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Learn more about Branch Office in Malaysia

A branch office in Malaysia is a type of foreign business entity that is set up by a foreign company to conduct business activities in Malaysia. Unlike a representative office, a branch office is allowed to engage in commercial activities, such as selling products and services and generating revenue. Setting up a branch office in Malaysia requires the approval of the Registrar of Companies, company registration, and the submission of certain documents, such as a certificate of incorporation and a business plan. Additionally, a branch office must appoint a manager who is a resident of Malaysia and must file regular financial statements to the relevant authorities. Branch offices are a popular choice for foreign companies looking to establish a long-term presence in Malaysia and to conduct business operations in the country.

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What are the purpose of a branch office?

A branch office in Malaysia is typically established by a foreign company to conduct business activities in the country. The purpose of a branch office may include:

1. Establishing a physical presence in the market: A branch office allows a foreign company to have a physical presence in Malaysia, which can help them gain credibility and build relationships with local partners and customers.

2. Accessing new markets: Malaysia is a strategically located country with a large consumer market, making it an attractive destination for foreign companies looking to expand their business in Southeast Asia.

3. Exploiting business opportunities: Branch offices in Malaysia can be used to take advantage of business opportunities that may not be available in the company’s home country.

4. Cost advantage: Setting up a branch office in Malaysia can be cost-effective as compared to setting up a wholly owned subsidiary, as it allows the foreign company to leverage existing resources and infrastructure.

5. Compliance with local laws and regulations: A branch office in Malaysia must comply with local laws and regulations, which is an important consideration for foreign companies looking to do business in the country.

How to set up a branch office in Malaysia?

Setting up a branch office in Malaysia typically involves the following steps:

1. Choose a company name

The company name must be unique and cannot be similar to existing company names. You will have to check the availability of the name with the Registrar of Companies (ROC)

2. Prepare the necessary documents

You will need to prepare the following documents: a copy of the parent company’s certificate of incorporation, a copy of the parent company’s Memorandum and Articles of Association, a copy of the parent company’s latest audited financial statement, a copy of the parent company’s business registration certificate, and a copy of the resolution of the parent company’s board of directors approving the establishment of the branch office.

3. Register with the SSM

You will have to submit the necessary documents and pay the registration fee to the Companies Commission of Malaysia (SSM). Once the registration is approved, you will be issued a registration certificate.

4. Obtain a business license

You will need to apply for a business license with the local authorities, such as the Municipal Council or the City Council, depending on the location of the branch office.

5. Register for taxes

You will have to register for taxes with the Inland Revenue Board of Malaysia (IRBM) and obtain a tax file number.

6. Hire employees

You will need to hire employees and register them with the Social Security Organization (SOCSO) and the Employee Provident Fund (EPF).

7. Compliance with other regulations

You will need to comply with other regulations such as the Foreign Investment Committee (FIC) and the Exchange Control Act (ECA) for foreign investment in Malaysia.

What are the documents required to set up a branch office?

To set up a branch office in Malaysia, you will need to prepare a number of documents, including a copy of the parent company’s certificate of incorporation, a copy of the parent company’s Memorandum and Articles of Association, a copy of the parent company’s latest audited financial statement, a copy of the parent company’s business registration certificate, and a copy of the resolution of the parent company’s board of directors approving the establishment of the branch office.

Additionally, you will need to provide a copy of the parent company’s power of attorney, appointing a representative in Malaysia to act on its behalf, and a copy of the representative’s passport and work permit.

Moreover, you will need to provide a copy of the lease agreement or proof of ownership for the branch office’s physical location.

What are the restrictions on the activities that a branch office can engage in?

A branch office in Malaysia is restricted in the activities it can engage in, as it is not considered a separate legal entity from the parent company. A branch office is not allowed to engage in any activities that are not related to the business of the parent company, and it is prohibited from issuing shares or raising funds from the public. They are not allowed to enter into contracts or agreements in its own name, and all contracts and agreements must be entered into in the name of the parent company. They also cannot engage in certain regulated activities such as providing certain professional services, such as accounting, engineering, and legal services, which requires separate licenses. They are not allowed to engage in activities that are prohibited by law in Malaysia, such as illegal activities or activities that are considered to be harmful to the public interest.

