In Malaysia, a company is a subsidiary of another company when that other company controls who sits on its board, controls more than half of its voting power, or holds more than half of its issued shares, not counting preference shares. That is the test in section 4 of the Companies Act 2016, as the Act stood at 1 August 2022. The company in control is the holding company, known as the parent company in everyday speech.
The subsidiary and its holding company are each a company in their own right. Each company has its own debts, its own directors, its own filings with the Companies Commission of Malaysia (Suruhanjaya Syarikat Malaysia, or SSM) and its own tax return.
A subsidiary in Malaysia is usually a Sdn Bhd, registered like any other, with the same requirements and the same yearly filings.
A holding company does not manage its subsidiaries itself. Through its votes as a shareholder, it appoints and removes the directors of each subsidiary. Those directors manage the subsidiary, acting in the subsidiary’s interest.
Key Takeaways
- A holding company risks only its investment in a subsidiary, unless it signs a guarantee for the subsidiary’s borrowing. A lender may ask a shareholder for that guarantee.
- A holding company can be its subsidiary’s only shareholder. Under the Companies Act 2016, the subsidiary needs a company secretary and at least one director who ordinarily resides in Malaysia.
- SSM charges RM1,000.00 to register a subsidiary, plus RM10.00 for Supply of Corporation Information to Agencies. A company secretary who handles the registration adds a one-time agent fee.
- A holding company steers its subsidiary by appointing the subsidiary’s directors. A director owes duties to each company separately, so each board decides in its own company’s interest.
- Under the Income Tax Act 1967, a subsidiary loses the small company tax rates where a holding company with over RM2,500,000 of paid-up capital owns over 50% of the subsidiary.
- Group relief under the Income Tax Act 1967 needs over RM2,500,000 of paid-up capital in each company, so a small group cannot set one company’s loss against another’s profit.
When a Company in Malaysia Counts as a Subsidiary
A company counts as a subsidiary when it is controlled by another company in one of three ways. Section 4(1) of the Companies Act 2016 sets out the three ways (as at 1 August 2022), and any one of them is enough:
- Control of the board: the other company controls who sits on its board of directors.
- Control of the votes: the other company controls more than half of its voting power.
- More than half of the shares: the other company holds more than half of its issued shares, leaving preference shares out of the count.
A company is also a subsidiary of its holding company’s holding company. If B Sdn Bhd is a subsidiary of A Sdn Bhd, any subsidiary of B Sdn Bhd is a subsidiary of A Sdn Bhd too.
The share test asks for more than half, so a half share is not enough. A company that is owned 50:50 by two other companies is not a subsidiary of either owner on the share test, unless one of the two controls its board or more than half of its voting power.
A company that holds fewer than half of the shares is still the holding company if it controls the board.
A subsidiary and its holding company are also related corporations.
Under the Companies Act 2016 (as at 1 August 2022), a holding company is related to each of its subsidiaries, and subsidiaries of the same holding company are related to each other.
Later rules in the Act rest on that label, such as the ban on a company lending to a director of a related company. The section below on what a group’s directors must watch covers that ban.
Tax law sets its own ownership tests, which differ from the section 4 test. The tax sections below set them out.
How a Subsidiary and a Parent Company Relate
The company that owns or controls a subsidiary is its holding company. Holding company is the term the Companies Act 2016 uses (as at 1 August 2022). Parent company is the everyday name for the same thing. The ultimate holding company sits at the top of a chain of parent companies and subsidiaries. The people and companies that own a subsidiary are its members, also called shareholders. They are the holding company and any other shareholders the subsidiary has.
A subsidiary is a company in its own right. Subsidiaries are separate legal entities from their parent companies.
Under the Companies Act 2016, a company is a legal person separate from its members. The subsidiary therefore owns its own assets, signs its own contracts and owes its own debts, whoever holds its shares.
A holding company is not liable for its subsidiary’s debts just because it is a member.
Under the Companies Act 2016, a member’s liability is limited to any amount unpaid on the shares it holds. So the holding company stands to lose what it has paid for its shares, plus anything still unpaid on them.
A subsidiary is not liable for its parent’s debts, because the two are separate entities.
Limited liability stops where a shareholder signs a guarantee. A lender may ask a shareholder to guarantee the subsidiary’s borrowing.
A holding company that signs such a guarantee is liable under it if the subsidiary does not pay. The section below on what a group’s directors must watch covers when the subsidiary’s directors are personally liable.
