Malaysia Country Facts

We provide comprehensive information regarding, Culture, Work life, Taxation, Visa’s & immigration, Labour Law, recruiting in your country of choice and employment contracts.

Global Expansion Made Easy for You

Expanding into Malaysia generally comes with challenges, however, partnering with us and using Employer of Record (EOR) eliminates the frustrations you could encounter.

As with many nations, Malaysia requires certain documentation for individuals to enter, stay and work within the country. However, there are certain countries whose nationals can stay for visits or some business activities, visa-exempt, from 30 days up to six months.  There are 10 countries whose nationals can apply for an online e-visa, otherwise an entry visa is required and applied for at a local embassy or consulate in their home country. People on a Visa without Reference (VTR), which includes tourism or business, whether single or multi entry, are not eligible to work.

For employment, all foreigners require a work visa to legally work long term and making the wrong decision can lead to sanctions, deportation, blacklisting and even imprisonment. The ‘Work Visa’ is a process whereby employees have to obtain ‘permission to work’ in the country i.e., a ‘Work Permit’, after which the embassy or consulate abroad issues a Visa with Reference (for work purposes) for those who are not visa-exempt.

Companies expanding into the country typically apply for one of the work permits for their staff, which come under the auspices of the Immigration Department after approval by the appropriate authority. The type of jobs available for expatriates in 2022 are in IT and communications, oil and gas, medicine, tourism and hospitality, the financial and banking sectors, teaching, electronics and similar industries.

Many companies look towards a Professional Employer Organisation (PEO) and Employer of Record (EOR), such as Bradford Jacobs, to set up their business, onboard staff and operate payroll to save time and money and that includes assisting their staff with their immigration and work documentation.  Here are some guidelines for those going it alone … However, when laws are updated, this can mean changes to the visa and immigration system, so it is always necessary to check whether any recent proposals have been implemented.

The different types of Visas and Work Permits for Malaysia

When referring to employees coming into the country, those who are highly skilled and qualified are typically referred to as ‘Expatriates’ and the semi-skilled and those in the unskilled work force as ‘Foreign Workers’. All travelers should check as to whether they require a Yellow Fever vaccination certificate

Visas available to enter Malaysia

  • Visa without Reference (VTR) is a Social Visit Pass which is given for certain activities including: Tourism, Journalism, Visiting relatives, Sporting events, Business purposes (e.g. for meetings, signing contracts, attending seminars and more). These can be for Single or Multi entries. There is also a Transit Visa
  • Visa with Reference (VDR) is issued upon approval from the Immigration Department for foreigners to enter the country for employment, as a dependent, for temporary work, as a student

To work in Malaysia, the main employment work permits issued are:

  • The Employment Pass (EP)
  • The Temporary Employment Pass or Visit Pass (TEP)
  • The Professional Visit Pass (PVP)

The type of work permit applied for depends on qualifications, work experience, term of employment, and salary offered. An employment contract is required and a sponsoring employer.

Also available are:

  • PLS@XPATS Social Visit Pass (for 30-day employment)
  • Remote Work Visa (for Digital Nomads)
  • Residency Through Investment Program (to work, study and invest)
  • The Residence Pass-Talent (to attract Malaysians abroad, to work and stay)
  • Dependent Pass (for family)
  • Long-Term Social Visit Pass (for dependents)

Registered companies in Malaysia, through the Department of Immigration, have to set up an Expatriate Services Division (ESD) account.  This is to receive approval to employ foreigners and apply for the above passes; also, to submit yearly estimates for ‘hiring projections’ of expatriates. The ESD was set up as a one-stop center to deal with other authorities and departments to speed up the process and allow companies to submit application forms on the MYXpats ‘integrated data platform’

Note: Most foreigners wanting to work in Malaysia require an Immigration Security Clearance from their country of residence.

The process to obtain a Work Visa differs depending on which Work Permit is applied for and applications must be made while the employee is outside Malaysia and living in their country of residence. Passports should have 18 months validity and some permits may require a medical check-up.

The Employment Pass. This is the general work pass for highly skilled and professional employees who are looking to work as managers or in an executive capacity or in technical positions. For these work permits, applicants must have the required official qualifications and a minimum of three years’ work experience in the required field.

There are three categories of this work permit:

  • Category I. Employees require a minimum monthly salary of RM 10,000 (€2,120). They should have a five-year employment contract which is renewable. This includes CEOs, technical or managing directors, project managers and executive positions
  • Category II. Salary requirement is between RM 5,000 (€1,060) and RM 9,999 each month. Must have a two-year employment contract for marketing managers, directors, architects, investment professionals which is renewable
  • Category III. Employees require up to a two-year contract with a minimum monthly salary from between RM 3,000 (€635) to RM 4,999. This can be renewed twice only

How to apply for Visas and Work Permits?

