# Where Should You Set Up in Malaysia? A Decision Framework

> The variables that genuinely change with location in Malaysia, ranked — and the much longer list of things that do not change at all.

- Category: business
- Language: en
- Status: published
- Updated: 2026-08-14
- Canonical: https://negaraku.md/en/business/choosing-a-business-location-malaysia

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The question always arrives fully formed. *Kuala Lumpur, Penang or Johor?* Sometimes with
a spreadsheet attached, comparing office rents and airport connections and a column
labelled *tax*.

That column is empty, and so are most of the others. The great majority of what a founder
believes they are choosing between when they pick a Malaysian city is federal law that
follows them wherever they go. Deleting those rows is the fastest way to reach the real
decision, which usually turns on two or three variables rather than fifteen.

## What is identical everywhere in Malaysia?

Start here, because it eliminates most of the spreadsheet.

**Incorporation.** There is one company register, run by SSM under the Companies Act
2016. A Sdn Bhd incorporated in Kuching is legally indistinguishable from one
incorporated in Cyberjaya. There is no state company registry, no state charter, and no
local variant of the constitution or the share structure.

**Corporate tax.** Charged federally under the Income Tax Act 1967. There is no state
corporate income tax anywhere in Malaysia. Moving from Selangor to Kedah does not change
your rate, your instalment obligations under s.107C, or your filing deadline.

**Minimum wage.** The Minimum Wages Order 2024, P.U.(A) 376, gazetted 4 December 2024,
sets **RM1,700 per month and RM8.72 per hour** nationally. The deferment that let small
employers stay at RM1,500 ran only from 1 February to 31 July 2025; paragraph 5 brought
everyone to RM1,700 from 1 August 2025. It is one number for the whole country.

**EPF, SOCSO and EIS.** Federal statutes, federal rates, federal remittance dates. The
EPF Third Schedule bands and the SOCSO wage ceiling of RM6,000 do not vary by state.

**Employment law in Peninsular Malaysia.** The Employment Act 1955 applies identically
across all eleven Peninsular states and the federal territories. The First Schedule
coverage test, the 45-hour week in s.60A(1) and the overtime rates are the same in
Kangar as in Johor Bahru.

**Federal sector licensing.** A manufacturing licence, an MCMC licence, a Bank Negara
approval or a KPDN distributive trade approval is granted on the same terms regardless of
where the applicant sits.

So the honest summary is that **tax, wages, statutory contributions, employment
entitlements and company law are not location variables at all.** Anyone selling you a
state on those grounds is selling something else.

The one real exception is **Labuan**, which is not a location choice so much as a regime
choice. It sits under the Labuan Business Activity Tax Act 1990 rather than the Income Tax
Act 1967, and it carries substance conditions that have nothing to do with geography in
the ordinary sense.

## What actually varies, and by how much?

Six things. They are not equally weighted, and the order matters.

| Rank | Variable | Why it moves the answer | Decided by |
| --- | --- | --- | --- |
| 1 | Peninsular, Sabah or Sarawak | Changes which statutes apply | Federal Constitution and East Malaysian ordinances |
| 2 | Which local council | Decides your premise licence, its cost and its conditions | Council by-laws under the Local Government Act 1976 |
| 3 | Corridor or zone designation | Decides incentive eligibility, but only with an approval in hand | Minister of Finance, via MIDA and the NCI |
| 4 | State land rules | Tenure, conversion, foreign acquisition consent | State Authority |
| 5 | Labour pool | The binding constraint for most services firms | The market |
| 6 | Logistics | Port, airport, road, power | The market |

Everything else on the typical comparison sheet resolves to one of these six, or to
nothing.

## Why is Peninsular, Sabah or Sarawak the first question?

Because it is the only variable that changes the **statutes**, not merely their
application. Most founders treat it as a late-stage question about flights and time zones.
It is the first question.

**Sole proprietor and partnership registration.** The Registration of Businesses Act 1956
s.1(2) states that the Act applies to Peninsular Malaysia only. The word *Sarawak* appears
zero times in Act 197. A Sarawak enterprise is therefore not an SSM registration at all.
It runs on three separate instruments:

| Licence | Instrument | Issued by |
| --- | --- | --- |
| Business Name Registration | Business Names Ordinance Cap 64 (1958 Ed.) | LHDN or the District Office |
| Trade Licence | Businesses, Professions and Trades Licensing Ordinance Cap 33 (1958 Ed.) | the Collector, with District Officers as Deputy Collectors |
| Operating Licence | Local Authorities Ordinance Cap 20 by-laws | the local council |

Two corrections worth carrying. Cap 64 has **no renewal mechanism at all** — the annual
renewal universally described in the market is the Cap 33 trade licence, a different
document. And s.3(4) of Cap 33 says expressly that holding a trade licence does not
discharge any other licensing liability, so the three stack rather than substitute.