A parent company controls its subsidiary through its rights as a shareholder. Through its votes, the parent company appoints and removes the subsidiary’s directors.
Control of the board is also one of the three routes that make a company a subsidiary. The board then manages the company, because section 211(1) of the Companies Act 2016 gives the management of a company to its board. So the parent steers the subsidiary by choosing its directors, and the directors run it.
The subsidiary has its own board, with at least one director who ordinarily resides in Malaysia and has a principal place of residence here (as at 1 August 2022).
The subsidiary chooses for itself whether to appoint a chief executive officer, and a private company is not required to have one.
A subsidiary may be run day to day by a chief executive or a managing director who reports to the subsidiary’s board.
A subsidiary can sue and be sued in its own name. That includes suing its own holding company or being sued by it, because the two are distinct legal entities.
A subsidiary generally cannot hold shares in its own holding company, apart from narrow exceptions such as shares it holds only as a trustee.
An individual cannot be a parent company or holding company, and an enterprise cannot be one either, because the Companies Act 2016 defines a holding company as a corporation. An individual who owns a company is its shareholder instead.
An enterprise, such as a sole proprietorship, is not a separate legal entity, so its owner holds any shares in a company personally.
A holding company is not the same thing as an investment holding company.
Holding company is a company law term, defined by control. Investment holding company is a tax category, with tax rules of its own, which the guide to investment holding companies covers.
Types of Subsidiaries: Wholly Owned, Partially Owned and Tiered
A subsidiary does not have to be 100% owned by another company. Under the Companies Act 2016 (as at 1 August 2022), a subsidiary is a wholly-owned subsidiary only where it has no members other than its holding company, the holding company’s wholly-owned subsidiaries, and nominees of those companies. Any other subsidiary is partly owned, also called partially owned.
A wholly-owned subsidiary and a partly owned one differ in who the members are and how the holding company holds control.
| Wholly-owned subsidiary | Partly owned subsidiary | |
|---|---|---|
| Who the members are | Only the holding company, its wholly-owned subsidiaries, or their nominees | At least one member outside that list, such as an investor or a business partner |
| How the holding company holds control | Through all of the shares, held directly or through its wholly-owned subsidiaries | Through control of the board, more than half of the votes, or more than half of the shares |
| The other shareholders’ stake | There is no shareholder outside the holding company’s wholly-owned group | An outside shareholder’s stake, such as an investor’s, is set by the shares they hold. |
| How other shareholders share in dividends and decisions | No outside shareholder takes part | Each other shareholder takes dividends in proportion to the shares they hold and, on a poll, has one vote for each share, unless the share classes or the constitution give different rights. |
Subsidiaries can be parent companies too, with subsidiaries of their own. A group with more than one layer of subsidiary companies has tiered subsidiaries.
A subsidiary of a subsidiary is a subsidiary of the company at the top as well. The company at the top, which is not itself a subsidiary of any corporation, is the ultimate holding company.
A subsidiary held directly is often called a first-tier subsidiary. One held through another subsidiary is often called a second-tier subsidiary.
First-tier and second-tier are descriptions, not terms the Companies Act 2016 uses.
An invented group shows how the terms fit together.
A Sdn Bhd, owned by two individuals, holds all of the shares in B Sdn Bhd and 60% of the shares in C Sdn Bhd. C Sdn Bhd holds 51% of the shares in D Sdn Bhd.
- B Sdn Bhd is a wholly-owned, first-tier subsidiary of A Sdn Bhd, because A holds all of its shares. B Sdn Bhd is a company that is completely owned by A Sdn Bhd.
- C Sdn Bhd is a partly owned, first-tier subsidiary of A Sdn Bhd, because A holds more than half of its shares but not all of them.
- D Sdn Bhd is a subsidiary of C Sdn Bhd, and a second-tier subsidiary of A Sdn Bhd through C.
- A Sdn Bhd is the ultimate holding company, because no corporation holds it.
- B Sdn Bhd and C Sdn Bhd are sister companies, and all four companies are related corporations.
The names are invented, and the group is not a real one.