To apply for the Employment Pass (EP)

All document copies must be supplied in color, to apply for the EP through the www.esd.imi.gov.my by the employer. These are typical documents submitted but others may be requested including originals:

  • Relevant application form completed and signed
  • Recent passport photos
  • Copy of valid full passport including cover (12+ months’ validity)
  • Copies of all educational qualifications e.g., degree, or technical diplomas, plus any professional certificates
  • Recent Curriculum Vitae plus details of work experience in relevant field
  • Copy of employment contract, which has been stamped by the Inland Revenue Board (LHDN)
  • Letter of employment with a full description of position to be completed on company letter-headed paper, undertaking to pay the stated salary
  • Employer supplies regulatory documents or certificates from approving agency or regulatory bodies https://esd.imi.gov.my/portal/pdf/tc-esd-quick-guidev3-2021_april.pdf Annex A&C is where the information is available
  • Approval letter confirming post and approval of the employment from relevant authority
  • Articles of Association and other company documents as requested on application form e.g., tax documents. More information on documentation, above link, Annex D
  • Fee of RM 800 (€170) which can be paid and endorsed online at the ESD Portal. The process when all documents have been validated, should take five working days

Once the Employment Pass and the issuance of a visa have been approved, a Single-Entry ‘Visa with Reference’ (VDR Letter) can be applied for at the consulate/embassy in home country to enter Malaysia.

After arriving, employees take their passports to the ESD for endorsement, so they can be issued with the appropriate passes. This can be done either personally or, if available, via the online service through the Expatriate Services Division MYXpats Center. A Multi-Entry Visa can also be issued at the same time if the applicant needs to leave and re-enter Malaysia.

Documents for the Single-Entry Visa (VDR)

  • Approval letter to issue the VDR from the ESD original and two photocopies
  • Passport with minimum 12 months’ validity and three empty pages
  • Two copies of passport
  • Two recent, identical color photographs
  • Confirmation of airline ticket or e-ticket with two copies
  • Two copies of application form IM47 (print on both sides of the paper)
  • Documents must be submitted in person
  • Photocopies on A4 paper
  • Visa fees varies depending on the country applied from
  • Police report / Immigration Security Clearance

To obtain the Professional Visit Pass (PVP)

  • The Malaysia company has to be registered and approved by the Expatriate Services Division (ESD) through the ESD portal for employing expatriates
  • The applicant should be qualified for one of the following sectors: Expertise Transfer – for example, in installation and maintenance or technical expert; research; training; volunteers; exhibitor
  • Dependents are not able to join employees
  • This Pass can be endorsed and paid for via the ESD portal
  • Apart from a few exemptions, the fee for the PVP is RM 800 (€170)

https://esd.imi.gov.my/portal/latest-news/announcement/new-application-features-and-service-fee-for-ep-pvp-effective-15nov2021/

Documents to apply for the PVP

  • Relevant application forms
  • Application letter from sponsoring company
  • Recent passport photograph
  • A full copy of the valid passport
  • Offer letter from the sponsoring company / contract which should include the reason for employment or training and stamped by the Inland Revenue Board
  • Letter from home country company detailing employment, salary, duration of stay etc. on letter headed paper
  • Qualifications e.g., degree/diploma/certification for the position applied for
  • Recent curriculum vitae
  • Personal Bond form stamped by the Inland Revenue Board (NOT Chinese or Bangladesh nationals)
  • Security bond / bank guarantee (Chinese and Bangladesh nationalities only)
  • Any supporting documents from authority/regulatory body – as applicable

There may be other documents requested.

Once the Professional Visit Pass has been approved, the Visa with Reference can be applied for at the local consulate to enter the country.

After arriving in Malaysia, holders should go to the ESD to collect their pass and have their passport endorsed before the entry visa expires.

It is vital for incoming foreign companies to be 100% up-to-speed on the tax laws in Malaysia – as they differ between employing local employees and bringing in staff from the parent company overseas. There are further issues revolving around residency qualifications, regarding taxpayers’ liability for worldwide income or just income earned solely in Malaysia.

These complex problems run side-by-side with your plans to develop the business and increase the brand’s international profile.