**Labour law.** Peninsular Malaysia uses the Employment Act 1955. Sabah uses the Labour
Ordinance Cap 67 and Sarawak the Labour Ordinance Cap 76, both amended in 2025 by Acts
A1753 and A1754 respectively and in force from 1 May 2025 except Part IVA. Sarawak's
replacement First Schedule is **structurally different**: it disapplies the s.2 definitions
of normal hours of work and of overtime, along with a list of other provisions. There is
no section-for-section mapping, so a Peninsular compliance matrix cannot be
find-and-replaced across.

**Local government.** The Local Government Act 1976 s.1(1) extends to Peninsular Malaysia
only. Sabah and Sarawak license under their own ordinances, which is also why the national
home-business guideline cites the Local Authorities Ordinance 1969 for Sarawak and the
Ordinan Kerajaan Tempatan 1961 for Sabah.

**Immigration.** Sabah and Sarawak retain immigration autonomy. Under the Immigration Act
1959/63, s.65 is the state directive power and s.66 the citizen restriction — commonly
stated the other way round. In practice Sarawak runs its own Employment Pass channel
through GENESIS with a minimum salary of RM3,000 per month, rather than the federal ESD
bands.

The company stays the same. Everything around it changes.

## Which authority will actually license you?

Once territory is settled, the operative question is not *which state* but **which
council**, because that is where the licence lives.

The Local Government Act 1976 supplies only the power. Section 102 lets a council make
licensing by-laws; s.107 governs fees, conditions and duration. The obligation itself is
created by each council's own by-laws, which is why documents, fees, validity and
composite bundling differ sharply between DBKL, MBPJ, MBSA and DBKK. Three provisions
shape the risk: s.107(2) makes a council licence revocable at any time **without assigning
any reason**, s.107(3) allows refusal to renew on the same terms, and s.107(4) caps
validity at three years.

DBKL licenses under P.U.(A) 230/2016, whose by-law 3(1) makes planning permission a
precondition, so in the federal territory the sequencing is stricter than founders expect.

Home-based and online businesses are governed by a national guideline, the *Garis Panduan
Kawal Selia Perniagaan Dari Rumah*, circulated to every local authority as Pekeliling KSU
KPKT Bil. 3 Tahun 2024 and resting on s.107(1) of Act 171. Councils **may tighten but not
loosen** it. Selangor is the one tier that publishes fees: RM100 for a temporary licence,
RM200 per year for a business licence, RM50 to add an online activity to an existing
commercial licence. Do not carry those figures across a boundary. DBKL operates under
Federal Territory law and its conditions could not be verified.

So the boundary that decides your licence is a **council boundary**, not a state one. A
Petaling Jaya address and a Kuala Lumpur address five kilometres apart sit under different
by-laws, different fee schedules and different sequencing rules.

## Do corridor incentives actually change where you should be?

Less often than the brochures imply, and for a specific structural reason.

Malaysia has five economic corridors. Three rest on federal Acts: NCER under the NCIA Act
2008 (Act 687), ECER under the ECERDC Act 2008 (Act 688), and Iskandar Malaysia under the
IRDA Act 2007 (Act 664). The Sabah Development Corridor and SCORE rest on Sabah and
Sarawak state law, through SEDIA and RECODA.

**No corridor authority can grant you a tax incentive.** Act 687 s.6(e) and Act 664 s.5(e)
both confine the authority to *recommending* incentives. The grant sits with the Minister
of Finance, and the live route runs through MIDA and the National Committee on Investment.

Worse for planning purposes, several headline regimes have **no gazetted rate order at
all**. The Johor-Singapore Special Economic Zone, the National Global Services Hub and the
New Investment Incentive Framework each state that the rate is to be provided through
subsidiary legislation under s.65B of the Income Tax Act 1967, and a gazette sweep found
nothing. Approvals under them are administrative decisions with no claimable instrument
behind them.