Sister Companies, Associates and Affiliates
A subsidiary, a sister company, an associate and an affiliate differ in who controls whom. A subsidiary is controlled by a parent company, which is its holding company under the test in the Companies Act 2016.
| Term | What it is | Who controls it | Is it a subsidiary? |
|---|---|---|---|
| Sister company | Another subsidiary of the same holding company, and a related corporation under the Companies Act 2016 | The shared holding company; neither sister controls the other | Yes, of the holding company, but not of its sister |
| Associate company | A company over which another company has significant influence but not control; holding 20% or more of the votes is presumed to give that influence | Not the company holding the stake, which has influence rather than control | No, not of the company holding the stake |
| Affiliate | A loose word for companies linked by ownership or by common control, with no single legal meaning | It depends on the link: an affiliate may be a parent, a subsidiary, a sister or simply a company under common control | Not necessarily |
A subsidiary is a related corporation of its holding company and of every other company in its group.
The group includes the holding company, each of its subsidiary companies, and each subsidiary of those subsidiaries.
Why Businesses Establish a Subsidiary, and the Drawbacks
A subsidiary makes sense when one part of a business needs to stand apart from the rest, in its risk, its owners or its assets. Businesses tend to use a holding structure in four cases:
- A new venture with a different risk: a business starting something riskier than its core trade puts it in a subsidiary, so that the venture’s debts stay with the subsidiary.
- A venture with its own partner or investor: a partner who wants a stake in only one venture takes shares in the subsidiary, without taking a stake in the rest of the business.
- A foreign company’s Malaysian business: a foreign company that will trade in Malaysia often runs that business through a Malaysian subsidiary, as the section on how a foreign company chooses its vehicle explains.
- Property or investments kept apart from trading: an owner holds property or investments in one company and runs the trading business in another. The two are separate business entities owned by that one owner, so the trading company’s creditors can reach only the trading company’s assets.
A separate question is whether the new venture needs a company of its own at all.
The guide to choosing between a Sdn Bhd, an enterprise, a partnership and a limited liability partnership (LLP) compares those types of business entity.
Each advantage of a subsidiary rests on a rule about companies.
- The risk stays in the subsidiary. If the venture fails, its creditors have a claim against the subsidiary, not against the holding company, unless the holding company has guaranteed the debt.
- An investor can come into one venture without the rest of the business. An investor usually expects shares in return for their money. Only a company limited by shares can issue them. A Sdn Bhd brings in an investor by issuing new shares, or an existing shareholder can transfer their shares to the investor. So the investor takes shares in the subsidiary alone.
- One venture can be sold on its own. The holding company can sell the venture by selling its shares in the subsidiary.
Each drawback of a subsidiary has a fact behind it too.
- A second set of filings. The subsidiary lodges its own Annual Return and financial statements.
- A second set of professional fees. The subsidiary pays its own professional fees, on top of what SSM charges.
- The small company tax rates can be lost. The subsidiary loses the small company rates where a related company has more than RM2,500,000 of paid-up capital. Related here means that one of the two companies owns more than 50% of the other, or that a third company owns more than 50% of both.
- Group relief is out of reach for a small group. Group relief needs more than RM2,500,000 of paid-up capital in each company.
- Small and medium enterprise (SME) status can be lost. A subsidiary of a main-board listed company, a large firm, a multinational corporation (MNC) or another excluded kind of company is not an SME under SME Corporation Malaysia’s definition, however small the subsidiary is.
- A holding company cannot be struck off. A company that is a holding company has to be wound up instead.
- Limited liability has limits. Limited liability does not cover a guarantee a director signs, unpaid contributions to the Employees Provident Fund (EPF), or the liability that continues after a company is struck off.
What It Costs to Set Up a Subsidiary and Keep It
A subsidiary costs the same to register at SSM as any other company. SSM charges RM1,000.00 to register a company, plus RM10.00 for Supply of Corporation Information to Agencies. A company secretary who handles the registration adds a one-time agent fee on top of SSM’s fee.
Every year after that, the subsidiary pays SSM to lodge its Annual Return and one set of financial statements, audited or unaudited.
| Yearly filing at SSM | SSM’s fee |
|---|---|
| Annual Return | RM150.00 |
| Financial statements, audited | RM50.00 |
| Financial statements, unaudited | RM20.00 |
Professional fees come on top of what SSM charges.
| Professional fee | What it typically costs |
|---|---|
| Company secretary | About RM600 to RM2,000 a year |
| Registered office address | About RM300 to RM1,200 a year |
| Audit and accounting | About RM2,000 to RM5,000 a year, rising with the company’s size and the number of its transactions |
Together, those professional fees come to roughly RM2,900 to RM8,200 a year on top of SSM’s fees.
Most companies also pay a tax agent or an accountant to prepare their tax return.
