Taxation of Sole Proprietorships in Malaysia

Updated on Wednesday 23rd June 2021

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Malaysia offers plenty of possibilities for business ventures. Individuals can operate as sole traders, in a form of business called sole proprietorship. It represents the most traditional form of business available, is very easy to set up, and has low maintenance costs. Taxation of sole proprietorships in Malaysia is made according to a specific financial and legal framework. A detailed presentation on the requirements of sole proprietorship taxation can be provided to you by our company formation representatives in Malaysia.
 

How is a sole proprietorship in Malaysia taxed?


A sole proprietorship in Malaysia makes no difference between the natural person who owns it and the business. Sole proprietorships are pass-through entities; all profits and losses go directly to the business owner. Thereby, no separate tax return file is needed. Sole proprietorships in Malaysia are charged the income tax on a gradual scale applied to the individual income (from 2% to 26%). Other taxes paid by a sole proprietorship in Malaysia are:
 
  • Self-employment taxes.
  • Social security taxes and property taxes.

A number of expenses are eligible for tax deductions, such as accounting fees, rental for the premises of the company, legal fees, or sales advertisements. Our company formation specialists in Malaysia can provide you with complete information on taxation of sole proprietorships.
 

Gains or profits in Malaysia


In Malaysia, the gains or profits that are obtained through trade or through a vocational activity are liable to taxation. Thus, sole traders have to register for tax purposes as taxpayers and to obtain an Income Tax Return Form. Sole traders are also required to keep any business documents attesting the transactions concluded by the businessman -  the receipts and other similar documents. A sole trader has to submit a special form designed for this type of business entity, Form B, which has to be filed no later than 30th of June of each financial year, a date at which the company’s owner should also pay his or her taxes due with the local tax authorities
 

How can a businessman register a Malaysian sole trader? 


The registration of a sole trader starts with the Companies Commission of Malaysia (SSM), which represents the main institution that handles the registration of any business set up in this country. Sole traders in Malaysia can only be registered by persons who are citizens of the country and who need to provide several documents required for incorporation. This business entity is also available for natural persons who are foreigners but have received permanent residence in Malaysia. For example, it is necessary to provide a Malaysian identity card (a photocopy), the proposed names for the company’s trading name, information regarding the activities that will be developed by the company, and a business address. Sole traders can be registered with the name of the owners (the one stated in the person’s identity card) or it can have a trading name that designates the activities of the business. 
 

Sole proprietorships in Malaysia


Once you have decided to open a company in Malaysia that operates as a sole trader there are certain features of this business form that you need to consider. Our specialists in company formation in Malaysia can offer an in-depth presentation regarding the advantages and disadvantages of the sole trader, which are mentioned below:
 
  • you are personally liable for all business profits and losses, due to the fact that there is no legal distinction between the owner and the company;
  • your personal assets can be taken in order to settle all the liabilities incurred by a business fail;
  • higher revenues allow you to turn the sole proprietorship into a limited liability company (Sdn Bhd);
  • • the business can be ended and closed by the unexpected death of the owner;
  • rely on your personal savings for funding a sole proprietorship in Malaysia; financial support or cash investment can be obtained by introducing partners into the business and transforming the sole proprietorship into a partnership;
  • small grants from Government Departments can be applied for; you need a good credit record with banks in order to be eligible.


The registration procedure of a sole trader in Malaysia 


In order to register a sole trader in Malaysia, it is necessary to submit the Business Registration Form (Form A). This procedure can be completed at the nearest SSM office or through the online portal of the institution and with complete support provided by our specialists in company formation in Malaysia. Following the submission of the form, the businessman will receive a Business Registration Certificate, which can be issued on the same day on which the application was made. At the same time, businessmen are advised to open a corporate bank account for their company, even though a personal bank account can be used in this case. However, this is recommended in order to separate personal transactions from the ones concluded through the sole trader.  

