A Branch Office is one of the main options for foreign companies seeking to establish a presence in Malaysia. Unlike a subsidiary (Sdn. Bhd.), a branch is not a separate legal entity but an extension of the foreign parent. For certain business models – especially short-term projects or operations where alignment with the parent is essential – this structure can be the most practical choice.
Foreign companies entering Malaysia have several choices: incorporating a subsidiary (Sdn. Bhd.), setting up a Representative Office, or registering a Branch Office. The Branch model is attractive to companies that want to operate under the direct identity of their foreign parent, without creating a new corporate personality.
This article explains the legal basis for Branch Offices, the incorporation process, key compliance obligations, tax treatment, and immigration rules. It also highlights practical case studies showing when a branch is the right solution – and when a subsidiary may be better.
⮕ Not sure yet what type of company you want to set up in Malaysia? Check out our comprehensive guide to setting up a business in Malaysia for foreign investors.
Legal Foundation of a Branch Office
Branch Offices in Malaysia are regulated under the Companies Act 2016 (Part V, Division 1). A branch is essentially the Malaysian registration of a foreign company, and its activities are considered activities of the parent itself.
Key features include:
- A branch has no separate legal personality – the parent is directly responsible for all liabilities.
- The branch must appoint at least one authorised agent who is resident in Malaysia.
- The parent company must file its constitution and financial statements with the Companies Commission of Malaysia (SSM).
- The branch is subject to the same statutory obligations as a company under CA 2016 in terms of annual filings and compliance.
Case Study: European Engineering Group
A European engineering company undertakes major infrastructure
projects worldwide. Its policy is to establish Branch Offices, not
subsidiaries, in each jurisdiction. This ensures that every local
office operates directly under the parent's compliance and
quality management systems, without variation. In Malaysia, the
company registered a Branch Office to execute a multi-year project,
allowing it to remain fully aligned with the parent's processes
while reassuring clients that the global group stood behind the
local operations.
Why Choose a Branch Office?
The Branch model is not for everyone, but it offers distinct advantages in the right context.
- Direct control: The parent maintains full oversight, as the branch is simply an extension.
- Brand consistency: Operations run directly under the parent company's name.
- Simplicity: No new corporate governance structure is required – board approvals remain centralised.
- Project-based suitability: Particularly appropriate for temporary or one-off projects.
However, disadvantages must be weighed:
- The parent is fully liable for all debts and obligations.
- Some clients, banks, or regulators may prefer to contract with a locally incorporated entity.
- For smaller set-ups, tax treatment is less favourable compared to certain SMEs, as Branches are not eligible for reduced corporate tax rates.
Case Study: IT Services Firm
A US-based IT consultancy won a two-year contract to implement
a software system for a Malaysian bank. Given the limited project
horizon, the company registered a Branch Office. This avoided the
need to create a long-term Sdn. Bhd. subsidiary while ensuring that
project revenues and costs flowed directly into the parent's
accounts.
Incorporation Process for a Branch Office
Registering a Branch Office is handled by the Companies Commission of Malaysia (SSM). The process is similar to incorporating a local company but with additional documentation relating to the foreign parent.
Steps include:
- Name reservation: The branch generally uses the same name as the foreign parent.
- Submission of documents: Certified copies of the parent company's constitution, certificate of incorporation, and audited financial statements.
- Appointment of agent: At least one authorised Malaysian resident to act on behalf of the company.
- Filing with SSM: Once approved, SSM issues a Notice of Registration, and the branch may begin operations.
Typical timeline: 3-6 weeks, depending on completeness of documents and whether notarisation/apostille requirements are met.
Case Study: Short-Term Construction
Project
A Japanese construction contractor was awarded a six-month
subcontract for an oil & gas project in Sabah. Instead of
setting up a full subsidiary, it registered a Branch Office to
cover the project period. Once completed, the branch was wound down
with minimal administrative burden.
Compliance Obligations of a Branch Office
Once registered, Branch Offices must comply with ongoing requirements under CA 2016.
- Annual return: filed with SSM confirming details of the parent and local operations.
- Financial statements: the parent company's financial statements must be lodged with SSM each year.
- Registered office: the branch must maintain a local registered office in Malaysia.
- Agent responsibilities: the authorised agent can be personally liable if the branch breaches its statutory obligations.
Failure to comply can result in fines or, in serious cases, deregistration.
Taxation of a Branch Office
A Branch Office is taxed in Malaysia on income derived from operations in Malaysia.
- Tax rate: 24% flat rate (not eligible for SME preferential rates).
- Withholding tax: Payments to the parent may attract withholding tax depending on the nature of the remittance.
- Double Tax Agreements (DTAs): Malaysia's treaties generally apply, but companies should ensure proper tax residency certificates are in place. They should also ensure that the application of the DTA by Malaysian tax authorities is consistent with their understanding.
Case Study: Cross-Border Consulting
A European consulting firm set up a Branch Office in Kuala
Lumpur to serve regional clients. By relying on Malaysia's tax
treaties, it avoided double taxation when repatriating profits to
its home jurisdiction, but still paid the standard 24% corporate
tax locally.
Immigration and Expatriate Hiring
A Branch Office can employ expatriates, but the process is often more restrictive than for a Sdn. Bhd. subsidiary.
- Expatriate applications are assessed on a case-by-case basis.
- The branch must justify why foreign expertise is required and demonstrate adequate paid-up capital or project financing.
- Work permits are linked to the duration of the branch's projects.
This makes the branch model better suited for short- to medium-term expatriate assignments rather than long-term staffing.
Practical Use Cases of Branch Offices
Branch Offices are particularly useful for:
- Project-based work: e.g. construction, engineering, IT implementation.
- Groups that want full alignment with parent procedures: no divergence in governance or quality standards.
- Companies testing the market: before you want to establish a permanent subsidiary, you can "test the waters" with a branch.
However, for businesses with long-term plans in Malaysia, a Sdn. Bhd. subsidiary usually provides greater flexibility, tax advantages, and credibility with stakeholders.
⮕ If at this stage, you know that you want to set up a Sdn. Bhd. in Malaysia, fill out our form here.
Conclusion
A Branch Office offers a streamlined way for foreign companies to establish a direct presence in Malaysia without creating a separate entity. It ensures full alignment with the parent, supports short-term or project-based activities, and maintains brand consistency. But the model comes with trade-offs: full parent liability, fewer tax advantages, and limitations in expatriate hiring.
Case Study Recap:
- European engineering company – uses Branch Offices worldwide to ensure global project alignment.
- US IT firm – Branch for a two-year banking project.
- Japanese contractor – Branch for a short-term oil & gas project.
- European consultancy – Branch leveraged tax treaties for regional services.
The original article was published on Aqran Vijandran's website at https://www.aqranvijandran.com/blog/how-to-set-up-a-branch-office-in-malaysia-a-guide-for-foreign-companies-2025 .
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