How a Foreign Company Chooses Between Setting Up a Malaysian Subsidiary, a Branch and a Representative Office
A foreign company can do business in Malaysia in one of two ways. It can register a local company, which is the subsidiary, or it can register itself with SSM as a foreign company, which is a branch. A representative or regional office is a third option, but it may not trade.
| Subsidiary (Sdn Bhd) | Branch (registered foreign company) | Representative or regional office | |
|---|---|---|---|
| What it is | A Malaysian company in its own right, registered under the Companies Act 2016 | The foreign company itself, registered with SSM under its registered company name in its home country | An office approved by the Government and not incorporated under the Companies Act 2016, as the Malaysian Investment Development Authority (MIDA) sets out (as at 24 March 2023) |
| Whether it may trade | Yes | Yes, once registered: a foreign company may not carry on business in Malaysia unless it is registered as a foreign company under the Companies Act 2016 | No: it may not trade, sign business contracts for its parent or provide services for a fee |
| Who answers for its debts and penalties | The subsidiary itself; the foreign parent’s risk is its investment | The foreign company; its agent in Malaysia is personally liable for the foreign company’s penalties unless a court is satisfied otherwise | The foreign company, since the office is not a separate company |
| What it must have here | At least one director who ordinarily resides in Malaysia, a company secretary and a registered office address | An agent in Malaysia at all times, who answers for what the Companies Act 2016 requires of the branch | The Government’s approval |
| Its yearly costs | SSM’s yearly fees plus professional fees, as the section on costs sets out | A branch has similar yearly costs, with its agent’s fee in place of the company secretary’s. | The cost of running the office, at least RM300,000 a year for a new office under MIDA’s guideline, paid from outside Malaysia |
Between a subsidiary and a branch, liability is the deciding difference. A foreign parent risks only its investment in a subsidiary, because the subsidiary is a separate legal entity from its parent company and answers for its own debts.
A branch is the foreign company itself, so the foreign company answers for what the branch owes.
A subsidiary files its own Malaysian tax return with the Inland Revenue Board of Malaysia (LHDN).
A foreign-owned company has no separate corporate tax rate (Income Tax Act 1967, as at 1 November 2023). It loses the small company rates where foreign companies or non-citizens own more than 20% of it.
For a foreign company that will trade in Malaysia, the choice is between a subsidiary and a branch. Of those two, a Sdn Bhd subsidiary is the usual route.
For a foreign group still weighing whether to base its regional business in Malaysia at all, the vehicle is only one of the decisions. The guide for multinational corporations setting up in Malaysia covers the wider choice.
Can a Foreign Company Own 100% of a Subsidiary in Malaysia?
Yes, in most sectors. Foreign investors may own up to 100% of a Sdn Bhd in most sectors. Some sectors carry local equity, capital or licence conditions set by other authorities. Retail and distribution, financial services, education and healthcare are among them. MIDA states that the Companies Act 2016 sets no equity conditions on Malaysian companies. In manufacturing, MIDA states that foreign investors may hold 100% of the equity in new projects and in expansion or diversification projects.
A foreign parent company can be its subsidiary’s only shareholder.
Under section 196(4) of the Companies Act 2016 (as at 1 August 2022), the subsidiary must still have at least one director who ordinarily resides in Malaysia, with a principal place of residence here. Every other director can live abroad.
For more on who can be a director or shareholder of a Sdn Bhd, and whether a foreigner can register one, read our guide to registering a Sdn Bhd.
Full foreign ownership changes the tax the subsidiary company pays. Where foreign companies or non-citizens own more than 20% of the subsidiary, it loses the small company tax rates (Income Tax Act 1967, as at 1 November 2023). The subsidiary then pays 24% on all of its chargeable income (the same Act, and LHDN’s table for the years of assessment 2023 and 2024).
Banks often ask a foreign-owned company for more documents, such as those on its foreign shareholders and the people who ultimately own it.
Establishing a Subsidiary in Malaysia: What It Takes
A parent company typically owns its Malaysian subsidiary as a private company limited by shares, a Sdn Bhd. Sdn Bhd stands for Sendirian Berhad, which means “private limited” in Malay, so a Sdn Bhd is a private limited company. A company limited by shares is either private or public. A private company may not offer its shares to the public, so a subsidiary that will offer shares to the public takes the other form, which is a public company, or Berhad (Bhd). A public company is not necessarily listed on a stock exchange such as Bursa Malaysia. Listing is a separate step that only some public companies take. The guide to the Sdn Bhd covers the private company form in more depth.
