Foreign-Owned Companies in Malaysia: Ownership Rules, Paid-Up Capital and Licences in 2026

Where 100% Foreign Ownership Is Allowed, and Where It Is Not

According to the Malaysian Investment Development Authority (MIDA), foreign investors have been able to hold 100% of the equity in new manufacturing projects since June 2003. In services, the Companies Act 2016 imposes no equity conditions, so a foreigner can own every share of a private company limited by shares (Sdn Bhd). The catch is that sector regulators can attach equity conditions to the approvals, licences and permits they issue, and they do so in areas such as telecommunications, oil and gas services and financial services.

Distributive trade is the most common example. Foreign-owned companies in wholesale or retail trade fall under the Guidelines on Foreign Participation in the Distributive Trade Services issued by the Ministry of Domestic Trade and Cost of Living (KPDN). They need KPDN approval, known as a wholesale and retail trade (WRT) licence, which requires shareholders’ funds of at least RM1 million for most formats (RM20 million–RM50 million for department stores, superstores and hypermarkets), and the ESD requires RM1 million in paid-up capital for Employment Pass purposes. Some small formats, such as convenience stores and provision shops, are closed or limited for foreign equity, and approvals can carry conditions such as reserving at least 30% of shelf-space stock-keeping units for Bumiputera SME products.

Paid-Up Capital for Hiring Expatriates

Paid-up capital matters most when hiring foreign staff. The Immigration Department’s Expatriate Services Division (ESD) sets the minimum a company needs to register and apply for Employment Passes: RM500,000 for a wholly foreign-owned company, RM350,000 for a joint venture (which the ESD describes as having at least 30% foreign equity), RM250,000 for a wholly Malaysian-owned company, and RM1,000,000 for a foreign-owned company that requires a WRT licence.

The capital must be paid up, with shares allotted and lodged with the Companies Commission of Malaysia (SSM), before the ESD registration. Most companies apply for Employment Passes online through the ESD, with the MYXpats Centre, a joint initiative of TalentCorp and the Immigration Department, supporting submissions and pass endorsement. Manufacturing and selected services companies under MIDA must apply through the MIDA Expatriate System, launched on 16 March 2026 and their only channel since 1 June 2026. Salary floors for each Employment Pass category were also revised from 1 June 2026, as covered in our salary thresholds article.

Manufacturing Licences Under the Industrial Coordination Act

Under the Industrial Coordination Act 1975, a company engaged in manufacturing needs a manufacturing licence from MIDA if it has shareholders’ funds of RM2.5 million or more, or 75 or more full-time paid employees. Companies below both thresholds can apply for an exemption letter, which MIDA says gives access to facilities such as duty exemptions and investment incentives. Conditions imposed on manufacturers before 17 June 2003 remain in place unless MIDA agrees to lift them.

MIDA’s published approval criteria include capital investment per employee of at least RM140,000, a workforce that is at least 80% Malaysian, and managerial, technical and supervisory staff making up at least 25% of the workforce, or value added of at least 40%. Test the numbers before committing to a site or headcount plan.

Directors, Banking and Tax Residence

Section 196 of the Companies Act 2016 requires a private company to have at least one director who ordinarily resides in Malaysia, meaning his or her principal or only place of residence is in Malaysia. SSM also requires a company secretary to be appointed within 30 days of incorporation. Foreign groups usually meet the director rule with a senior manager whose principal residence is in Malaysia or with a Malaysian resident professional.

Opening a corporate account with a Malaysian bank involves due diligence on every director, shareholder and beneficial owner, and banks commonly expect signatories to attend in person. Bank Negara Malaysia’s foreign exchange rules are liberal: non-residents may hold ringgit or foreign currency accounts with onshore banks and repatriate profits, dividends and divestment proceeds, and Malaysia levies no withholding tax on dividends. Resident exporters, however, must repatriate export proceeds within six months of shipment.

A company is tax resident in Malaysia if its management and control are exercised in Malaysia, which in practice points to where the board meets and decides. The standard corporate tax rate is 24%. Since year of assessment 2024, the preferential SME rates of 15% and 17% are denied where more than 20% of paid-up capital is owned, directly or indirectly, by foreign companies or non-Malaysian citizens, so most wholly foreign-owned subsidiaries pay 24% on all chargeable income unless an incentive applies.

Checklist for Setting Up a Foreign-Owned Sdn Bhd

• Confirm whether your activity needs a sector licence with equity conditions, and whether it counts as distributive trade under KPDN rules.
• Set paid-up capital at the highest threshold you will need: RM500,000 to hire expatriates, or RM1 million with a WRT licence or for a MIDA Key Post.
• If you will manufacture, check the Industrial Coordination Act thresholds and apply to MIDA for a licence or exemption.
• Appoint a resident director, and a company secretary within 30 days of incorporation.
• Hold and minute board meetings in Malaysia if the company is meant to be tax resident here.
• Prepare due diligence documents for every director, shareholder and beneficial owner before approaching a bank.
• Register with the ESD before recruiting foreign staff, and check the Employment Pass salary floor for each role.
• Budget tax at 24% rather than the SME rates if more than 20% of the capital is foreign-owned.

Paid-up capital or shareholders’ funds: which test applies?

It depends on the authority: the ESD, MIDA’s expatriate guidelines and LHDN test paid-up capital, while KPDN and the manufacturing licence threshold test shareholders’ funds, which add reserves and retained profits or losses.