There is a straightforward and sensible solution – risk-free, cost-effective and fast! Link up with Bradford Jacobs as the ‘employer in place’ for your staff in Malaysia. Our Employer of Record (EOR) experts handle every aspect of taxation for your workforce. As part of our payroll services, we make deductions from their salaries for the revenue and social insurance authorities.

Don’t get tied up in red tape – leave it to Bradford Jacobs and we will straighten everything out.

Overview of Tax in Malaysia

  • Personal Income Tax (PIT): There are 11 bands. They range from 1% on income between €1,074 (US$1,108) and €4,298 (US$4,436) up to 28% on excess income between €214,397 (US$221,296) to €429,874 (US$443,707). Excess income above that limit is taxed at 30%
  • Non-residents are taxed at a flat rate of 30%. A designated qualified individual residing and working in Iskandar Malaysia in the southern Johor region is taxed at 15% on income from a qualifying activity in a designated company
  • Individuals qualified under the Returning Expert Programme are eligible for 15% tax on earnings for the first five years of employment
  • Corporate Income Tax (CIT): Resident companies are taxed at 24%
  • Withholding Tax (WHT): Royalties, dividends or interest paid to non-resident companies or individuals are taxed at 10% or 15%
  • Goods and Services Tax (GST): Goods and services produced and provided in Malaysia or imported are taxed at 6%. Some categories such as foodstuffs are taxed at 5%; others can be zero-rated or exempt
  • Real Property Gains Tax (RPGT): Capital gains from the sale of property or disposal of shares in a property company attract various rates

Personal Income Tax in Malaysia

Taxable income for employees includes salary, allowances, benefits in kind including rent-free accommodation provided by the employer. Generally, tax resident are those who reside in Malaysia for a total of 182 days – at one time or in total – in a calendar year. Malaysian residents are taxed on income derived both in Malaysia and from abroad.

The following rates apply to individual resident taxpayers:

Income | Tax on excess
EUR 1,074 – 4,298: 1%
EUR 4,298 – 7,522: 3%
EUR 7,522 – 10,746: 8%
EUR 10,746 – 15,045: 13%
EUR 15,045 – 21,493: 21%
EUR 21,493 – 53,734: 24%
EUR 53,734 – 85,974: 24.5%
EUR 85,974 – 128,962: 25%
EUR 128,962 – 214,937: 26%
EUR 214,937 – 429,874: 28%
EUR 429,874 and above: 30%

Note:  Non-residents are taxed at a flat rate of 30%. A designated qualified individual residing and working in Iskandar Malaysia in the southern Johor region is taxed at 15% on income from a qualifying activity in a designated company. Individuals qualified under the Returning Expert Program are eligible for 15% tax on earnings for the first five years of employment

Employer’s Social Insurance and Statutory Contributions

Employers and employees contribute to the Employment Injury Insurance Scheme (EIIS) and the Invalidity Pension Scheme (IPS), which are administered by Malaysia’s Social Security Organization (SOCSO). Contributions are set at a monthly maximum of RM 69.05 (€15) for employers and RM 19.75 (€4.25) for employees. Employers also make an extra contribution to EIIS for employees not eligible for IPS, to a maximum of RM 49.50 (€11) each month.

Malaysia’s Employment Insurance System (EIS) funds re-employment programs for employees who lose their jobs, to which employers and employees contribute 0.2% of employees’ earnings to a maximum of RM 7.90 (€1.70) each month.

Additionally, employers and employees contribute to the Employees’ Provident Fund (EPF), which is mandatory for Malaysian citizens and provides for old age pensions. Non-Malaysians and non-permanent residents can elect to be part of the EPF Fund. Contributions are as follows:

Employer’s Social Security Contributions | Percentages (%)
EPF Fund: On earnings below RM 5,000 (€1,074) per month for employees under 60 years old | 13%
EPF Fund: On employee earnings above RM 5,000 (€1,074) per month for employees under 60 years old | 12%
EPF Fund: Employees over 60 years old earning below RM 5,000 (€1,074) per month | 4% (Malaysian residents) 6% (Permanent residents)
EPF Fund: Employees over 60 years old earning above RM 5,000 (€1,074) per month | 4% (Malaysian residents) 6.5% (Permanent residents)

Employee’s Social Security Contributions | Percentages (%)
EPF Fund | 11%

International companies planning to extend their global reach beyond their own borders and shores have the option of opening a subsidiary as a legal entity in their new territory. Subsidiary entity set-up in Malaysia is a route they have to take if they intend running payroll for their staff based there.

This makes sense as a route to ‘test the market’. However, it is a risky business venture both in time and money … and there is no guarantee the effort and financial investment will produce the results your business needs.