Under the Companies Act 2016 (as at 1 August 2022), a subsidiary set up as a Sdn Bhd needs the following.
- At least one member. The holding company can be the only member, as a body corporate. A body corporate member gives a consent letter.
- At least one director. Every director is a natural person aged 18 or over who is not disqualified from holding office, and at least one ordinarily resides in Malaysia.
- A company secretary. The secretary must be qualified and must consent in writing. The company appoints its first secretary within 30 days of registration. A qualified secretary is a natural person aged 18 or over, and a citizen or permanent resident who ordinarily resides in Malaysia. They are either a member of a professional body listed in the Act’s Fourth Schedule or licensed by SSM. They are also registered with SSM, which issues a practising certificate.
- A registered office address. The company keeps a registered office in Malaysia at all times, open to the public during ordinary business hours.
- No minimum paid-up capital. The Companies Act 2016 sets no minimum paid-up capital anywhere in its text.
- A constitution, only if the company wants one. A constitution is optional for a company limited by shares.
The person lodging the application needs an SSM4U account first.
A new SSM4U user who registers using a MyKad, MyPR, MyKAS or MyTentera card verifies their identity in person, at an SSM counter or a Tap.it kiosk (SSM, as at 29 July 2026). They cannot reach the Corporate Registry System (CRS) until that check is done. A new SSM4U user who registers as a foreign national activates their account online instead.
- Open an SSM4U account. A new user registers for an account, then verifies their identity in person or activates the account online, depending on the ID they register with. An existing SSM4U account works too.
- Apply in CRS. The application goes through CRS, which is reached through SSM4U. MyCoID, the system CRS replaced, closed on 14 July 2026. The CRS application also collects the information other agencies need, such as whether the company has employees.
- Pay SSM’s fee. SSM charges RM1,000.00 to register a company, plus RM10.00 for Supply of Corporation Information to Agencies.
- Receive the Notice of Registration, then get the Certificate of Incorporation. SSM issues a Notice of Registration when it registers the company. The Certificate of Incorporation is applied for and paid for separately. Banks and government institutions require it as proof of company incorporation, and they do not accept the Notice of Registration.
- Appoint the company secretary. The company must appoint a qualified company secretary as its first secretary within 30 days of registration.
A company or an LLP is registered with SSM wherever in Malaysia it operates, Sabah and Sarawak included. A subsidiary based in Sabah or Sarawak follows the same steps.
The guide on how to register a Sdn Bhd, step by step covers each step in detail.
For a subsidiary in Malaysia, SSM’s own review of the registration application typically takes one business day.
If you use a company secretary, it takes about three days to go from submitting your information to holding a Certificate of Incorporation. If you register the subsidiary yourself as a new SSM4U user and verify your identity in person, the check takes time on top of SSM’s review.
A holding company has two ways to register its subsidiary. Its own people can register the subsidiary themselves through CRS. A licensed company secretary can also prepare and lodge the registration documents for the holding company, for a one-time agent fee on top of SSM’s fee.
Altomate’s Company Secretary & Incorporation package is one example. Through the Altomate app, registration under that package costs a one-time RM1,399, made up of SSM’s RM1,000.00 fee, RM10.00 for Supply of Corporation Information to Agencies, and Altomate’s agent fee of RM389.
Altomate sells registration only together with a company secretary plan, and the one-time fee comes on top of the plan. For a business that already runs a company, that plan would be the Pro Company Secretary Plan.
The Pro Company Secretary & Incorporation Service package accepts a corporate shareholder, at an additional charge for each one, so the holding company can be the subsidiary’s shareholder.
Altomate’s company secretaries are members of the Malaysian Association of Company Secretaries (MACS) and hold practising certificates from SSM. SSM registers the company; Altomate prepares the documents and lodges them.
Registering a Sdn Bhd with Altomate sets out the package.
What Parent Companies Provide as Shareholders
A parent company can be its subsidiary’s shareholder because a member of a company may be a body corporate as well as an individual.
A corporate shareholder supplies two things of its own when it registers a subsidiary. The shareholder provides its company particulars, taken from the registrar it is registered with. It also provides the consent document that SSM requires from it.
A document lodged with SSM in a language other than English or Malay must come with a certified translation.
The company secretary handling the registration can confirm what each document needs before it is prepared.
The parent names the subsidiary’s first directors. At least one of them must be a natural person aged 18 or over who ordinarily resides in Malaysia (Companies Act 2016, as at 1 August 2022).
