Establishing a Branch Office in Malaysia

Establishing a branch office can be a quick and cost-effective way for foreign businesses looking to explore the Malaysian market.

Operations and characteristics of branch offices in Malaysia

Introduced in 2016, the Malaysian Companies Act allows foreign organizations to set up branch offices in Malaysia by registering through the Companies Commission of Malaysia (SSM). Unlike a representative office, a Malaysian branch office can act independently and engage in legitimate profit-making activities.

However, the branch office is not viewed as a separate legal entity from the foreign parent company, and thus the legal obligations, liabilities, debts, as well as all the contracts the branch office enters into, shall be enforceable against the foreign parent company. Moreover, as a sub-division of the parent company, any management decisions undertaken by the branch office must be approved by the parent company.

The branch office is only taxed on income in Malaysia and is also subject to double taxation agreements Malaysia is a party to, an advantage for foreign businesses who are new to the market.

What are the requirements for establishing a branch office in Malaysia?

As the branch office would be seen as an extension of the parent organization, several legal requirements must be met:

• The branch office must use the same brand and name as its parent organization;

• Branch offices must perform the same business activities as parent organizations;

• As a result of the control a parent organization has over its branch office, the office is therefore considered a non-resident entity in Malaysia and will not be authorized for certain tax exemptions and incentives otherwise reserved for local organizations; and

• The branch office must appoint a branch agent who is a Malaysian resident and this individual will also be legally bound to the branch office in the case of any legal breaches.

What is the registration process for establishing a branch office in Malaysia?

The registration process for establishing a branch office in Malaysia is as follows.

Name approval

The organization must propose a name to the SSM system at a fee of 50 ringgit (US$11.94) The name must be the same as the foreign parent company.

Required documentation

Within 30 days of the name approval, the following information must be provided to the SSM:

• Name, identification, nationality, and place of residence of all shareholders and employees within Malaysia;

• List of shareholders from organization’s place of origin;

• If the foreign organization has share capital, the details of class and number of shares in the organization’s place of origin;

• Certified copy of the certificate of incorporation/registration of foreign organization; and

• Certified copy of the memorandum and articles of association or another constitutional certificate.

All documents must be submitted in either Malay or English

How much are the registration fees?

In the event a foreign organization does not prescribe any share capital, a flat rate of RM70,000 (US$16,718) shall be paid to SSM.

However, in the event share capital is issued, the fees are as follows:

What other entity types are available for foreign investors in Malaysia?

Private limited company

Establishing a private limited company, also known as a Sendirian Berhad (Sdn Bhd), is the most common type of business entity for foreign businesses in Malaysia.

The main advantage of an Sdn Bhd is that it can be 100 percent foreign-owned, relatively quick to set up, and are eligible for various financial and non-financial incentives, such as tax allowances.

Unlike the branch office, a Malaysian private limited company has limited liability, and so any debts accrued by the entity are limited to the amount that was invested by the shareholders. Importantly, the private limited company is a separate legal entity, and so can continue if there is a change in directors and shareholders.

Representative office

Another option for foreign investors is to establish a representative office (RO), which is the fastest and most cost-effective way to establish a legal entity in Malaysia. This entity is ideal for businesses still determining the local market opportunities.

However, the RO is prohibited from earning any revenue and its activities are limited to those market research, information gathering, and developing contacts in Malaysia. A company can establish an RO for two years, although this can be extended under specific circumstances. For trade associations and government entities, the RO duration is five years.

Malaysia’s attractiveness for foreign investors

Malaysia’s pro-business policies such as tax incentives, skilled workforce, well-maintained infrastructure, and a deep financial sector (Malaysia is home to Asia’s third-largest bond market) have contributed to the country’s attractiveness to foreign investors.

For instance, despite the pandemic, the country was the top emerging destination for greenfield investments in Southeast Asia, totaling US$24.3 billion, more than double Vietnam’s tally of US$9.9 billion.

Further, Malaysia announced several multi-billion dollar projects as the country continues on course to be a manufacturing hub of high-end products in Asia. US chipmaker Intel announced plans to invest US$7 billion to expand its facilities in the state of Penang, while Chinese solar module manufacturer Risen Energy will invest US$10 billion.