A subsidiary in Malaysia is usually in the form of a private limited company or a company limited by shares, known as a Sendirian Berhad, which has a minimum of one shareholder and 50 as the maximum.

But making this move comes with a warning. The road to establishing a separate legal entity in Malaysia can be a difficult one for companies determined to handle the process themselves – and then there will be issues surrounding hiring staff, running their payroll, complying with tax and employment laws. It is a long list and spells trouble when you need to focus on building your business.

There is no need to face these issues alone. There is a sensible, speedy, risk-free and cost-effective alternative to begin operating in Malaysia.

Bradford Jacobs have the experts to remove all these potential problems in the way of your expansion plans. Our Professional Employer Organisation (PEO) networks and Employer of Record (EOR) specialists can steer you in the right direction – from recruiting the staff to managing every aspect of compliance. You can be up-and-running in days, rather than weeks or even months, with your employees always under your operational control.

How to Set Up an Malaysian Subsidiary?

  • Decide on the type of company, with the typical choice being a private limited company, a Sendirian Berhad (SDN BHD)
  • Choose a company name and check it is unique to Malaysia on the SSM website
  • The private limited company is registered with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, SSM)
  • The company name is registered on form BORANG PNA 42 and the company itself is registered with form BORANG A
  • The SSM will require various documents for verification, including Declaration of Compliance; Incorporation Certificate; Memorandum and Articles of Association; audited financial statement of parent company and most recent filed returns; details of shareholders and their share quota
  • There must a minimum of one shareholder and a maximum of 50
  • The subsidiary must be registered no later than 30 days after business operations began
  • The company must a have a legally registered office

Registration is finalised by completing the Super From on the MyColD 2016 portal

Digital registration is permitted via the required form from the SSM website.

Benefits of Setting Up a Subsidiary

The subsidiary operates as an independent legal entity from the parent company, which is generally protected from responsibility for any debts or liabilities. Shareholders typically have the same protection and are liable only to the extent of their contribution in shares.

Other advantages can include testing the market by pursuing different business activities to the parent company; entering into agreements with other Malaysian-registered companies; having greater credibility with clients and suppliers compared with branches.

But … setting up a subsidiary is still a long way from finding the simplest, fastest and most financially efficient way of setting up operations in Malaysia.

Bradford Jacobs will find the brightest talent for your company in Malaysia through our in-country Professional Employer Organisation (PEO) specialists. Employees can be working at their desk in days … not weeks or even months. Once there, all worries over employment laws and compliance will be removed by our Employer of Record (EOR) teams. We handle the hassle … while you have day-to-day operational control over your workforce.

Subsidiary Laws in Malaysia

Registration and Documentation:

  • Register unique company name (form BORANG PNA 42) and the company itself (form BORANG A) with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, SSM).
  • The SSM requires documents including Declaration of Compliance; Incorporation Certificate; Memorandum and Articles of Association; audited financial statement of parent company and most recent filed returns; details of shareholders and their share quota.
  • Legally register an office for the company.
  • Company registration must be no later than 30 days after business operations start.
  • Relevant licences must be obtained depending on the type of business.

Accounts and Taxation:

  • Minimum capital requirement is one share issued.
  • The company pays Corporate Tax on its profits, which can then be distributed to shareholders as dividends.
  • Annual tax returns and financial statements must be filed with the revenue authorities and the SSM.

Management:

  • Private limited company must have a minimum of one shareholder and a maximum of 50. If more than 50 shareholders, the private limited company must convert to an unlimited public company.
  • Shareholders or directors’ resolutions can be approved in writing or by a meeting.
  • At least one company director reside in Malaysia.
International companies entering the Malaysian market will be joining one of the most vibrant economies in Southeast Asia … and a nation with an unusual geography. Malaysia is divided into two distinct regions by the expanse of the South China Sea.

West Malaysia on the Malay Peninsula has a land border in the north with Thailand and is linked to Singapore on the peninsula’s southern tip by a bridge and causeway. Eastwards and 1,100 miles away across the sea, the Malaysian provinces of Sabah and Sarawak are in East Malaysia on the island of Borneo and share land borders with Brunei and Indonesia.

Malaysia is a Muslim nation with a population of over 32 million, in which the main ethnic groups are Malay, Chinese and Indian and 70% are aged between 15 and 64 years. Malaysia is governed by an elective parliamentary system and is a constitutional monarchy. Kuala Lumpur, on the peninsula, is the capital with other major cities including Petaling Jaya, Johor Bahru and George Town.