The next step is to register with the Social Security Organization for employment-related matters; this can be done by submitting specific forms required by the institution and the procedure can vary depending on whether the sole trader has additional employees, besides the owner of the company. An in-depth presentation on other advantages of a sole proprietorship in Malaysia can be offered to you by our local company incorporation specialists in Malaysia. Our team of consultants in company registration in Malaysia can also provide in-depth information regarding the taxation scheme available for local sole traders
 

Accounting for sole proprietorships in Malaysia

 
Sole traders in Malaysia must pay attention to the accounting-related aspects of their firms. All the receipts, profit and loss accounts, the balance sheet, business records, and expenses must be kept by sole traders for accounting and auditing purposes for at least 7 years. Business accounting is important for tax filing purposes for sole proprietorships in Malaysia, therefore, it is recommended to ask for the services of an experienced accountant. Therefore, the business bookkeeping can be properly maintained by one of our accounting specialists, so make sure you get in touch with us at any time. Cashflow management, business performance monitoring, verification of profit & loss accounts before audits, and real-time data analysis enter the attention of our specialists. You should discuss all the accounting aspects with one of our specialists and find out how they can help you.
 

Payment of sole traders in Malaysia

 
Things are quite simplified when it comes to salary payment for a sole trader in Malaysia. Therefore, there is no need to have a salary as a sole proprietorship because the owner of the business is subject to his/her profits, based on the expenses cut from sales. On the other hand, if you hire employees for your sole proprietorship in Malaysia, the payment of salaries is imposed. More about the salaries of sole traders in Malaysia can be discussed with one of our agents in company formation in Malaysia.
 

Cutting the taxes as a sole trader in Malaysia

 
Business travel expenses, office space rentals, business-related banking fees and even professional development made on a regular basis can be deducted for sole proprietorships in Malaysia. Tax deduction for sole proprietorships in Malaysia is subject to different aspects that must be understood from the start of the business. All your inquiries referring to this business structure in Malaysia can be sent to our company formation agents in Malaysia.
 

Making investments in Malaysia

 
There are numerous reasons to invest in Malaysia, one of the most liberalized economies in Asia. The growing economy is a big plus in front of international entrepreneurs who also benefit from low investment risks, an educated and skilled workforce, a quite developed infrastructure, and a wide range of governmental encouragements. The tourism sector represents the third-largest revenue contributor in Malaysia that made the real estate sector develop at a fast pace and attract a large number of international investors. The tax regime is appealing in Malaysia and beneficial for overseas entrepreneurs who are encouraged to reinvest the profits in the companies they own for several tax reliefs and encouragements. Here are some facts and figures that highlight the business and economic direction of Malaysia:
 
  • Nearly 39% of the total FDIs in Malaysia were absorbed by the manufacturing sector in Q3 of 2020, followed by financial and insurance activities with more than 24%.
  • Singapore was the main investor in Malaysia in 2020, directing around 21.7% of the investments in Q3.
  • Around USD 169 billion represented the total FDI stock for Malaysia in 2019.
  • The 2020 Doing Business report ranked Malaysia 12 out of 190 economies in the world for the ease of doing business in the country.
 

Choosing our Malaysian agents

 
We have a dedicated team of agents in company formation in Malaysia who can support foreign entrepreneurs start their activities in this country. The formalities for setting up a sole proprietorship in Malaysia, a limited liability company, a partnership, or a joint-stock company enter the attention of our specialists with experience in this field. We believe that good communication from the start is the key to success for our customers who can rely on professionalism, efficiency, transparency, and complete guidance when working with us. We can prepare the formalities for company formation in Malaysia by closely working with the entitled authorities. Moreover, we can help with the procedures for obtaining business licenses and permits. Virtual office, accounting, and payroll, company secretary, support for trusts and foundations, company management are among the important business aspects covered by our specialists in Malaysia. If you believe it is time to act on your own and register a sole proprietorship in Malaysia, you are invited for a discussion with us to find out all the details.


Feel free to contact us and find out more about sole proprietorship in MalaysiaIf you want to open a sole proprietorship in another country, such as Greece, we can put you in touch with our local partners.