also provides opportunities for export to other Muslim-majority countries.

However, the process of obtaining Halal certification can be challenging, particularly for foreign businesses unfamiliar with Islamic dietary laws and local regulations.

Understanding Halal certification

Halal certification ensures that products and services comply with Islamic law. In Malaysia, the Department of Islamic Development Malaysia (JAKIM) is the primary authority responsible for Halal certification.

The certification covers various aspects, including:

• Ingredients and raw materials
• Production processes
• Packaging and labelling
• Storage and transportation
• Hygiene and sanitation

It is important to note that all meat products, poultry or eggs that are produced or imported must be halal-certified from JAKIM or any foreign halal-certified body recognised by JAKIM.

Eligibility for Halal certification

To be eligible for Halal certification, applicants must meet specific conditions:

• Be registered with the SSM, Co-operative Societies Commission or other government agencies
• Hold a business licence from the local authorities (PBT) or testimonial from a government agency
• Be in full operation before making an application
• Produce and/or handle only halal products and comply with the specified halal standard
• Ensure ingredients are halal and choose suppliers who supply halal materials or have a recognised halal certificate

Applications not eligible for Halal certification

Certain types of businesses or products are not eligible for Halal certification:

• Non-halal products
• Companies that produce and distribute both halal and non-halal products
• Food premises or products that give negative implications towards religion and society, such as entertainment centres, drugs, cigarettes or hair dye
• Fertiliser and animal feed
• Crockery
• Paper
• Hotels with kitchens that prepare pork-based menus

Challenges in obtaining Halal certification

Complex application process

The application process involves multiple steps and requires extensive documentation, including:

• Detailed product information
• Complete list of ingredients and their sources
• Manufacturing process flow charts
• Cleaning and sanitation procedures

Stringent compliance requirements

Businesses must ensure that all aspects of their operations comply with Halal standards, which may require significant changes to existing processes or sourcing of ingredients.

Regular audits and inspections

JAKIM conducts regular audits and surprise inspections to ensure ongoing compliance, which can be resource-intensive for businesses.

Cultural and religious sensitivity

Foreign businesses may face challenges in understanding and implementing the nuances of Islamic dietary laws and local cultural sensitivities.

Time and cost implications

The certification process can be lengthy and costly, particularly if modifications to products or processes are required.

Legal implications

It is crucial to note that making false Halal descriptions on products or services is a serious offence in Malaysia. The country has strict government regulations regarding this matter, and it is fully the responsibility of the business to obtain a Halal certificate before selling products as Halal. Penalties for non-compliance can be severe.

Benefits of Halal certification

Despite the challenges, obtaining Halal certification can offer significant benefits:

• Access to a larger market within Malaysia and potential for export to other Muslim-majority countries
• Increased trust and loyalty from Muslim consumers
• Potential for premium pricing for Halal-certified products
• Improved overall quality control and food safety standards

Conclusion

While the process of starting a business in Malaysia as a foreign entrepreneur can be challenging, it offers significant opportunities in a strategically located, economically diverse country. By carefully navigating the entry permit system, banking requirements, licensing processes and Halal certification (where applicable), entrepreneurs can position themselves for success in Malaysia’s dynamic business environment. Thorough preparation, attention to detail and cultural sensitivity are key to overcoming the hurdles and capitalising on the potential of the Malaysian market.

How Acclime can help with business setup and compliance in Malaysia

Acclime offers complete support with work permit, long-term pass applications and business licence procurement. From guiding foreign professionals through immigration procedures to assisting with opening corporate bank accounts, our team of experts can assist with everything from ensuring compliance with local legal requirements to preparing documentation for regulatory approvals.

By partnering with us, foreign investors and entrepreneurs can confidently navigate Malaysia’s complex regulatory environment and set up their businesses efficiently. Contact us to learn more about how we can support your business registration and licensing needs in Malaysia.