Both West and East Malaysia have a tropical/equatorial climate with two long monsoon wind seasons, between May and September, then October until March. The landscape of highlands, lowlands and coastal regions features rivers such as the Rajang and Perak. Kinabalu and Tahan are among the highest mountains.

Malaysia is rich in natural resources, including crude oil, petroleum, natural and liquefied gas, gold, copper, bauxite and limestone. However, there are ecological concerns involving air and water pollution, deforestation, flooding, waste disposal and wildlife conservation.

Work alongside our Professional Employer Organization (PEO) recruitment specialists, then trust our Employer of Record (EOR) in-country experts to handle every aspect of compliance. Employers can depend on our in-depth knowledge of Panama and how to navigate its legislative issues that revolve around the Commercial Code.

Starting a business in Malaysia

As a foreign company with an eye on global expansion, there are essential steps that must be taken when exploring the options before starting your business in Malaysia. The first decision could be whether or not to establish a legal entity in Malaysia by opening a subsidiary. This is a typical move, but not necessarily straightforward as strict incorporation and registration procedures have to be followed.

And there is more. One of the first tasks after registering your company in Malaysia is to open a business bank account to facilitate the company’s financial dealings. So, choosing the bank that suits you and your business needs is a priority.

The typical choice for foreign companies opening a legal entity in Malaysia is to select a private limited company (Sendirian Berhad), which is regulated by the Malaysia Companies Act (2016). Shareholders’ liability is limited by the number of shares they hold.

Registration procedures include:

  • A private limited company must be registered with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, SSM).
  • Choose a unique company name and check availability with SSM.
  • Register company name on form BORANG PNA 42 and register the company on form BORANG A.
  • Required documentation includes: Declaration of Compliance; Incorporation Certificate; Memorandum and Articles of Association; audited financial statement of parent company and most recent filed returns; details of shareholders and their share quota.
  • Registration must be no later than 30 days after the company starts business operations.
  • The company must have a legally registered local office.
  • All of the above can be registered digitally by downloading the required form from the SSM website. Registration is finalised by completing the Super Form on the MyColD 2016 portal.

Expanding your business into Malaysia

Malaysia occupies a strategic position, both geographically and economically, and international companies ready to locate in Malaysia potentially have access to 600 million people in Southeast Asia and further into Pacific Rim nations. It is vital that companies have a clear idea where to locate in Malaysia in order to maximise the potential of the region.

The attractions are underscored by Malaysia being home to the largest number of listed companies among fellow member nations of the Association of South East Asian Nations, proving its prime position as the ideal gateway into other Asian markets.

Where to locate in Malaysia

Where best to locate? That will largely depend on the type of business and the availability of local talent. Importers and exporters need to be near one of Malaysia’s major ports. For manufacturing companies, Johor has moved top of the list as a prime location according to the Malaysian Investment Development Authority (MIDA), although the state of Selangor accounts for 30% of all manufacturing operations.

The capital Kuala Lumpur, of course, is Malaysia’s financial centre, particularly for its developing role in Islamic banking. If you need to locate there, availability of space may go down as prices go up. If access to well-educated and trained specialist local talent is important, locate near one of the public or private universities, or the colleges and polytechnics that focus on industrial training.

Some Malaysian Business Facts

  • Capital – Kuala Lumpur.
  • Population – 32.7 million.
  • Regions – 13 States (Johor, Kedah, Kelantan, Malacca, Negeri Sembilan, Pahang, Penang, Perak, Perlis, Sabah, Sarawak, Selangor, Terengganu); and three federal territories (Kuala Lumpur, Labuan, Putrajaya).
  • Official language – Bahasa Malaysia or Malay.
  • Leading sectors – (Approx.) Service 54%; industry 36%; agriculture 8%.
  • Main exports – Electronic equipment including computers; mineral fuels and chemical goods; rubber and plastics; optical, technical and medical equipment; iron and steel.
  • Main imports – Electronics; iron, steel and aluminum; mineral fuels; machinery, vehicles, technical, optical and medical apparatus.
  • Main trading partners – US, China, Singapore, Japan, Association of South East Asian Nations (ASEAN), European Union (EU).
  • Government – Parliamentary system, elective and constitutional monarchy.
  • Currency – Malaysian Ringgit (RM).

Advantages and Challenges when entering the Market

Some Advantages:

  • Accelerating into becoming a capital-intensive, knowledge-based economy with a focus on high technology and research and development.
  • Government support to develop as a manufacturing, export and logistics base for the region.
  • Well-developed infrastructure is among the best quality in the region.
  • Mainly young, well-educated and motivated workforce, largely English-speaking.
  • Expanding financial market attractive for Foreign Direct Investment.
  • Resident companies benefit from free trade agreements with other ASEAN member countries.