What are the responsibilities of the manager appointed to a branch office?

The manager appointed has several responsibilities, including representing the parent company and managing the day-to-day operations of the branch office. The manager is responsible for ensuring compliance with local laws and regulations, including filing of all required reports and returns to the Companies Commission of Malaysia (SSM) and other relevant government agencies. Additionally, the manager is responsible for maintaining the company’s books and records, preparing financial statements, and ensuring that the branch office’s financial affairs are conducted in accordance with the parent company’s policies and procedures.

They are responsible for managing the branch office’s employees, including hiring, training, and performance management. They must ensure that all contracts and agreements entered into by the branch office are in compliance with the parent company’s policies and the laws of Malaysia. The manager also need to establish and maintain a good relationship with local partners and customers. They must act in the best interest of the parent company and must not engage in any activities that might be detrimental to the parent company’s reputation.

Are there any reporting requirements for branch offices?

Yes, there are reporting requirements for branch offices in Malaysia. They are required to file annual returns to the Companies Commission of Malaysia (SSM) and to submit financial statements to SSM on an annual basis. The financial statements must be prepared in accordance with the Financial Reporting Standards (FRS) issued by the Companies Commission of Malaysia (SSM). The branch office also needs to submit an audited financial statement by an approved auditor, which should be submitted to SSM within a certain time frame after the end of the financial year. They need to file tax returns with the Inland Revenue Board of Malaysia (IRBM) and submit the returns within the specified time frame.

They need to comply with other regulations such as the Foreign Investment Committee (FIC) and the Exchange Control Act (ECA) for foreign investment in Malaysia, which may require additional reporting.

How does a branch office differ from other types of foreign business entities?

A branch office in Malaysia differs from other types of foreign business entities in several ways:

1. Legal status: A branch office is not considered a separate legal entity from the parent company and does not have its own legal identity. Other types of foreign business entities, such as a subsidiary or representative office, are considered separate legal entities and have their own legal identity.

2. Liability: The parent company is fully liable for the actions of the branch office and its employees. Other types of foreign business entities, such as a subsidiary, may have limited liability and the parent company’s liability is restricted to the capital invested in the subsidiary.

3. Ownership: A branch office is fully owned and controlled by the parent company. Other types of foreign business entities, such as a joint venture, may involve shared ownership and control between the foreign company and a local partner.

4. Taxation: A branch office is taxed on its income in Malaysia as if it were a permanent establishment of the parent company, and is subject to corporate income tax. Other types of foreign business entities, such as a subsidiary, may be subject to different tax rules and regulations.

5. Restrictions on activities: A branch office is restricted in the activities it can engage in, as it is not allowed to engage in any activities that are not related to the business of the parent company and it is prohibited from issuing shares or raising funds from the public. Other types of foreign business entities may have more flexibility in terms of the activities they can engage in.

What are the advantages of setting up a branch office for foreign companies?

There are several advantages to setting up a branch office in Malaysia for foreign companies, including:

1. Easy to establish: Setting it up in Malaysia is relatively easy and straightforward, as compared to other types of foreign business entities.

2. Direct control: It allows the parent company to have direct control over the operations and management.

3. Familiarity: Setting it up allows the parent company to maintain the same business model, policies, and procedures as in its home country, which can be beneficial for companies that are already well-established.

4. Access to market: Setting it up in Malaysia provides foreign companies with access to the Southeast Asian market, which has a large and rapidly growing consumer base.

5. Government incentives: Malaysia offers a range of government incentives for foreign companies that invest in the country, including tax exemptions and subsidies for certain industries.

6. Legal and professional services: Malaysia is home to a well-developed legal and professional services sector, which can assist foreign companies with setting up and running their branch offices in the country.

7. Multicultural society: Malaysia is a multicultural society and it is known for its stability and safety, which makes it an ideal location for international business.

8. Economic stability: Malaysia is relatively stable and has a well-developed infrastructure, making it an attractive location for foreign companies looking to establish a presence in the region.

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