Several widely cited schemes are also simply closed. Principal Hub and Global Trading
Centre closed to applications on 31 December 2022, Relocation of Manufacturing on
31 December 2024, GITA and GITE on 31 December 2023, and the Kelantan SEZ on 31 December
2024. Open windows include JS-SEZ and Forest City to 31 December 2034, and DESAC and the
Global Services Hub to 31 December 2027.

The practical rule is blunt. **A corridor is a reason to choose a site only once you hold
a written approval.** Until then it is a marketing map, and siting a factory on the
strength of it is a large bet on a discretionary decision.

## Three founders, three different answers

The framework only becomes useful when you apply weights, and the weights depend entirely
on what the business is.

### The manufacturer

Location is genuinely load-bearing here. It is the one profile where geography does real
work.

What matters: incentive eligibility, port and airport access, industrial land tenure,
foreign worker supply, and power cost and reliability.

Manufacturing has permitted **100 percent foreign equity since June 2003**, irrespective
of export level, so ownership is not usually the constraint. Land is. Industrial land is a
state matter and tenure varies — Sarawak's Land Rules r.13, for instance, sets a 60-year
factory tenure. Check the tenure and the conversion status, not just the price per square
foot.

Power deserves its own line. The Electricity Supply Act 1990 is **wholly suspended in
Sarawak** by P.U.(A) 272/1990, so Sarawak sits under a different regulator with different
tariffs. Sarawak Energy publishes industrial tariffs of 21.7 sen per unit for I2, and
22.9 sen peak against 13.9 sen off-peak for I3. No SCORE bulk-power tariff is published
anywhere; only the power purchase agreement structure is, for loads above 5 MW. Do not
model a rate you cannot cite.

### The services firm

Almost nothing above applies. No manufacturing licence, no port, no industrial tenure. The
binding constraint is hiring, and hiring is a labour-market question rather than a legal
one.

The legal layer only bites if you are sponsoring expatriates. Registration with the
Immigration Department's Expatriate Services Division carries paid-up capital criteria of
RM250,000 for a wholly Malaysian-owned company, RM350,000 for a joint venture with at
least 30 percent foreign equity, RM500,000 for a wholly foreign-owned company, and
RM1,000,000 where foreign equity is 51 percent or more in wholesale, retail or trade.

Two things are routinely misreported about those figures. They are **immigration criteria,
not company law** — the Companies Act 2016 imposes no minimum whatsoever, since s.9
requires only one or more shares and s.14(3)'s list of incorporation particulars does not
include a capital amount. And they can be bypassed: **Malaysia Digital status requires only
RM1,000 paid-up capital**, and MD companies route Employment Pass applications through
MDEC rather than ESD. That is a status attaching to the company and its approved activity,
not to a city, which is precisely why it does not belong in a location comparison.

Sarawak again runs its own channel, with an Employment Pass minimum of RM3,000 per month
through GENESIS.

### The e-commerce seller

Location barely matters, but not for the reason usually given.

There is **no federal e-commerce licence**. MCMC's Licensing Guidebook lists electronic
transaction service and interactive transaction service in the exempt column, and its
Information Paper places e-commerce platforms outside the framework. A merchant operating
a storefront on a social platform is an **end user, not a licensee**, and files nothing.

What does still apply is the premise licence for wherever you actually operate, including
your own home. The national home-business guideline caps the business at 25 percent of
built-up floor area and **one employee**, requires neighbour consent where a neighbour is
within 20 metres, and — the condition nobody expects — **mandates a signboard at the front
of the house even for a purely online business**: non-illuminated, maximum one square
metre, Bahasa Melayu primary, and needing separate advertising approval.

So the single genuine location variable for an online seller is **which council issues that
licence and what it charges.** Everything else in the compliance stack, including PDPA
obligations, is national.

## Common mistakes

**Choosing a state to lower tax.** There is no state corporate income tax. This is the
single most common wasted month in Malaysian company formation.

**Treating a corridor map as an incentive.** No corridor authority can grant one, and
three headline regimes have no rate order gazetted at all.

**Porting a Peninsular compliance matrix to Sarawak.** Sarawak's amended First Schedule
disapplies the statutory definitions of normal hours of work and of overtime. The mapping
does not exist.

**Registering a Sarawak enterprise with SSM.** The Registration of Businesses Act 1956
applies to Peninsular Malaysia only. The Sarawak route is Cap 64, Cap 33 and a council
Operating Licence.

**Reading one council's published guideline as national.** Only Selangor publishes
home-business fees, and several Selangor councils publish no home-business category at all.

