Company Structures for Foreigners in Malaysia
As a foreign entrepreneur in Malaysia, you typically have two main options for setting up a business:
1. Private Limited Company (Sdn. Bhd.)
Ownership: Can be 100% foreign-owned in many sectors.
Capital Requirement: To qualify for a work visa (Employment Pass), you must inject at least RM500,000 (~USD 110,000) in paid-up capital.
Visa: Without that capital, you cannot legally employ yourself.
Best For: Medium to large ventures with substantial startup funds.
❌ Not suitable for lean startups.
2. Labuan International Business Company (Labuan IBC)
Ownership: 100% foreign ownership allowed.
Capital Requirement: Legally as little as USD 1, but in practice, you must show at least USD 10,000 working capital to support your visa application.
Tax:
If serving international clients only → choose either 3% of net audited profits or a flat RM20,000 (~USD 4,300) annually.
If serving Malaysian clients (local businesses, property owners, Airbnb/Agoda listings, etc.) → income is taxed under Malaysia’s domestic corporate tax rate of 24%. With a skilled accountant, you can legally deduct business expenses (office, equipment, marketing, utilities, etc.), often reducing the effective tax rate to around 10–15%.
Office: Must maintain a registered office in Labuan. Service providers can arrange a shared or virtual office to keep costs lean.
Visa:
You can apply for a Labuan Employment Pass, valid for 2 years and renewable.
This allows you (as shareholder/director) to live and work in Malaysia.
You must declare a salary of at least RM10,000/month (~USD 2,200), though it does not mean you must physically withdraw that amount—it is mainly for compliance.
Dependents (spouse, children, parents) can also be included.
Renewal every 2 years involves standard immigration processing fees, typically USD 1,500–2,500 through your service provider.
Why Labuan IBC Is the Right Fit
Avoids the high RM500k paid-up capital requirement of an Sdn. Bhd.
Provides a clean, legal pathway to a work visa on a lean budget.
Flexible tax treatment depending on whether you serve international or domestic clients.
Lower setup and annual maintenance costs compared to a traditional Malaysian company.
Cost Snapshot (Year 1)
Company incorporation: USD 1,200–2,000
Work visa application: USD 1,500–2,500
Annual renewals & compliance: USD 1,500–2,500
Tax filing & audit (if needed): USD 800–1,200
➡️ Expect USD 3,500–5,000 in the first year, then about USD 2,500–3,500 annually thereafter.
✅ In summary: We will set up a Labuan IBC with USD 10,000 working capital, apply for the 2-year Labuan Employment Pass, and run our business legally in Malaysia. Since our services target local property owners and businesses, our Malaysian-sourced income will be taxed at 24%, but with proper accounting, the effective rate should fall closer to 10–15%.
What Is Labuan – Explain It
Got it — here’s a clearer section focused just on Labuan itself, with a bit of background and why it’s the go-to for foreigners like you:
What is Labuan and Why Use It?
Labuan is a small island territory of Malaysia, located off the coast of Borneo near Brunei. Although geographically remote from Peninsular Malaysia, it has a special status: in 1990, the Malaysian government designated Labuan as an International Business and Financial Centre (Labuan IBFC).
The purpose was to attract foreign investors, entrepreneurs, and financial services by offering a lighter regulatory framework, lower costs, and a competitive tax regime compared to mainland Malaysia. Since then, Labuan has become a recognized hub for offshore banking, insurance, consulting, and service-oriented businesses.
For small, lean startups run by foreigners, Labuan offers three big advantages:
100% foreign ownership with simple setup requirements.
Lower capital requirements than a normal Malaysian company (Sdn. Bhd.), making it possible to qualify for a work visa without needing RM500,000 in paid-up capital.
Flexible taxation — 3% flat tax if serving international clients, or 24% corporate tax if serving Malaysians (still manageable with proper accounting).
In short, Labuan exists to make Malaysia competitive as an international business hub — and it’s the most practical legal doorway for a foreigner who wants to run a lean, service-based business in Malaysia.