Some Challenges:

  • The government’s ‘12th Malaysia Plan’ highlighted risks posed by low productivity from Small and Medium Enterprises (SMEs) and low levels of private sector investment.
  • Widening gap between economic development of some states, particularly Kedah, Perlis, Kelantan, Sabah and Sarawak.
  • Vulnerable to declining economic activity in China.
  • Dependence on oil and gas sector.
  • Foreign investors face lack of competitiveness in market as most major Malaysian companies have government links.

The Employment Act (EA) defines the statutory terms and conditions for Malaysian employment contracts, but as with many aspects of labour law the regulations are multi-layered. The complexities of complying with contract legislation is another area where expert advice is essential.

Bradford Jacobs are on hand to supply that expertise. Once our Professional Employer Organisation (PEO) networks have sourced the talent for your company our Employer of Record (EOR) in-country teams step in and ensure contractual arrangements are in line with the law.

There are various issues to deal with. Employers are strongly advised to create written contracts, although verbal agreements are equally valid, but any written contract must include the terms by which either party can terminate.

The different types of Malaysian Employment Contracts

  • Open-ended Employment Contracts:  The usual contract arrangement, giving the employee security of tenure as it can only be terminated by following correct legal procedures, or the individual resigns or retires. These contracts have a start date, but no end date. Either party must give written notice of their intention to terminate the contract.
  • Fixed-term Employment Contracts:  These are for a contractually specific time or project. According to the Employment Act Section 11, a fixed-term contract ‘terminates itself’ and is not terminated by either party. The employer is under no obligation to give reasons for the contract not being renewed. Where employers prematurely terminate a fixed-term contract they must prove just cause in the courts if it is contested by the employee. Employers must have genuine reasons for fixed-term contracts and repeated renewals may see courts decide the arrangement is now permanent.
  • Probation Periods:  These are generally between one and six months and employers must have just cause for not extending the trial period into full employment.
  • Oral Contracts:  The Contracts Act (1950) states that a verbal agreement is valid and legally enforceable, provided the law does not require that particular contract type has to be in writing.
  • Collective Bargaining Agreements (CBAs):  The Industrial Relations Act (1967) created the framework for Collective Bargaining Agreements. They play a limited role as only around 10% of the workforce are unionised and only recognised trade unions can negotiate collective agreements with employer organisations.

Employment Contracts Requirements

Employers must fulfil certain general requirements in drawing up employment contracts with their employees. Contracts must contain the type and location of the work; wages and payment schedule; employment benefits and entitlements; holidays; sick leave; health and safety requirements.

The EA insists all contracts must be kept by employers for six years after the employment relationship ends. Contracts that do not comply with EA regulations are invalid. Any terms that do not comply with the EA – even where agreed by the employer and employee – are replaced by statutory minimums as prescribed by the EA.

Employee benefits in Malaysia are generally governed by the Employment Act (EA) of 1955, amended in 1981 and 2012, and apply to Peninsula West Malaysia. Working hours and maternity leave were specifically amended by a further revision in 2022. In East Malaysia on the island of Borneo, the states of Sabah and Sarawak have equivalent legislation drawn up by their own labour authorities.

Within the EA, specific legislation applies to such as: Workers’ Minimum Standards Housing and Amenities Act (1990); Children and Young Persons Employment Act (1966); Private Employment Agencies Act (1981); Anti-Trafficking in Persons Act (2007); Employment Restrictions Act (1968); Employment Information Act (1953); Holidays Act (1951) and the Weekly Holidays Act (1950).

What are the Compensation Laws in Malaysia?

Malaysia’s Employment Act (1955) and related legislation applies minimum standards to employees’ entitlements and benefits in the following areas:

