A branch office setup is a form of business operation generally set up by a foreign company that is only operating in Malaysia for a short period and does not offer wholesale or retail services. A branch office of a foreign company must have, at a minimum, one (1) person living in Malaysia who is its authorized agent in Malaysia, who can accept on its behalf service of process as well as any documents required to be served on the company. Under the Companies Act, the appointed agent is responsible for any acts, matters, and things that the foreign company is required to do and is liable for any penalties imposed upon it for any violation of the Companies Act.
Please be aware that most small and medium-sized foreign companies establish subsidiaries rather than branch offices or representative offices in Malaysia.
In terms of taxation, a Malaysian branch office is considered a non-resident company. In general, non-resident companies are not eligible to receive tax incentives as new start-ups or residents. Additionally, withholding tax of 10% + 3% applies to payments made to the Malaysian branch for services performed there (since the branch is a non-resident for tax purposes).
When a foreign company enters the Malaysian market through a branch or another form of business entity, it will be necessary to submit a set of documents to the local authorities, for the company to be registered. A foreign company must generally provide the following information:
Getting into a new market
The establishment of a branch office is a common way of expanding a business abroad.
Management control
Malaysia’s branch office of a foreign parent company is under the full control of the parent company.
Ease of registration
The registration requirements are fewer since a branch office is not a separate legal entity and does not have its articles of incorporation. This simplifies the registration process.
Tax benefits
Branch offices are taxed on income that is generated within Malaysia and is also subject to double taxation agreements.
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