Authority and purpose	Measure	Threshold as at October 2026
ESD: hiring on Employment Passes	Paid-up capital	RM250,000 wholly local; RM350,000 joint venture (at least 30% foreign); RM500,000 wholly foreign; RM1,000,000 foreign-owned with a WRT licence
MIDA: Employment Passes in manufacturing and selected services	Paid-up capital	The same three tiers; a Key Post also needs at least RM1 million of foreign paid-up capital
KPDN: foreign participation in distributive trade	Shareholders’ funds	RM1 million for most formats; RM20 million department stores; RM25 million superstores; RM50 million hypermarkets
MIDA: manufacturing licence	Shareholders’ funds or headcount	Required from RM2.5 million or 75 full-time paid employees
LHDN: SME tax rates	Paid-up ordinary share capital	Up to RM2.5 million and no more than 20% foreign-owned, at the start of the basis period

Losses reduce shareholders’ funds, not paid-up capital: RM1,000,000 paid up less RM150,000 of losses leaves RM850,000, so keep headroom above any shareholders’-funds test.

Worked example: a foreign-owned trading company vs a consultancy

A 100% foreign-owned wholesale distributor needs KPDN approval and RM1,000,000 paid-up capital to hire expatriates; a foreign-owned consultancy needs RM500,000 and no KPDN approval. Both pay 24% on all chargeable income.

1. Licence: wholesale distribution is distributive trade, so the distributor needs KPDN approval, with shareholders’ funds of at least RM1 million, before operating; consulting does not.
2. ESD capital: RM1,000,000 − RM500,000 = RM500,000 more for the distributor. Paying up RM1,000,000 also meets the KPDN test on day one, before any losses.
3. Hire: a general manager on RM12,000 basic salary is Category II in both; ownership does not affect salary bands.
4. Tax: both are more than 20% foreign-owned, so on chargeable income of RM400,000 each pays 24% × RM400,000 = RM96,000.
5. As SMEs they would pay 15% × RM150,000 = RM22,500 plus 17% × RM250,000 = RM42,500, total RM65,000. Foreign ownership costs RM96,000 − RM65,000 = RM31,000 a year.

Assumes no incentives, gross income under RM50 million and a format open to foreign operators; fees are excluded.

In what order should a foreign-owned Sdn Bhd get its approvals?

Classify, incorporate, capitalise and report beneficial owners first, then apply to KPDN or MIDA, and register with the ESD after that, since it asks for sector licences such as WRT.

1. Classify the activity: distributive trade (KPDN), manufacturing (MIDA) or a licensed sector whose regulator may set equity conditions.
2. Incorporate with SSM, with at least one director ordinarily resident in Malaysia, and appoint a company secretary within 30 days.
3. Open a bank account, allot shares, pay up capital to the highest threshold needed and lodge the allotment with SSM.
4. Within 60 days of the secretary’s appointment, lodge beneficial ownership information, tracing through any foreign parent to the individuals behind it.
5. Apply to KPDN on Form WRT 1 before trading, or to MIDA for a manufacturing licence or exemption letter.
6. Register with the ESD, which takes 14 working days once documents are complete.
7. Apply for each Employment Pass through the ESD, or through the MIDA Expatriate System if MIDA supervises the company.

What changed for foreign-owned companies in 2025–2026?

The capital thresholds did not change; the channels and paperwork did, and KPDN’s distributive trade guidelines are under review as at October 2026.

Date	Change
10 January 2025	SSM revises its beneficial ownership guidelines, first issued on 1 April 2024
14 February 2025	MITI proposes replacing the Industrial Co-ordination Act 1975; its licensing thresholds still apply
22 December 2025	LHDN Public Ruling No. 8/2025 sets out the 20% foreign-ownership test for SME rates, in force from YA 2024
6 February 2026	Cabinet forms a Ministry of Finance-led task force on the influx of foreign goods; on 3 March 2026 KPDN says it is improving the distributive trade guidelines
16 March 2026	MIDA Expatriate System launched
1 June 2026	Revised Employment Pass salary bands take effect; the MIDA Expatriate System becomes the only channel for MIDA-related applications
7 October 2026	ESD’s FAQ, updated that day, still lists RM250,000, RM350,000, RM500,000 and RM1,000,000

Common mistakes foreign-owned companies make in Malaysia

Most problems come from reading one authority’s threshold as the only one, or from timing.

• Treating RM1 million as an ESD-only rule: KPDN also needs RM1 million in shareholders’ funds for most formats.
• Assuming online selling or agency work is not distributive trade: KPDN lists online businesses, direct sellers and commission agents.
• Using a joint venture to keep SME rates: the ESD joint-venture tier starts at 30% foreign equity, above the 20% limit.
• Budgeting RM500,000 for a MIDA company with a Key Post, which needs foreign paid-up capital of at least RM1 million.
• Filing a MIDA-sector pass application on ESD Online: since 1 June 2026 only the MIDA Expatriate System accepts it.
• Naming the foreign parent as beneficial owner: a beneficial owner is always a natural person.
• Renewing a KPDN approval late: it lasts up to 3 years, and a renewal filed less than 3 months before expiry is treated as new.

Foreign ownership terms explained

These terms appear in SSM, KPDN, MIDA, ESD and LHDN guidance.

• Paid-up capital: what shareholders have paid for their shares; used by the ESD, MIDA for expatriate posts, and LHDN.
• Shareholders’ funds: paid-up capital plus reserves and the profit and loss balance; used by KPDN and the manufacturing licence threshold.
• Foreign business operator: for KPDN, a non-citizen (including a permanent resident), a foreign company, or a local company in which they hold more than 50% of the voting rights.
• WRT licence: the common name for KPDN’s approval of foreign participation in distributive trade, applied for on Form WRT 1.
• Key Post: in MIDA’s guidelines, a permanent senior expatriate post in a foreign-owned company; a Term Post is temporary, for transferring know-how.
• Beneficial owner: the natural person who ultimately owns or controls a company, including through 20% or more of its shares or voting shares.