  • Paid Vacations: Minimum statutory paid vacation allowance for employees depends on length of service. Under the Employment Act, eligible employees who have worked between one and two years receive eight days; between two and five years, 12 days; over five years, 16 days. Unused leave in the current year must be taken in the following 12 months or it will be forfeited.
  • Sick Leave and Benefit: Once incapacity is confirmed by a medical practitioner, employees claim paid sick leave based on length of service. Those employed between one and two years receive 14 days per year; between two and five years, 18 days with 22 days for those employed more than five years. Where hospitalization applies, employees receive 60 days paid leave regardless of length of service.
  • Public Holidays: Employees are entitled to paid official public holidays, while the Holidays Act (1951) can allow for extra holidays, such as to celebrate a coronation. If business requirements make it impractical to grant a public holiday as leave, the employee receives a substitute day as holiday; the same applies if the employee is on authorized sick leave during a public holiday.
  • Maternity / Paternity / Parental Leave and Benefit:  In March 2022 the Employment Bill (2021) was passed to amend the Employment Act and increase paid maternity leave from 60 days to 98. The new allowance comes into effect from January 1 2023. The new rules apply to all employees regardless of earnings, whereas previously the EA covered only those earning less than RM 2,000 (€430) a month or who worked in designated occupations.
  • Pension System:  Employers and employees contribute to the mandatory Employee Provident Fund (EPF), which underpins the Malaysian pension system. Occupational pension schemes are rarely found outside the major companies and multinational corporations, and employers typically offer to top up EPF contributions rather than create new funds.
  • Private Health Insurance: Malaysia’s tax-funded public health care facilities are affordable, but waiting times and rural facilities provide uneven services. Foreign employees typically opt for private health care insurance to cover expenses at both private and public healthcare facilities. Private facilities have expanded with Malaysia’s development as a medical tourism destination, particularly in oncology, fertility treatments and cardiology.
  • Car and Mileage Allowances:  Mileage allowances are added to gross salary and liable for taxation.
  • 13th Month Salary: Although not a legal requirement, these are commonly paid and included in the employment contract.

The recruitment process is rarely straightforward and is usually wrapped in red tape. This certainly applies to international companies trying to locate staff in a new territory … and is definitely the case when recruiting in Malaysia.

Finding staff who are the right fit for your company is only the first step in a long and complex journey. Once staff have been onboarded, employers must comply with strictly-applied legislation covering every aspect of employment law, as well as their legal obligations and the guaranteed rights of their staff.

These demands add up to a daunting task, especially if you are based thousands of miles away. However, there is a simple, speedy and cost-effective alternative to having your new staff up-and-running in a matter of days and without having to unravel any red tape.

At Bradford Jacobs we have the vital expertise to provide the smoothest route for your journey into the Malaysian economy. Our Professional Employer Organisation (PEO) networks have global reach to find the right staff. Then, through our Employer of Record (EOR) platforms we will have your staff at their desks and screens in the shortest timeThis guide highlights everything you need to understand about recruitment and onboarding processes in Malaysia. You can trust Bradford Jacobs to put the brightest talent in place for your company.

Recruiting in Malaysia

International companies moving into Malaysia will find themselves in a highly competitive recruitment market. The workforce is mainly young and they are well educated, flexible, productive, motivated and largely English-speaking. The universities, polytechnics and industrial training establishments have produced a talented labour pool with diverse skills, where nearly three million are between the ages of 25 and 29.

The talent is there, but the rapid rise in demand to hire the people with these skills has created fierce competition among companies. This is particularly true in the fields of e-commerce, banking, finance and call centres and throughout the IT sector. The recruitment drive has needed to become innovative and aggressive to find, then secure the staff.

Malaysian recruitment agencies are in place and should have the local knowledge to find the talent that answers the needs of recruiting companies. But they are not the only option. Bradford Jacobs’ in-country recruitment specialists will deal with all these issues through our PEO networks. The next step is to onboard the new staff and Bradford Jacobs have that taped too. Your new recruits – and you – can relax knowing that we have taken care of every aspect of employment and taxations law.

Employees’ Legal Checks

In general, there are no across-the-board regulations, meaning permitted checks can vary between sectors and industries. The Personal Data Protection Act (2010) requires that all employers must have permission from prospective employees before they collect or process any personal information of the candidate.

Medical Examinations:  No regulations prohibit employers requesting a medical examination. Employers can refuse to hire candidates who will not undergo a medical examination. Similarly, employers can refuse to hire candidates who will not undergo drug or alcohol testing.

Discrimination: Under the terms of the Persons with Disabilities Act (2008), those with disabilities are legally entitled to equal access to employment as able-bodied individuals. In some sectors, licences may apply positive discrimination in making positions open to the disabled.

Required: Foreign nationals must comply with all immigration requirements regarding work permits and visas.

Basic Facts when Recruiting in Malaysia

International companies setting up operations must adhere to basic facts when recruiting and hiring staff in Malaysia and the demands of complying with employment legislation, which is set out in the Employment Act (EA). The majority of labour law provisions are mandatory and any terms that are reduced by contract or agreements would be invalid.

