Starting a business in Malaysia can be straightforward once you know the rules that matter. This guide collects the mistakes founders most often make, why they happen, and exactly how to fix them. Where useful, I point you to the official place to do it online, so you can act immediately.
For an ever deeper read:
How to Start a Business in Malaysia: the step-by-step
Mistake 1. Picking the wrong structure and trying to “upgrade later”
People often start as a sole proprietorship to “test first” then discover they need a private limited company for investors, limited liability and visas. Switching later means new bank KYC, new contracts, new licences, and possible tax and compliance resets.
What to choose at a glance
| Factor | Sole Proprietorship | Limited Liability Partnership LLP | Private Limited Company Sdn Bhd |
|---|---|---|---|
| Liability | Owner is personally liable | Partners have limited liability | Shareholders have limited liability |
| Ownership flexibility | One owner | Two or more partners | One or more shareholders |
| Fundraising | Hard to raise | Hard to raise | Easiest to raise equity |
| Compliance load | Low | Moderate | Highest but most credible |
| Suitable for | Freelancers testing an idea | Professional practices | Any business that plans to grow, hire or raise money |
Where to decide fast
- Read this alongside your Framework for Choosing Business Structure and Sdn Bhd vs Sole Proprietorship comparisons, then lock your decision.
Mistake 2. Ignoring the resident director rule
Malaysia requires at least one director who ordinarily resides in Malaysia. This is not optional and applies from day one. The requirement is set in section 196 of the Companies Act 2016.
How to fix
• Appoint one director who has a principal place of residence in Malaysia. If you are a foreign founder, plan for your own residence pass or appoint a qualified resident director you trust.
• Avoid pure name-only nominees without oversight or access control.
Mistake 3. Forgetting to appoint a licensed company secretary within 30 days
You must appoint at least one qualified company secretary within 30 days of incorporation. The company secretary handles statutory books, lodgements, board resolutions and filings to the Companies Commission of Malaysia.
How to fix
• Appoint a licensed company secretary during incorporation and set expectations for meeting minutes, share registers and reminder workflows.
Mistake 4. Underestimating paid-up capital if you plan to hire expatriates
If you plan to apply for Employment Passes, the Expatriate Services Division has minimum paid-up capital thresholds for company registration with ESD. Many founders get stuck here.
Minimum paid-up capital for ESD company registration
| Equity profile | Minimum paid-up capital |
|---|---|
| 100 percent local owned | RM250,000 |
| Joint venture with at least 30 percent foreign equity | RM350,000 |
| 100 percent foreign owned | RM500,000 |
| Foreign-owned 51 percent and above in Wholesale, Retail and Trade sectors WRT | RM1,000,000 and valid WRT approval if applicable |
How to fix
• Decide early if you will need expatriate hires this year. If yes, capitalise to the right tier and prepare WRT approval if you are in trading or retail.
Read more about How to Register a Company as a Foreigner in Malaysia; Business Licenses in Malaysia.
Mistake 5. Skipping local council licences and sector-specific approvals
Many cities require a Business Premise Licence and a Signboard Licence before you open your doors. Sector approvals like Wholesale and Retail Trade WRT for foreign participation are often missed.
How to fix
• Use the MalaysiaBiz portal to check local council requirements for your premise and signboard.
• If you are foreign-owned and selling goods or services to consumers or other businesses, review the KPDN Distributive Trade Guidelines and apply for approval where needed.
Mistake 6. Thinking Sales and Service Tax does not apply to you
Malaysia’s Service Tax rate increased to 8 percent for most taxable services effective 1 March 2024, with transitional rules and carve-outs set by the Royal Malaysian Customs Department. Scope has been expanding across service categories.
How to fix
• Map your services against RMCD’s latest guides and confirm if any of your offerings are taxable services.
• Build Service Tax logic into your invoicing and pricing from day one.
More in-depth articles are as follows Tax Basics; Malaysia Business Startup Checklist.
Mistake 7. Not registering for Employees Provident Fund, SOCSO and EIS on time
Employer registrations are time-bound. Missing them is a common early penalty.
Statutory employer registrations at a glance
| Agency and law | What it is | When to register | Where |
|---|---|---|---|
| Employees Provident Fund EPF | Mandatory retirement savings contributions for eligible employees | Within 7 days from hiring your first employee | EPF employer portal and branches |
| Social Security Organization PERKESO and Employment Insurance System EIS | Social security and unemployment insurance | Register promptly when you hire staff. PERKESO’s guidance and online Assist portal walk you through the steps | PERKESO Assist portal and FAQs |
| Inland Revenue Board of Malaysia IRBM Monthly Tax Deductions MTDS | Employer registration and monthly pay-as-you-earn deductions | Set up early and remit by the 15th of the following month | IRBM Employers portal |
Read more here – Compliance Made Simple; Malaysia Business Startup Checklist.
Mistake 8. Missing your annual return and financial statement lodgements
Two foundational deadlines catch many new Sdn Bhd companies.
