Employment Pass for Founders and Directors — the Sequencing Trap

The order of operations defeats more foreign founders than any single rule.

An Employment Pass is not something you apply for. It is something a company applies for, on your behalf, after that company has been incorporated, capitalised, registered with the Expatriate Services Division, and — in some sectors — licensed. You cannot pass yourself into a company that does not yet meet the requirements to sponsor you, and there is no personal route around it.

Then, on 14 January 2026, the Ministry of Home Affairs raised the salary floors.

The salary thresholds changed on 1 June 2026

Most guidance still in circulation carries the bands set by an Economic Council decision of 20 December 2016. Those bands are gone.

Following Cabinet approval on 17 October 2025 and a MOHA press release of 14 January 2026, ESD announced a revised policy the next day, on 15 January 2026, effective 1 June 2026:

EP Category	Previous minimum	From 1 June 2026	Employment duration
Category I	RM10,000 and above	RM20,000 and above	Up to 10 years
Category II	RM5,000 – RM9,999	RM10,000 – RM19,999	Up to 10 years, with a succession plan
Category III	RM3,000 – RM4,999	RM5,000 – RM9,999	Up to 5 years, with a succession plan

Four details that change how you plan:

The test is basic salary only. The MOHA FAQ is explicit: allowances and other payments are not included in the calculation. A package built as RM12,000 basic plus RM10,000 in housing and car allowance is a Category II package, not Category I.

The duration clock is tied to the employing company, effective 1 June 2026. On a change of employer the duration restarts from the date of employment with the new company; on a change of pass category it restarts from the issuance date of the new pass.

Existing valid passes are untouched — until renewal. Renewal applications falling on or after 1 June 2026 are assessed under the revised policy, and may be submitted as early as three months before expiry. MOHA’s own worked example is a current Category I holder being converted to Category II.

Category III got better in three ways at once. The cooling-off period no longer applies. The separate MOHA minimum-salary exemption application, previously needed to hire below RM5,000, is discontinued. And on dependants the FAQ draws an express contrast — applications submitted from 1 June 2026 are subject to the revised policy, while passes issued before that date remain under the existing policy, which does not allow to bring dependants. The natural reading is that the new Category III may bring dependants. The FAQ does not say so in terms, so confirm it before relying on it.

A warning about ESD’s own guidebook. The ESD Online Guidebook version 6, dated 14 April 2025, is still published on the portal and still carries the old salary table, the old contract durations of 5 years, 2 years and 12 months, and the old rule that Category III holders may not bring dependants. It is a government document on a government domain and it is superseded on salary. Cite the announcement, not the guidebook, for any figure in the table above.

The succession plan is not yet in force. The 15 January 2026 table attached a succession plan to the Category II and Category III durations, and most published guidance describes it as live from 1 June 2026. MYXpats announced on 26 May 2026 that, as part of a phased implementation, the succession plan requirement will only take effect from 1 January 2027. You still need the salary; you do not yet need the plan.

One point is genuinely unsettled. The ESD announcement gives Category III as RM5,000 – RM9,999, while the MOHA FAQ describes a RM7,000 – RM9,999 range specifically for the Manufacturing Sector and Manufacturing-Related Services under MITI and MIDA, and separately asks why the MRS sector has a different threshold. No band table setting out the RM7,000 figure has been published. If you are hiring into manufacturing, confirm your band with MYXpats before you sign a contract.

Stage zero: ESD company registration

Nothing happens until the company is registered. This is the step founders discover last and should plan first.

The published company eligibility criteria are registration with SSM, the Registry of Societies, or incorporation under a specific act such as those governing law and accounting firms — plus a paid-up capital threshold that scales with foreign ownership.

Equity	Paid-up capital
100% Malaysian-owned	RM250,000
Joint venture	RM350,000
100% foreign-owned	RM500,000
Foreign-owned (51% or more) in wholesale, retail and trade, or in unregulated services sub-sectors	RM1,000,000

Read the fine print around that table, because it carries three separate traps.

A joint venture needs at least 30 percent foreign shareholding to be treated as one. A company that is 95 percent Malaysian and 5 percent foreign does not get the RM350,000 rate.

The WRT tier requires the licence, not just the capital. Foreign-owned companies in the wholesale, retail and trade sectors must submit a valid WRT approval letter where applicable. The capital and the licence are cumulative conditions.

