Many foreign investors have been finding ways to break into the Malaysian market to take advantage of the investment and business opportunities.
Malaysia has evolved since the 1970s from a producer of raw materials into a multi-sector economy. Malaysia has been working to achieve high-income status to elevate up the value-added production chain by promoting investment in high technology, knowledge-based industries and services.
In 2010, Malaysia’s Prime Minister Najib started the Economic Transformation Program. It is a series of projects and policy measures intended to encourage the country’s economic growth significantly by the year 2020.
Keep reading as we lay out everything you need to know about entering the Malaysia market.
It’s very important to consider certain factors before hiring foreign employees. Malaysia’s government has created initiatives to provide free education. They have contributed greatly toward the development of productive workforce in the country. Professional employment solutions allow multinationals to legally hire employees, even a company doesn’t have a legal entity or representative office in Malaysia.
Below are the local policies required to help guide you when hiring employees in Malaysia.
Malaysia mandates the need for a formal, written employment contract signed by all relevant parties.
There are two types of contracts: Fixed-term labor contracts and Indefinite period labor contracts.
In Malaysia, an employee shall not be required under his/her contract of service to work:
Malaysian employees are entitled to one whole day off per week.
The Malaysian government increased the minimum wage for major towns under 56 city and municipality councils.
The new wage increase came into effect on February 1, 2020.
In addition to the minimum wage increase, the government will increase the maternity leave from 60 days to 90 days effective from 2021. And workers earning less than MYR 4,000 ($944 USD) per month are now eligible for overtime pay.
Both employers and employees need to contribute to an individual’s social insurance through the Employees’ Provident Fund (EPF), Social Security Organization (SOCSO), and Employment Insurance System (EIS) which cover survivor’s benefits, retirement, disability and medical payments.
II. Social Security Organization (SOCSO)
Malaysia has a Social Security Organization (SOCSO) who administers the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS). SOCSO coverage and protection is limited to Malaysian citizens and permanent residents. A monthly contribution must be made and may fall under one of two categories:
Effective January 1, 2019, Malaysian employers are required to contribute to SOCSO on a monthly basis for all their foreign employees (including expatriates).
However, the employment or assignment arrangement could impact the applicability of the requirement onto the employee. As a result, each case needs to be examined individually to determine the applicability.
III. Employment Insurance System
To protect employees who face risk of retrenchment, the Malaysian government passed the Employment Insurance System Bill in October 2017 as a new protection measure, and it became compulsory on January 1, 2018.
Malaysia’s income tax rate is progressive and ranges from 0-30% of an employee’s monthly remuneration. Taxation is dependent on ‘residential’ or ‘non-residential’ status:
The applicable tax rates are the following:
Malaysian Personal Income Tax
|Income||Tax Rate (%)|
|MYR 0-5,000 ($1,222 USD)||0|
|MYR 5,001-20,000 ($1,223-$4,891 USD)||1|
|MYR 20,001-35,000 ($4,891-US$8,559)||3|
|MYR 35,001-50,000 ($8,559-$12,227 USD)||8|
|MYR 50,001-70,000 ($12,227-$17,118 USD)||14|
|MYR 70,001-100,000 ($17,118-$24,465 USD)||21|
|MYR 100,001-250,000 ($24,465-$61,134 USD)||24|
|MYR 250,001-400,000 ($61,134-$97,813 USD)||24.5|
|MYR 400,001-600,000 ($97,813-$146,885 USD)||25|
|MYR 600,001-1,000,000 ($146,885-$244,493 USD)||26|
|MYR 1,000,001-2,000,000 ($244,493-$489,000 USD)||28|
|Exceeding MYR 2,000,000 ($489,000 USD)||30|
Direct Dismissal: It is the situation where an employer decides to end the employment and dismisses the employee, usually by way of a formal letter of termination. Most of the time, the courts grant employers an ample space to make [managerial] decisions for their businesses, including the dismissal of employees. The courts will only interfere with a decision to directly dismiss an employee if it is proven unfair.
Constructive Dismissal: It involves the situation like an employer has shown intention not to continue with the employment relationship. As such, an employee would be entitled to regard the contract as having been terminated by the employer, and that he or she has been dismissed.
|Employer Initiated Termination||Employee Initiated Termination||Natural Termination|
Termination with Notice Period: the following shall apply once the provision is made in writing:
Termination Benefits: Under federal regulations, only employees who have been employed under a continuous contract of employment of not less than 12 months before the date of termination are entitled to the termination benefits, which are as follows
|Length of Service||Termination Benefits|
|Less than 2 years||10 days wages for every year of service|
|2 years or more, but less than 5 years||15 days wages for every year of service|
|5 years or more||20 days wages for every year of service|
Severance pay is payable where the termination is by way of retrenchment or upon closure of business. Currently, one month’s salary for each year of service is considered fair and reasonable.
However, for Employment Act employees, the law prescribes that the statutory minimum termination benefits are as follows and pro rata in respect of an incomplete year of service, calculated to the nearest month:
Although the Employment Act doesn’t stipulate a maximum probationary period, they usually last up to three months. Employers have the right to prolong the probationary period if a new staff member isn’t up to scratch.
In Malaysia, the Employment Act 1955 highlights the fact that a probationary employee enjoys all the same rights and benefits as confirmed employees. A probationary employee CANNOT be terminated without just cause or excuse.
The law states that a probationary employee shall not be deemed confirmed unless there is an express act confirming the employee (by way of letter, salary increase or benefit entitlement).
It is important to note that Malaysia is a multi-cultural society. The main ethnic groups are the native Malays and a large population of Chinese and Indian people. Each ethnicity retains their religions, customs, and way of life. Undoubtedly, it is important to respect those values.
Malaysia is a great location to start one’s business for a number of reasons. Malaysia is a part of the Association of South East Asian Nations (ASEAN). Investors that engage in Malaysia will have accessible trade routes with Indonesia, Singapore, Thailand, Philippines, Vietnam, Brunei, Laos, Cambodia, and Myanmar. Malaysia also has a peaceful political climate that supports socio-economic development.
At NNRoad, we want to make your incorporation process in Malaysia as smooth as possible so you can spend more time focusing on your core business. When considering the establishment and incorporation of your company a foreign market, it is important to develop a preliminary plan. It is crucial to think about:
To learn more about company formation, what to look for, and how it can benefit your business, check out our What to Look For in a Company Formation Services Firm blog.
NNRoad offers a complete market entry solution for companies wishing to have local professional support during their market entry into Malaysia. The total market package means we will guide you every step of the market entry process. NNRoad allows you to take it at your own pace, and with us as your partner from beginning, to successful set up in the Malaysia. We can also support with taxes and accounting after your company is setup.
This package enables you to hire employees even before your company is completely set up in Malaysia. By the time your company’s formation is complete, NNRoad transfers all employment relationships to your new entity.
If you are interested in reading a more in-depth guide on PEOs, its advantages and the process itself, check out our Guide to Professional Employer Organization Services.