Core SSM filings for private companies
| Filing | What the law expects | Practical first-year note |
|---|---|---|
| Annual return | Lodge within 30 days from each incorporation anniversary | Put a recurring reminder for your anniversary month |
| Financial statements and reports | Prepare first set within 18 months from incorporation. Circulate to members within 6 months after financial year end. Lodge with the Registrar within 30 days after circulation | Align your financial year end with audit capacity and tax planning |
These come from the Companies Act 2016 and SSM guidance.
Mistake 9. Paying non-resident vendors without considering withholding tax
Payments to non-resident service providers can trigger withholding tax under section 109B of the Income Tax Act 1967 for special classes of income under section 4A, commonly at 10 percent unless modified by a tax treaty. Missing this is a frequent and costly audit issue.
How to fix
• Before contracting an overseas provider for services, software, licences or IP, check whether the payment is caught under section 4A and what rate applies under your treaty. Keep documentation ready for IRBM.
Read more on Malaysia Tax Basics.
Mistake 10. Opening a bank account before your governance and KYC bundle is ready
Banks follow Bank Negara Malaysia anti-money laundering and customer due diligence rules. They will ask for your board resolutions, company secretary-certified documents, beneficial ownership information and business proof. Rushing this often causes rejection.
How to fix
• Prepare your KYC pack with your company secretary. Include incorporation documents, beneficial owner details, first board resolutions on signatories and limits, tenancy or utility bill for your registered office, sample invoices or contracts and a short business write-up.
Read more about Malaysia’s Company Registration Checklist.
Mistake 11. Treating e-Invoicing as a “big-company thing”
Malaysia is phasing in electronic invoicing. Small companies are included on the staged timeline even if not yet required today. Build for it once so you do not rework your process later. Follow the official IRBM e-Invoice portal for the current rollout dates and technical guides.
How to fix
• Choose accounting or billing software that already supports Malaysia e-Invoice or has a roadmap aligned with IRBM’s specifications.
• Start with your invoice data model and customer master data quality.
Mistake 12. Not planning for WRT approval when you are foreign-owned and selling to consumers
Foreign-owned businesses in distributive trade retail, wholesale, e-commerce and similar formats should review KPDN’s Guideline on Foreign Participation in Distributive Trade Services 2022 and secure approval where required. This is separate from your SSM incorporation.
How to fix
• If your company has 51 percent or more foreign equity and sells goods or services domestically, review KPDN’s scope, conditions and document list. Start early to avoid launch delays.
Read more about Business Licenses in Malaysia
Mistake 13. Assuming you can “file later” because you are dormant
Dormant or zero-revenue companies still have obligations. There are targeted audit exemptions for certain categories, but annual returns and record-keeping remain. Confirm your status with your company secretary under the Companies Act and current SSM practice notes.
One-page setup checklist you can copy
- Decide structure for the next 24 months, not 3 months.
- Confirm at least one resident director and appoint a licensed company secretary within 30 days.
- Set paid-up capital to match your hiring plan for expatriates and, if applicable, WRT approval.
- Check local Business Premise and Signboard Licences, plus any sector licence.
- Map your services to Service Tax rules and choose e-invoice-ready software.
- Register for EPF within 7 days of your first hire and set up PERKESO and MTDS.
- Calendar your annual return and financial statement circulation and lodgement dates.
- Screen all cross-border payments for withholding tax before you pay.
Sources
- Companies Commission of Malaysia 2022, Companies Act 2016 Act 777 as at 1 August 2022, viewed 17 September 2025.
- Companies Commission of Malaysia 2017, FAQs on Companies Act 2016 Part C Directors and Secretaries, viewed 17 September 2025.
- Companies Commission of Malaysia n.d., Starting a Company, viewed 17 September 2025.
- Royal Malaysian Customs Department 2024, Guideline on Transitional Rules for the Change in Service Tax Rate to 8 percent Digital Services, viewed 17 September 2025.
- PwC Malaysia 2024, Service Tax in Malaysia: rates and scope update from 1 March 2024, viewed 17 September 2025.
- Inland Revenue Board of Malaysia 2018–2019, Public Ruling on Withholding Tax on Special Classes of Income Sections 4A and 109B, viewed 17 September 2025.
- Inland Revenue Board of Malaysia 2025, Withholding Tax overview, viewed 17 September 2025.
- Inland Revenue Board of Malaysia 2025, e-Invoice Malaysia official portal timeline, viewed 17 September 2025.
- Employees Provident Fund 2025, Employer registration responsibilities, viewed 17 September 2025.
- PERKESO Social Security Organization 2025, Employer registration and ASSIST portal, viewed 17 September 2025.
- Inland Revenue Board of Malaysia 2025, Employers Monthly Tax Deductions MTDS, viewed 17 September 2025.
- Kementerian Perdagangan Dalam Negeri Ministry of Domestic Trade and Cost of Living 2022, Guideline on Foreign Participation in Distributive Trade Services GP2022, viewed 17 September 2025.
- Expatriate Services Division Immigration Department of Malaysia 2023–2025, ESD Online Guidebooks and FAQs company paid-up capital requirements, viewed 17 September 2025.
- MalaysiaBiz 2025, Business Premise Licence overview, viewed 17 September 2025.
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