Incorporation vs Employer of Record (EoR) in Malaysia: Which is the Best Fit for Your Business?
Table of Contents
Key Takeaways:
- When to incorporate vs. use an EoR in Malaysia
- Compliance and cost considerations
- Key factors to determine the right path for your business
Introduction
Expanding into the Philippines doesn’t have to be a complex, time-consuming process. With AYP’s Employer of Record (EoR) services, your business can hire and manage employees in the Philippines without the need to establish a local entity. AYP handles all HR-related tasks, from payroll and tax compliance to benefits administration and legal requirements.
By partnering with AYP, you can focus on growing your business while we ensure full compliance with Philippine employment laws. Whether you’re testing the market or planning a long-term presence, AYP provides a seamless, low-risk solution for expanding into the Philippines.
What Incorporation Entails in Malaysia
Legal Framework and Incorporation Steps
Incorporating a company in Malaysia involves establishing a Sendirian Berhad (Sdn Bhd), the equivalent of a private limited company. The governing law is the Companies Act 2016, which requires the appointment of at least one director who resides in Malaysia. Foreign businesses must also adhere to the Malaysian Investment Development Authority (MIDA) guidelines, which often include specific sectoral regulations.
The incorporation process includes registering with the Companies Commission of Malaysia (SSM), opening a local bank account, and acquiring the necessary business licenses and tax registrations. It generally takes a few weeks to complete, depending on how quickly you can gather the required documents and meet the legal obligations.
Benefits: Brand Presence, Full Autonomy
The main benefit of incorporation in Malaysia is full operational autonomy. As an incorporated entity, you gain complete control over how you run your business, including decision-making, management, and the direction of your local operations. This level of control allows you to establish a strong brand presence in the market, which is vital for long-term business success.
Incorporation also opens up opportunities for local business activities such as property acquisition, long-term contracts, and the ability to enter into certain industries that may have restrictions on non-incorporated entities.
Drawbacks: Lengthy Process, High Costs
Incorporation can be a lengthy and expensive process. It requires a considerable financial investment to meet the minimum capital requirements, legal fees, and administrative costs. Additionally, complying with local regulations can be complex, involving ongoing obligations such as annual reporting, taxation, and labor laws.
For smaller businesses or those looking for a faster market entry, incorporation might not be the most cost-effective solution, especially when you factor in the continuous costs of maintaining compliance and operational infrastructure.
Employer of Record (EoR) Explained
How an EoR Simplifies Hiring and Compliance
An Employer of Record (EoR) offers a streamlined alternative to setting up a legal entity. With an EoR, a third-party service provider becomes the legal employer of your employees in Malaysia, handling all HR-related tasks such as payroll, taxes, and compliance with local labor laws. However, you retain control over your employees’ day-to-day responsibilities and management.
The EoR model is an excellent solution for businesses looking to enter the market quickly or those with smaller teams that don’t want the burden of incorporating and managing all compliance issues internally.
Benefits: Low Entry Cost, Quick Setup
The biggest advantage of using an EoR is that it allows for rapid market entry. There’s no need to navigate the time-consuming and expensive process of setting up a local entity. The EoR takes care of the legal and administrative burden, letting you focus on growing your business. For companies testing the waters in Malaysia, this option offers flexibility without a long-term commitment.
An EoR also reduces operational costs. Since you don’t need to hire an in-house HR or legal team to manage compliance, you can minimize overheads. This is particularly beneficial for businesses looking to keep their costs low while entering a new market.
Drawbacks: Shared Control Over HR Management
While an EoR simplifies many aspects of employment, it comes with some trade-offs. The EoR, as the legal employer, retains control over certain elements of HR management, such as employment contracts and benefits packages. As a result, businesses may have less flexibility in customizing employee agreements to meet their specific needs.
For larger companies with long-term plans in Malaysia, the limitations of the EoR model may hinder their ability to establish a strong local presence or adapt to changing business strategies.
We’re here to help you on your journey to hire, manage and pay.
Costs, Compliance, and Operational Challenges
Financial and Administrative Comparisons Between Both Options
When comparing incorporation and EoR, the financial and administrative differences are stark. Incorporation requires substantial upfront investment, including incorporation fees, minimum capital requirements, and ongoing compliance costs such as tax filings, audits, and legal services.
By contrast, an EoR model offers a cost-effective solution. You pay a service fee that covers employment administration, compliance, and HR management. This model eliminates the need for a local office or in-house staff dedicated to managing compliance, reducing your overall operational costs.
Compliance Issues for Foreign Entities and How EoR Simplifies This
Incorporation places the onus on your business to manage all compliance requirements related to employment laws, taxation, and industry-specific regulations. This includes adhering to Malaysia’s strict labor laws, which mandate specific benefits, minimum wages, and employee rights. Failure to comply can result in fines, legal action, or even revocation of your business licenses.
An EoR, however, shifts this responsibility to the service provider. The EoR handles all local compliance, ensuring that your business meets legal requirements without the need for in-depth local knowledge. This reduces your exposure to legal risks and makes market entry far more straightforward.
Choosing the Right Model Based on Business Goals
How Your Business Size, Objectives, and Resources Influence Your Choice
Your choice between incorporation and using an EoR in Malaysia should align with your business goals, size, and resources. For larger corporations with long-term expansion plans and significant capital, incorporation offers full control and the ability to build a robust local presence. It’s a more suitable option if you plan to make substantial investments, operate a large workforce, or engage in long-term contracts.
For smaller businesses or startups, or companies looking to test the market, an EoR provides the flexibility to scale up or down without the significant financial and time commitments that come with incorporation. The EoR model is ideal if your goal is to enter Malaysia quickly, with minimal legal and administrative hassles.
Risk Management and Operational Flexibility
Incorporation carries greater risks, particularly in terms of compliance and financial exposure. The complexities of Malaysian labor laws and tax regulations can pose challenges for foreign businesses unfamiliar with local requirements. Managing these risks requires significant investment in local expertise, whether through legal consultants, accountants, or in-house staff.
On the other hand, using an EoR mitigates much of this risk. The EoR assumes responsibility for legal compliance, reducing your exposure to penalties and other legal consequences. This model also offers operational flexibility, allowing you to enter or exit the market with ease as business needs change.
How AYP Can Help
AYP offers comprehensive Employer of Record (EoR) services in Malaysia, helping businesses streamline their market entry by managing all aspects of HR, payroll, and compliance. With AYP’s EoR solution, you can focus on your core business operations while we handle the complexities of employment in Malaysia.
Our team ensures full compliance with Malaysian labor laws, including employee benefits, tax filings, and other regulatory requirements. Whether you’re looking to hire a single employee or scale up quickly, AYP’s EoR services offer a cost-effective, low-risk solution for expanding into Malaysia.
