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FOREIGN DIRECT INVESTMENT (FDI) in Malaysia: The Relevance of the Size of Paid Up Capital of Malaysian Company

FOREIGN DIRECT INVESTMENT (FDI) in Malaysia: The Relevance of the Size of Paid Up Capital of Malaysian Company

One of the first few key issues to be considered by foreign investor in setting up a Malaysian company is the size of paid up capital. Malaysian company law prescribes that the minimum paid up capital is RM2.00 for new company. However, as the company commences operation, there are a number of operational issues that relate to the size of paid up capital of Malaysian company.

A) APPLICATION OF EMPLOYEE PASS AND KEY PERSONNEL PASS

The size of paid- up capital is relevant to the type and number of working visas that a foreign- owned Malaysian Company may apply. A foreign owned Malaysian company may apply the following types of working visa for its expatriate workers:-

i) PROFESSIONAL VISIT PASS-

The pass is valid for six months and it enables the holder multiple entry into Malaysia during its effective period. The holder of the pass is not considered as the employee of the Malaysian Company.

ii) EMPLOYEE PASS-

The pass is valid for up to 2 years, and the holder is considered as the employee of the Malaysian Company. The application criteria are as follows:-

Foreign Owned Local Company, and any other company

Paid Up Capital Requirement:

1) 100% local own company: Paid up capital of RM200,000.00
2) partly foreign owned company: Paid up capital of RM350,000.00
3) 100% foreign owned company:Paid up capital of RM500,000.00

B) APPLICATION OF MSC STATUS (TAX EXEMPTION)

In an

pplication for MSC Status, one of the key factors to be considered is the number and qualification of knowledge workers employed by the applicant company. If the Malaysian company does not intend to appoint local knowledge workers and does not have enough paid up capital to obtain Employment pass for foreign workers, the only option left is to source foreign workers based on professional visit passes. These professional visit pass holders are not considered as the direct employees of the company and therefore cannot be deemed as knowledge workers of the company.

To be eligible for the MSC Status, the company must prove that there are certain intellectual properties owned by the company, and the company has sufficient number of permanent knowledge employees to operate the company as an ongoing concern.

It may jeopardize the chance of a successful application if the company has only professional visit pass holders operating the company, as the company may not be able to prove that the company is maintaining a sustainable and continuing system of operation and management of the company.

Refer to official source of the above information:-
http://www.mscmalaysia.my/msc_malaysia_status

C)APPLICATION FOR Construction Industry Development Board’s License (CIDB License)

CIDB License is required to carry out contract works in the capacity of main contractor. The company is required to have at least RM750,000.00 paid up capital to be eligible for the highest level license which entitled the license holder to carry out unlimited value of contract work.

Refer to official source of the above information:-
https://www.cidb.gov.my/cidbv4/images/pdf/RegistrationRequirementAndProcedure.pdf

 

CONCLUSION:

The requirement of the size of paid up capital is the entry criteria for application of employee pass and CIDB license. A foreign owned company may consider bringing in expatriates by professional visit passes, however, please bear in mind that the professional visit pass holders are not deemed as the Company’s employees and therefore are not counted as the Company’s knowledge workers, which may not be helpful for the application for tax exemption status in future.

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By : L Y Lu & Co.