Incoming companies cannot risk ignoring basic requirements of employment law that apply to their employees, including:

  • At interview, employers must have the candidate’s permission to obtain or process any of their personal data.
  • Where employees are covered by the EA, employment lasting more than one month must have a written contract, and all contracts must cover the provisions for termination.
  • The absence of a written contract does not invalidate any employment arrangement or its terms.
  • Fixed-term contracts are allowed, but if the terms are considered unfair, or if they are repeated, they can be deemed to have become indefinite.
  • Legally, there are no maximum probationary periods and the employer has the right to extend a trial period, but this should be covered in the contract.
  • Legislation does not cover hiring staff through recruitment agencies, but these must comply with the Private Employment Agencies Act (1981).

Employers must comply with basic requirements of the Employment Act as it applies minimum standards to the legal benefits and entitlements of their staff. These include such as minimum wages, working hours and breaks, rest days and overtime, discrimination, health and safety, for example.

Islam is the official language of Malaysia, where the multi-cultural ethnic mix includes Indian and Chinese as well as Malays, while there are also Eurasian influences. Attitudes and demeanour reflect courtesy, modesty, respect and the common Asian concept of ‘face’, which also seeks to avoid embarrassment and confrontation. Unity and loyalty are also key aspects of Malaysian culture along with the desire to form harmonious relationships. Over 10% of the population are from indigenous groups with their own ethnic heritage, customs and culture.

Malaysia’s cultural life revolves around the religious festivals relevant to the various ethnic groups as well as general Muslim festivals and observances.

Status in Malaysia can be based on a combination of specialised skills, university education, family and political connections and those trained overseas have added status. The growth of the middle class around a business elite is bridging the gap between ethnic divides

The Basics of the Malaysian Work Culture

  • Hierarchy:  Despite the general mix of cultures, the hierarchy in companies can be dominated by one ethnic group or, at the higher management level, one family. Business structure is top-down hierarchical, even to the order in which Malaysians enter a meeting … the most important comes in first.
  • Introductions/Greetings:  Respectful and low key.  It is appropriate to place a hand over the heart, accompanied by a slight bow. Malaysia is a Muslim country, so physical contact between sexes is inappropriate. In Malay, ‘Selamat pagi’ or ‘Selamat tenghari’ mean ‘Good morning’ or ‘afternoon’. Greet all participants individually and allow for some social chat and polite questions about yourself and family before getting down to business. Friendly formality is the way to go.
  • Gift Giving: Tread carefully and do not be extravagant. Malaysians will want to reciprocate and could be stressed or embarrassed if the gift is too expensive.
  • Business Cards:  These are exchanged extensively and it is a good idea to print the reverse in Bahasa Malaysian or Chinese depending on the recipients. Cards are exchanged with respect; offer and receive with both hands, place them carefully in front of you on the conference table or in a card holder.
  • Dress Code: Suits and ties are advised for meetings or conferences. Lightweight clothing that is smart and casual is suitable office wear in the tropical climate, such as short-sleeved shirts for men with no ties. Women should dress ultra-conservatively, avoiding revealing garments, with maybe a headscarf.
  • Out of Hours:  Kuala Lumpur’s reputation as Asia’s ‘gastro hub’ means business entertaining revolves around food, with Malay, Chinese and Indian cuisine dominating the menus. Wherever business is operating … enjoy the business lunches and dinners. Bear in mind restrictions on cuisine if the other party are Muslim, and if invited to dine at their home never take alcohol.
  • Punctuality: Being on time is another way to show respect, but the start and end times of meetings can be flexible.
  • Negotiations:  It is vital to maintain ‘face’ during meetings and show respect to the Malaysian team around the table. Patience is vital to handle long meetings and intricate discussions, which require being aware of non-verbal communication. ‘Face’ brings a reluctance to say ‘No’. Reaching consensus is important and expect everyone to be asked for their views. In a Muslim business allow time for Malaysian counterparts to pray. Patience rules.
  • Agreements:  Malaysian-registered entities must comply with contract regulations of the Companies Act. Parties should not sign draft contracts. Electronic contracts are recognized under the Electronic Commerce Act (2006) and electronic signatures are legally recognized since the Digital Signature Act of 1997.
  • Language and Communication:  Malay or Bahasa Malaysia is the official language although, English is commonly spoken in offices, which often comprise different ethnic groups. Be aware that non-verbal communication is important, such as tone of voice, facial expressions and body language. This cultural mix is reflected in a slogan used to show Malaysia as representative of the whole region – ‘Malaysia, Truly Asia’.

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