Updated: Apr 3
Malaysia is an attractive base for companies to set up their Representative Offices to coordinate and support their operations in the Asia Pacific region.
The establishment of ROs marks the initial phase of foreign companies interested in establishing regional operations in Malaysia. Information gathering and feasibility studies on local investment opportunities are usually done during this phase for their parent companies in preparation for long-term commitments.
Manufacturing and Trading Sector
A Representative Office is an office established in Malaysia by a foreign company / organization to perform activities allowed for its head office / principal. The Representative Office serves as a temporary establishment to evaluate businesses viability before incorporating a permanent business entity in Malaysia. An Approved Representative Office does not need to be incorporated or registered under the Companies Act 2016.
A Representative Office of a foreign company in the manufacturing, trade and services sector is an office established in Malaysia to collect related information on investment opportunities in the country, enhance bilateral trade relations, promote export of Malaysian goods and services and conduct research and development (R&D) for its headquarters / principal. The Representative Office should be fully funded by sources outside Malaysia.
Activities Allowed for Representative Offices
Approved Representative Offices are allowed to engage and perform the following activities for its head office or principal:
- Collecting and analyzing of important information or conducting a feasibility study related to investment and business opportunities in Malaysia and the region;
- Planning or coordination of business activities;
- Identifying sources of raw materials, components or other industrial products;
- Conducting product research and development;
- Acting as a coordination center for company's affiliates, subsidiaries and agents in the region; and
- Other activities that will not directly result in actual commercial transactions.
Activities Not Allowed for Representative Offices
Approved Representative Offices are not allowed to perform the following activities:
- Engage in any trade (including import and export), business or any form of commercial activity;
- Rent warehousing facilities (any delivery / transfer or storage of goods will be handled by a local agent or distributor);
- Sign business contracts on behalf of foreign company or provide services for a fee; or,
- Participate in the day-to-day management of any of its subsidiaries, affiliates or branches in Malaysia.
Companies wishing to conduct business activities can do so by incorporating local companies under the Companies Act 1965.
Duration of Establishment
- Companies and Others (including non-profit organizations not related to trade)
A minimum of two (2) years and an extended term may be considered subject to an additional commitment to operating expenditures and based on the merits of each case.
- Government and Trade Association
The duration is based on the contractual agreement or other equivalent document or a maximum of five (5) years and is renewed based on the merits of each case.
Representative Offices are eligible to apply for expatriate positions. Expatriates will only be considered for managerial and technical positions and the number of expatriates allowed depends on the functions and activities of the Representative Office.
The proposed expatriate must be currently employed by the applicant company or its subsidiaries or within the group. An expatriate who works with a Representative Office is taxed based on the portion of his chargeable income attributed to the number of days he is in the country.
Employment passes for approved expatriates are valid for one (1) year and require annual renewal.
The operating expenditures of the Representative Office must be at least RM300,000.00 per year. However, upon approval, the conditions imposed will be based on operational expenditures as proposed by the Representative Office.
The Representative Office should be funded by funds sourced from outside Malaysia.
Banking and Financial Services Sector
Foreign institutions wishing to establish representative offices in the banking sector must obtain prior written approval from the Central Bank, Bank Negara Malaysia.
A foreign institution is defined as an institution that conducts any business outside Malaysia, which corresponds, or similar to banking business, finance company business, merchant banking business, discount house business, money brokerage business, building credit business, credit token business, development finance business , factoring business and leasing business.
A Representative Office of a foreign institution in the banking sector is an office established in Malaysia to carry out activities permitted for its headquarters / principal. The Representative Office should be fully funded from sources outside Malaysia.
The activities allowed are as follows:
1. supplying trade and other economic and financial information on Malaysia to foreign interests and vice versa;
2. assisting Malaysian exporters in finding new markets through the services of their international office and vice versa;
3. assisting foreign interests in establishing joint venture companies in Malaysia; and,
4. seeking opportunities for their respective banks to provide and participate in the management and syndication of foreign currency loans to Malaysian companies, including identifying Malaysian companies in need of offshore financing.
The Representative Office is subject to the following conditions:
1. not allowed to conduct banking or other forms of business in Malaysia;
2. engage in representational activities and serve as a contact center / liaison;
3. the appointment of any expatriate Chief Representative or Assistant Representative should be made in consultation with Bank Negara Malaysia. Only one expatriate is allowed at any time, except in the early years of operation; and
4. submit to Bank Negara Malaysia a report of its activities on a semi -annual basis, i.e., at the end of June and December each year.
A company can apply for a (RO), subject to meeting the criteria.
Interested in setting up a RO in Malaysia? Connect with Bestar for more details.
Bestar provides comprehensive support to your business as you consider the competitive and comparative advantages that Malaysia has to offer for your investment. Explore our specialized resources or consulting services to help you grow your operations here.