As Chinese companies expand overseas, ”compliance” is often the aspect most easily overlooked—yet one that carries the highest cost when issues arise. Malaysia’s new policies in 2026 significantly relaxed foreign ownership restrictions, but compliance requirements were simultaneously tightened. Even local small and medium-sized enterprises have yet to fully grasp the policy details and enforcement standards of many of these new regulations. This article systematically outlines the five key pillars of compliance for operating a company in Malaysia—shareholding compliance, director compliance, company secretary compliance, nominee shareholding compliance, and tax compliance—providing a comprehensive overview in a single post.

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I. Shareholding Compliance: Who Can and Cannot Hold a Controlling Stake in 100%

The core change in the new policy for 2026 lies in the relaxation of shareholding restrictions, but ”relaxation” does not mean ”no restrictions.” Situations in which foreign investors may hold a 100% controlling stake include: new manufacturing projects, expansion projects, or diversification projects (regardless of the proportion of products exported); digital economy enterprises established within the Digital Free Trade Zone (DFTZ); technology enterprises with R&D expenditures accounting for more than 20% of their total revenue; and digital economy sectors such as software, cross-border e-commerce, and data centers (subject to DFTZ entry requirements).

Restrictions apply in the following areas: upstream oil and gas (49%), telecommunications operators (49%), banking (70%; requires approval from the central bank), real estate development (70%; stricter in some states), and agricultural cultivation (60%; involving permanent land ownership rights). Prohibited sectors include: convenience stores, pharmacies, and small restaurants, which are closed to foreign investment; as well as weapons, ammunition, and gambling, which are not open to foreign investment.

Special attention should be paid to high-risk sectors—industries involving indigenous rights. Even in the manufacturing sector, if a project falls under ”industries involving indigenous rights” (such as specific distribution, logistics support, or industrial chains related to national security), the law mandates that 30% equity be reserved for Malay indigenous partners. A pre-registration compliance review for industry access must be conducted; do not make your own judgment.

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II. Director Compliance: Who Can Serve as a Director, and How to Address the Issue of Local Directors

Director compliance is the foundation of corporate governance, yet it is also an aspect that many Chinese companies are most likely to overlook. Legal requirements include: at least one director must be at least 18 years of age, have no record of bankruptcy or criminal convictions (a certificate of no criminal record must be provided), and at least one director must be a resident of Malaysia (a citizen, permanent resident, or holder of a valid visa for at least six months). Foreign directors are not required to reside in Malaysia on a long-term basis but must provide a valid local address.

Regarding frequently asked questions: It is not permissible for all directors of a company to be Chinese nationals; at least one director must be a permanent resident of Malaysia. If the company does not have employees stationed in Malaysia, it may utilize a professional agency to provide a nominal local director service (requiring the signing of a guarantee agreement that clearly states the local director will not participate in business decisions or have access to funds). The risk associated with a local director is that this is a statutory position, and the director bears legal responsibility for the company’s compliance with regulations. If the company violates regulations (such as failing to file annual returns or committing tax fraud), the local director may face fines or even imprisonment; therefore, a local director acting in a nominal capacity will typically require the signing of a strict agreement to separate authority and responsibility.

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III. Corporate Secretary Compliance: Why It Is Necessary to Appoint a Corporate Secretary

The role of company secretary is the compliance requirement that Chinese companies are most likely to ”overlook,” yet one that carries the most serious consequences. Statutory requirements include: All Malaysian companies must appoint a licensed company secretary within 30 days of registration; the secretary must be a Malaysian citizen or permanent resident and hold a license recognized by the SSM; and the secretary may not be the sole director.

The statutory duties of a company secretary include: timely submission of annual returns (annual review), maintenance and management of the company’s registered address, receipt and forwarding of government correspondence, filing of company changes, and ensuring the company remains in full compliance with all requirements of the Companies Act 2016. The consequences of a vacant company secretary position are severe: SSM will be unable to issue official certification documents, which will affect the annual review of bank accounts, hinder the signing of client contracts and eligibility for project bids, and result in daily accumulation of fines for late annual reviews. It is recommended to arrange for a company secretary at the time of company registration, rather than waiting until the 30-day deadline is approaching to scramble to find one.

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IV. Compliance with Nominee Holding Regulations: Why You Shouldn’t Use a Nominee Holder

In the past, many Chinese companies circumvented shareholding restrictions through ”nominee agreements” or ”trust arrangements.” Following the new policy implemented in 2026, this approach has become extremely risky. In terms of legal risks, Malaysian courts have established through case law the principle that nominee agreements are invalid because they violate the law; Under Section 591 of the Companies Act 2016, companies that use nominee arrangements to circumvent foreign investment restrictions may face fines of up to 3 million Malaysian ringgit; executives may also face fines and imprisonment. Looking at future trends, Malaysia’s regulation of companies using nominee arrangements will become increasingly stringent.

In terms of business risks, the nominee holder may ”turn against the company” (demanding additional payments, refusing to cooperate, or even directly transferring assets); unclear ownership of the company will hinder financing, mergers and acquisitions, and IPOs; and if the nominee holder dies, goes bankrupt, or becomes uncontactable, the company’s operations will grind to a halt. Following the new policies implemented in 2026, sectors such as general trade, e-commerce, and manufacturing now allow direct 100% foreign ownership; there is no longer any need to resort to nominee arrangements.

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V. Tax Compliance: The Biggest Change in 2026—Mandatory Electronic Invoicing

The most significant change in Malaysian tax compliance for 2026 is the full implementation of the electronic invoicing system. With the LHDN’s full rollout of the electronic invoicing system, businesses meeting the turnover threshold are required to register for an SST tax number, and all transactions must be recorded and reported through the electronic invoicing system, with data from the LHDN and SSM automatically cross-checked by the system.

This means that SSM’s annual return data and LHDN’s tax filing data will be automatically cross-checked. An abnormal company status (such as a missed annual return deadline) will trigger an alert in the tax system, and the tax ID may be frozen; tax violations will also be reported to the SSM system, affecting the company’s compliance status. The ”compliance net” is tightening.

Annual tax compliance obligations include: Companies must file their annual tax returns (Form C) within seven months after the end of the fiscal year; file and pay monthly withholding tax (PCB) returns; file and pay SST returns on a quarterly or monthly basis; and companies that meet certain size thresholds must undergo a statutory audit.

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