In restricted distributive trade sectors, no long-term pass is available at all. ESD states that under the Guidelines on Foreign Participation in the Distributive Trade Services, foreign involvement is restricted in certain sectors, and applications for any long-term pass exceeding three months — including an Employment Pass — are not allowed for companies in those sectors. No amount of capital fixes this. If your business sits in a restricted sub-sector, the Employment Pass question is already answered.

The guidebook also states that companies in the Information, Technology and Communications sector may only apply for a Professional Visit Pass-Expert via ESD Online, which is one of the reasons the Malaysia Digital route through MDEC matters for technology founders.

Registration itself is a five-working-day service standard. The Letter of Undertaking must be signed by a company director — which, for a foreign founder who has not yet relocated, collides directly with the resident director requirement in s.196(4) of the Companies Act 2016.

Applying as a founder rather than an employee

ESD publishes two separate eligibility routes, and founders belong in the second.

For an ordinary expatriate post, the minimum criteria are a degree or above with at least three years of relevant experience, a diploma with at least five years, or a technical certificate or equivalent with at least seven years.

For shareholders, the criteria are different and shorter:

• a minimum 30 percent equity in the company; and
• SSM-registered director of the company and/or holder of a key position.

Two consequences follow. A founder diluted below 30 percent loses the shareholder route and is thrown back on the qualification-and-experience test. And ESD requires that any change in the applicant’s share allotment be notified in writing to the Inspectorate Unit, because it can affect eligibility — so a funding round can quietly undermine a pass.

ESD adds the standard caveat: these are the minimum criteria to apply, and approval remains at the discretion of the Expatriate Committee.

Who decides, and where you file

Not every application goes to the Expatriate Committee. Sector regulators hold the approving or supporting role, and the filing channel differs:

• MDEC — since 24 April 2024, all new and renewal Employment Pass applications under MDEC’s purview must be submitted through Xpats Gateway.
• IRDA — companies inside the Iskandar Malaysia postcodes must additionally register in XPATNOVA, even if already registered on ESD Online.
• MIDA, ECERDC, Bank Negara Malaysia and the Securities Commission are named alongside MOHA, Immigration, MDEC and IRDA as the agencies that prepared the revised policy FAQ, which is a fair map of who governs which sector.
• Everyone else is assessed by the Expatriate Committee through ESD Online.

Where a support letter is issued by an approving or regulatory agency through Xpats Gateway, the revised policy makes no change to its duration.

The founder sequence, in order

1. Incorporate the Sdn Bhd, with a director who satisfies the ordinarily-resident test in s.196(4)(a).
2. Issue and pay up share capital to the ESD threshold for your ownership mix.
3. Obtain any sector licence that gates the pass — WRT above all.
4. Register the company on ESD Online and have a director sign the Letter of Undertaking.
5. Confirm which agency has purview and therefore which portal you file in.
6. Submit the Employment Pass application against a basic salary that clears your category.
7. Endorse the pass within 30 days of approval if you are in Malaysia, or 30 days after arrival if you are not.

Common mistakes

• Treating paid-up capital as a paper figure. It is issued shares actually paid for. The Companies Act 2016 abolished authorised capital, so there is nothing to hide behind.
• Budgeting the old salary bands. RM10,000 was Category I until 1 June 2026. It is now the floor of Category II.
• Building a package out of allowances. Only basic salary counts.
• Assuming capital solves a restricted-sector problem. In restricted distributive trade sub-sectors no long-term pass is issued at any capital level.
• Diluting below 30 percent and keeping the shareholder route. It does not survive the round, and ESD must be told.
• Forgetting the Letter of Undertaking needs a director’s signature before the company can transact at all.
• Planning a ten-year stay on Category III. The cumulative cap is five years, and it now follows the company.

What’s next

Work backwards from the salary you can defensibly pay yourself. If the company can support RM20,000 basic, Category I gives up to ten years and the cleanest path. If it can support RM10,000, Category II does the same but requires a succession plan showing how the role passes to a Malaysian.

If it can support neither, the honest conclusion is that the Employment Pass is not yet the right instrument, and the question becomes whether the business can be run from outside Malaysia by a non-resident director while a resident director holds the s.196(4) seat.

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Verification status. AI-assisted draft, not yet reviewed by a subject-matter expert. Salary thresholds are taken from the ESD announcement of 15 January 2026 and the MOHA FAQ updated 12 February 2026. Paid-up capital and eligibility figures are from ESD Online Guidebook version 6 dated 14 April 2025, which predates the salary revision — confirm with MYXpats before relying on them for a live application.