Forming a sole proprietorship in Malaysia is currently getting more attention from business owners and entrepreneurs. Only Malaysian are entitled to set up a sole proprietorship in Malaysia. If you are a foreigner wishing to set up a business in Malaysia, kindly refer to Malaysia company incorporation for additional information and requirements.
What Exactly Is A Sole Proprietorship In Malaysia?
A sole proprietorship is the most basic type of business ownership, and it is regulated in Malaysia under the registration of businesses Act 1956.
A sole proprietorship, unlike a corporation, is not a distinct entity from the individual who owns it. It is a business that is entirely owned by a single person who uses his or her name as it appears on his or her identity card or trade name.
In simple words, you are the business, and the business is you. You, as the company’s owner, are inextricably linked to it. As a result, anything you make from your company is immediately attributed to your income.
What Are The Benefits Of A Sole Proprietorship In Malaysia?
There are a lot of benefits of a sole proprietorship in Malaysia. The main advantages of a sole proprietorship in Malaysia can be seen below.
You are in charge
A sole proprietor has entire control and decision-making authority over his or her company. All profits will be immediately transferred to the company owner’s pocket.
No corporate tax
Since a sole proprietorship is not legal, all chargeable income is taxed at the business owner’s income tax rate.
Lowest annual fees
A sole proprietorship has the lowest yearly maintenance fees as compared to a Private Limited Company (Sdn. Bhd.), Limited Liability Partnership, or Partnership.
Less rigid business regulations
Because the majority of sole proprietorship owners are micro or small business owners, some fewer laws and regulations must be followed by a sole proprietorship.
Convenient winding up
You can dissolve your sole proprietorship immediately by visiting the Malaysian Companies Commission (SSM), or it will be closed automatically if you do not pay your yearly fee on time.
Minimum entry conditions
A sole proprietorship is Malaysia’s most frequent and simplest business structure, and any Malaysian citizen or permanent resident can simply register one.
What Are The Key Requirements For Forming A Sole Proprietorship In Malaysia?
- The owner has to be a Malaysian citizen or a Malaysian permanent resident.
- The owner must be at least 18 years old.
- Only the owner is permitted to apply.
What Are The Required Documents For Forming A Sole Proprietorship In Malaysia?
The list of documents you will need to form your sole proprietorship can be seen below –
- A copy of your Identity Card (IC).
- A copy of your permit, license, approval, or any other relevant supporting documents for the type of business that you intend to operate if required by the Registrar of Business.
- Information regarding your business name and activities.
What Are The Factors That I Need To Consider For The Naming Of My Sole Proprietorship In Malaysia?
Your company’s name is extremely important. It is the initial impression that your buyers, suppliers, and stakeholders will have of you. As a result, it should be relevant and appealing.
When naming your organization, you should consider several aspects, such as below.
Short and straightforward
The name should be short and not too lengthy. People should be able to pronounce it correctly and remember your company’s name the first time they hear or read it.
Relevant
Your company’s name should be relevant to your business. It should be consistent with the company’s branding and corporate identity.
Special
Your company’s name should not be similar to or identical to that of another corporation or trademark. In an existing company name, you should try to avoid making it plural or altering merely the letter case, spacing, or punctuation marks.
Non-offensive
It should not be offensive to any religion’s norms and beliefs.
What If I Am Planning To Form A Sole Proprietorship Using A Trading Name?
- If you choose the trade name option, you must first acquire clearance from the Registrar of Business before you may use that name.
- You must fill out the business name approval form (Form PNA.42) and submit three suggested business names, which will be accepted in order of priority. These must be presented with the New Business Registration Form (Form A) at the counter.
- Your business registration form A must have the following information and details.
- The name of your business.
- The type of business.
- The start-up date of your business.
- The main address of your business.
- The owner’s and partner’s details.
What Is The Procedure For Forming A Sole Proprietorship In Malaysia?
The procedure for forming a sole proprietorship in Malaysia is fairly straightforward. The process is as follows.
- Fill out the SSM form – You must go to the nearest SSM branch with a photocopy of your IC and fill out the business registration form. It is available at the SSM counter.
- Perform a name search – Your chosen company name will be checked for availability by the SSM officer.
- Annual fee payment – After you have confirmed everything, you must pay your yearly charge as follows: –
A sole proprietorship that uses the same personal name as stated on the IC will be subjected to a registration fee of RM 30.
A sole proprietorship that uses a trading name is subjected to a registration fee of RM 60.
- Your company is set – The business registration certificate is available at the SSM counter within one hour of payment.
What Are The Post-registration Requirements For A Sole Proprietorship In Malaysia?
Tax Registration
After you’ve registered your sole proprietorship, you’ll need to register as a taxpayer. You may perform this in two ways:
- Via E-Daftar and uploading your Malaysian identity card (MyKad).
- Visiting the Lembaga Hasil Dalam Negeri Malaysia (LHDN) office. In addition to the papers listed above, you will need a copy of your most recent pay stub and a copy of your marriage certificate (if applicable).
e-Filing
After your application is approved, you must register for e-Filing. For the first-time login, you will need a PIN, which you may obtain by visiting the local LHDN office in person. Once you have the PIN, go to the e-Filing portal and register accordingly.
What Are The Tax Rules For A Sole Proprietorship In Malaysia?
- In Malaysia, there is no distinction between the natural person who owns the business and the sole proprietorship. Sole proprietorships are pass-through entities, which means that all earnings and losses are passed on to the business owner. As a result, no separate tax return filing is required.
- In Malaysia, sole proprietorships are subject to income tax on a gradual scale based on individual income (from 2% to 26%).
- In Malaysia, a single proprietorship must also pay the following taxes:
- Self-employment tax.
- Social security tax.
- Property tax.
FAQs
What are the risks of forming a sole proprietorship in Malaysia?
While sole proprietorships have many advantages and benefits, they also have some risks that every entrepreneur should be aware of. The risks of forming a sole proprietorship in Malaysia are as follows.
- Being fully dependent on the business owner.
- In the eyes of the law, there is no distinction between the owner and the business.
What is the penalty for not registering my sole proprietorship in Malaysia?
It is an offense under the Registration of Business Act 1956 to do business in Malaysia without the required registration. If you are found guilty, you may be fined up to RM 50,000 or imprisoned for up to two years, or both.
Is a sole proprietorship in Malaysia required to keep business receipts?
Sole proprietorships must save all receipts, profit and loss accounts, balance sheets, business documents, and expenses for at least 7 years for accounting and auditing purposes.