Source from: ASEAN Briefing (Written by Timothy Standen)

Trends for cross-border e-commerce

With the general trend of online shopping of consumers caused by the epidemic, many cross-border e-commerce companies have poured money overnight! Entering into 2021, with the global epidemic The influence has gradually weakened, coupled with the large-scale ban on the Amazon platform, many cross-border e-commerce platforms have suffered a huge blow. However, these influences have also caused many e-commerce companies to carry out comprehensive innovations from product selection to operation models, such as multi-platform development and independent website construction.

At the same time, with the arrival of a series of new concepts such as the Metaverse, what new trends will cross-border e-commerce have in terms of operation mode and product selection in 2022?

Private domain traffic of independent stations

Cross-border e-commerce, especially mainland cross-border e-commerce, has begun to realize the importance of multiple platforms, especially independent stations, after Amazon's collective ban. The independent station can also enable sellers to truly get rid of the restrictions of platform policies and minimize store risks. Data shows that 26% of trading companies choose to build their own independent stations.

An independent website can be a website built by the merchants themselves, or it can be a "brand independent station" built on a SaaS service. Compared with third-party platforms, its advantage is that it can create private domain traffic and is conducive to building its own brand. Create a personalized marketing system to facilitate the creation of loyal user groups, and then conduct secondary and multiple sales.

At this stage, the transaction volume of mainland small and medium-sized cross-border e-commerce enterprises accounts for about 70% of the total cross-border transactions in the mainland, but less than 20% of which have established their own brands. Under the trend of traffic decentralization, based on the SaaS technology platform, merchants can build their own independent e-commerce shopping guide websites, get rid of the shackles of big platform gameplay, master traffic and data in their own hands, and dig deep into the brand value.

Ride the Metaverse

For cross-border e-commerce, Metaverse not only means a surge in sales of related equipment, such as video cards, VR glasses, and even VR helmets and other related popular commodity categories may become new hot-selling products in 2022; for e-commerce services and The operating model will also have a profound impact.

By 2022, online sellers will spend more than $7.3 billion on artificial intelligence, and more than 120,000 stores will use AR, VR and other technologies to provide customers with a rich shopping experience.

Immersion is increasingly attractive to consumers in retail, and the Metaverse essentially brings consumers the ultimate immersive experience. Through the Metaverse, it can help each consumer create an independent virtual space, store the buyer's purchase list, and at the same time, the space can simulate the situation.

For example, build a private audio-visual room for consumers who want to buy audio, put switchable brand audio in the corner, let consumers listen to the audio playback effect before placing an order, or build a virtual kitchen for consumers who want to choose kitchen supplies. Consumers can choose and simulate various kitchen utensils and place an order when they are satisfied. A virtual fitting room by Israeli startup Zeekit has reduced return rates by 36%, and these are even just a small step toward the metaverse. Virtual experience can improve the experience of foreign end users, which has great potential for China's current strong supply chain of cross-border e-commerce.

However, it should be noted that if you want to change the operation model and consumption experience through the Metaverse, it may be a huge investment for cross-border e-commerce, and the short-term return is not very attractive. In response to such concerns, cross-border e-commerce companies can consider using existing metaverse service providers. For example, Horizon Worlds launched by Meta will be the main entrance for consumers’ immersive consumption in the future, and cross-border e-commerce companies can also use this shortcut to reach consumers directly. , so as to get twice the result with half the effort.

Vision

In addition to discovering sites with great potential for e-commerce development, product selection is also the key to creating high sales. So what categories should sellers pay attention to in 2022?

Toy

According to Shopify's forecast, toys are the number one item among the hot products in 2022, and the global order growth rate is expected to increase by 1239% year-on-year, and Canada is one of the hottest places. Among them, dolls, handicrafts, building block sets, dolls, games and puzzles, baby toys, electronic toys for teenagers, plush toys, mini car models, adventure toys and outdoor sports toy vehicles are all sub-categories that sellers can pay attention to. However, when listing toys, sellers should pay attention to copyright issues to avoid infringement.

Pens and pencils

Global orders for pens and pencils will grow by 540% in 2021. Mainland manufacturers are launching new products for different groups and scenarios. For example, stylus pens, inks of different colors and pencils of different sizes have a relatively large and sustained growth force for product demand in segments such as students, artists, luxury goods, and enterprises.

Cutting tool

In 2021, global orders for this category of goods will increase by 341%. Relevant data shows that the sales of manual cutting tools are on the rise. People are spending more time at home and considering spending more time on DIY and home improvement projects. While "hand tool cutters" generates only 1,300 searches per month, a few variants can be targeted, including pliers (27,100 monthly searches), metal cutting tools (12,100 monthly searches), Bolt Cutters (74K monthly searches), etc.