**Treating ESD paid-up capital thresholds as incorporation requirements.** They are
Employment Pass sponsorship criteria, and they are avoidable through Malaysia Digital
status.

**Signing an industrial lease before checking tenure and licence category.** Tenure length,
conversion status and the council's licence classification are all discoverable before
signature and expensive afterwards.

## What's next

Work down the list in order. Territory first, council second, corridor only if you have an
approval, then land, labour and logistics. The following pages go a level deeper on each.

| If your next question is | Read |
| --- | --- |
| Who licenses what, federal versus state versus local | `business-licence-malaysia` |
| What the council will actually ask for | `premise-licence-malaysia` |
| How the five corridors compare, and who grants what | `economic-corridors-compared` |
| Setting up in Sarawak, where the statutes differ | `register-business-sarawak` |
| Setting up in Sabah | `register-business-sabah` |
| Johor, JS-SEZ and Iskandar specifically | `iskandar-malaysia-guide` and `js-sez-guide` |
| Whether an online business needs anything at all | `online-business-licence-malaysia` |
| Where the paid-up capital figures actually come from | `paid-up-capital-foreign-company` |

## Sources

- Companies Act 2016 (Act 777), reprint as at 1 August 2022 — https://www.ssm.com.my/Pages/Legal_Framework/Document/Companies%20Act%202016_Akta%20777_BI%20(1.8.2022).pdf (SSM)
- Minimum Wages Order 2024, P.U.(A) 376 — https://gajiminimum.mohr.gov.my/wp-content/uploads/PUA%20376.pdf (Ministry of Human Resources)
- Registration of Businesses Act 1956 (Act 197) — https://lom.agc.gov.my/act-detail.php?act=197&lang=BI (Attorney General's Chambers)
- Local Government Act 1976 (Act 171) — https://lom.agc.gov.my/act-detail.php?act=171&lang=BI (Attorney General's Chambers)
- Northern Corridor Implementation Authority Act 2008 (Act 687) — https://lom.agc.gov.my/act-detail.php?act=687&lang=BI (Attorney General's Chambers)
- Businesses, Professions and Trades Licensing Ordinance, Sarawak Cap 33 (1958 Ed.) — https://lawnet.sarawak.gov.my/lawnet_file/Ordinance/ORD_F-PROFEScp33Lawnet(WH).pdf (Sarawak State Attorney-General's Chambers)
- Business Names Ordinance, Sarawak Cap 64 (1958 Ed.) — https://lawnet.sarawak.gov.my/lawnet_file/Ordinance/ORD_F-BUSINEcp64Lawnet(WH).pdf (Sarawak State Attorney-General's Chambers)
- Equity Policy — protection of foreign investment — https://www.mida.gov.my/setting-up-content/equity-policy-protect-foreign-investment/ (MIDA)
- ESD Company Registration criteria — https://esd.imi.gov.my/portal/faq/esd-company-registration/ (Expatriate Services Division, Immigration Department of Malaysia)
- Garis Panduan Kawal Selia Perniagaan Dari Rumah — https://www.kuskop.gov.my/admin/files/med/image/portal/PDF/Penerbitan/Garis-Panduan-Kawal-Selia-Perniagaan-Dari-Rumah-v10.pdf (KUSKOP)
- MCMC Licensing Guidebook — https://www.mcmc.gov.my/skmmgovmy/media/General/Licence/2025/MCMC_Licensing-Guidebook_150425.pdf (Malaysian Communications and Multimedia Commission)
- Portal Gaji Minimum — current national minimum wage RM1,700 / RM8.72 under P.U.(A) 376 (2024); no later Order gazetted — https://gajiminimum.mohr.gov.my/ (Ministry of Human Resources (KESUMA/MOHR))
- Quit Rent (Cukai Tanah) rates in each Malaysian state — state-by-state guide — https://www.propertyguru.com.my/property-guides/quit-rent-cukai-tanah-rates-in-each-malaysian-state-30634 (PropertyGuru Malaysia)
- Act A1754 — Labour Ordinance of Sarawak (Amendment) Act 2025 (s.73 substitutes First Schedule, disapplying the 'normal hours of work' and 'overtime' definitions above RM4,000/month) — https://lom.agc.gov.my/ilims/upload/portal/akta/outputaktap/2790645_BI/Act%20A1754%20LABOUR%20ORDINANCE%20OF%20SARAWAK%20(AMENDMENT)%20ACT%202025.pdf (Attorney General's Chambers)

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License: CC BY-SA 4.0