Office chair

Office chair orders will grow 304% in 2021. Similar to other popular items in the homeware line, office chair sales are likely to increase due to the pandemic's trend toward working from home. A good office chair can help people work more efficiently. People can reduce chronic back pain and reduce medical costs associated with poor sitting posture due to poor quality chairs.

Kitchen cleaning towel

Kitchen wipes saw huge growth in early 2021, up 282% year-over-year. According to the latest report, the global kitchen cleaning wipes market is expected to reach USD 20.9 billion by 2026.

VR and its supporting equipment

The demand for virtual experience in the Metaverse has grown, followed by buyers' demand for an immersive experience of cross-border e-commerce shopping in the virtual reality mode, as well as the demand for VR and its supporting equipment. Merchants can pay attention and make arrangements in advance.

If you want to learn more about cross-border e-commerce platform entry, operation strategies, various regulations, finance and taxation management teaching, welcome to contact RBCS!

RCEP Boosts Trade Between China and ASEAN Countries

The Regional Comprehensive Economic Partnership (RCEP) agreement should extend supply chains and boost trade in the region, according to Benny Wu, Audit Director at Carlsberg China. Having worked in Cambodia for over two years, he believes countries within the Association of Southeast Asian Nations (ASEAN) represent an important future growth engine. However, he also warned of the challenges associated with these untapped markets.

During his time in Cambodia, Wu observed that ASEAN countries source supplies within ASEAN first. Cambodia, a country lacking in industrial infrastructure and raw materials, mostly imports from Vietnam, Thailand, Malaysia and Singapore, but not so much from China or Japan. Even though China and Japan can offer more and better goods, both countries find it difficult to tap into ASEAN markets due to high tariffs.

Currently, companies can receive tariff exemptions if they can prove raw materials are imported for use in exported products. Otherwise, tariffs can be very high for raw materials imported for local manufacturing and sale. Imported high‑end beers such as Japan’s Asahi have a high price tag in Cambodia due to tariffs, but manufacturing locally is not really an option either.

Breweries in particular are tied to logistics constraints. To address these issues, industry players tend to undertake brand collaborations rather than focus on exports. Pointing out that the RCEP agreement may reverse this trend, Wu said: “There will be benefits for sure in the future. Although the amount and length of the tariff exemptions remains to be seen, Chinese goods that are competitive in price and quality will have advantages in ASEAN countries once the 15‑30 percent tariffs are exempted or lowered.”

Predicting that industrial goods from China will be particularly popular in ASEAN countries, where the degree of industrialisation varies greatly, Wu said: “If the prices are around the same, market participants will look for quality more. There will be more choices for sourcing.”

Growth engine

Wu is not alone in expecting ASEAN countries to emerge as the next growth point for Chinese companies. Drawing on his observations in Cambodia, he said: “Its population and rapid economic growth will make it an important market for companies in their global expansion plan. In the long term, there will be more imports and exports.”

The recent increase in Chinese agricultural imports from Cambodia shows that trading activities and demands are rising between China and the Southeast Asian country. Chinese companies are seeing more trading opportunities thanks to the strong demand at home.

Wu talked up the potential of ASEAN markets, particularly Laos, Vietnam and Cambodia, saying: “We see more opportunities in ASEAN countries. Its population is growing rapidly. The purchasing power there is still low but it’s on the rise. It’s grown a lot during the past few years. We cannot underestimate the purchasing power and the market in Cambodia.”

Market knowledge

This view may surprise many. Cambodia is largely seen as a developing country with low purchasing power. Explaining his reasoning, Wu said: “The purchasing power in a foreign country could be completely different from that in China. Beer, for example, is consumed a lot more in Cambodia than in China. Other products may have a different story. You may find your product is not competitive at all in a new market.”

Wu pointed out that the key to finding success in a new market is to learn about it and craft a clear plan from day one, saying: “You first need to conduct thorough research to learn a lot about that market before going there for business. There must be a clear plan on how to integrate foreign leadership and local experience and how to train local talent.”

He advised that there are several factors to look out for when navigating business opportunities in ASEAN countries. These include labour efficiency, political and economic stability, government efficiency, the regulatory environment, banking services and financing opportunities.

Using a mix of foreign and local talent is also essential from the outset, but companies need to start thinking about how they can speed up localisation, in order to leverage the local team’s knowledge of the local regulatory environment and culture.