The parent company itself cannot be a director, because a director must be a natural person.
Bank Accounts, Tax Numbers and Licences for Malaysia Subsidiaries
A subsidiary needs a corporate bank account of its own. A company is a separate legal entity, so its money is its own. Where an existing venture moves out of the parent company and into the new subsidiary, several things have to move with it. Contracts with customers and suppliers have to be transferred to the subsidiary or signed again in its name. Assets have to be sold or transferred to the subsidiary, and the subsidiary opens a bank account of its own. These steps are needed because the business’s contracts, assets and bank account do not pass to the subsidiary by themselves.
Banks require the Certificate of Incorporation as proof of incorporation, and they do not accept the Notice of Registration. Banks vary in what else they ask a company for. Banks often ask a foreign-owned company for more documents, such as those on its foreign shareholders and the people who ultimately own it.
A subsidiary gets its tax identification number (TIN) automatically when it registers with SSM, according to LHDN (updated 4 August 2026).
Under the Income Tax Act 1967, some new companies do not file a tax estimate for the year of assessment in which they start operations, or for the year after. From the year of assessment 2024, a new company is exempt only where every one of these conditions holds:
- In Malaysia and small enough: the company is resident and incorporated in Malaysia, with paid-up ordinary capital of RM2,500,000 or less.
- Not linked to a large company: the company is not related to any company with more than RM2,500,000 of paid-up ordinary capital. Related here means that one of the two companies owns more than 50% of the other, or that a third company owns more than 50% of both, directly or indirectly in either case.
- At most 20% foreign-owned: no more than 20% of the company is owned, directly or indirectly, by companies incorporated outside Malaysia or by non-citizens.
Any other new company whose first basis period is at least six months files its first tax estimate, the e-CP204, within three months of starting operations (LHDN, last updated 26 June 2026). The company’s monthly instalments begin in the sixth month of the basis period.
Registering with SSM does not replace the licences, permits or approvals that other authorities require. The subsidiary obtains any it needs before it starts trading.
If the subsidiary hires staff, it registers as an employer. An employer with one or more employees registers with the Social Security Organisation (SOCSO). The employer contributes under the Employees’ Social Security Act 1969 and the Employment Insurance System Act 2017, which SOCSO administers.
The subsidiary also registers with EPF before the end of the first week of the first month in which it pays wages that attract contributions. Failing to register with EPF is an offence.
Taxation of a Subsidiary and Its Holding Company
A subsidiary and its holding company are taxed separately. Each company files its own income tax return, Form C, with LHDN. Depending on what it sells, a subsidiary may also need to register for sales and service tax (SST).
Company law and tax law set separate ownership tests, so a single shareholding can pass one test and fail another.
A 60% holding, for example, makes a company a subsidiary and can cost it the small company rates, but the holding falls short of the 70% that group relief needs.
When a subsidiary pays its foreign parent anything other than a dividend, such as interest, royalties or fees for services, Malaysian withholding tax can apply. Where it applies, the subsidiary deducts the tax before paying.
Companies in the same group are also expected to price their dealings with each other at arm’s length, as if they were unrelated. Transfer pricing rules govern how those dealings are priced.
The guide to transfer pricing covers the pricing rules in depth.
The Small Company Rates, and How a Group Can Lose Them
A subsidiary pays the small company rates only while both it and its group stay inside the limits in the Income Tax Act 1967. The limits below are those in the Act as it stood at 1 November 2023, and as LHDN’s table gives them for the years of assessment 2023 and 2024.
- Who qualifies: the rates are for a company resident and incorporated in Malaysia, with paid-up ordinary capital of RM2,500,000 or less and gross business income of no more than RM50,000,000.
- The rates: a qualifying company pays 15% on its first RM150,000 of chargeable income, 17% on the next RM450,000 and 24% above RM600,000.
- Lost through a related company: a company loses the rates where a related company has more than RM2,500,000 of paid-up capital. Related here means that one of the two companies owns more than 50% of the other, or that a third company owns more than 50% of both.
- Lost through foreign ownership: a company loses the rates where foreign companies or non-citizens own more than 20% of it.
- Every other company: other companies pay 24%.
Say a parent company owns 60% of a new subsidiary and has RM3,000,000 of paid-up capital. The parent company is a related company with more than RM2,500,000 of paid-up capital, and it owns more than 50% of the subsidiary.
So the subsidiary loses the small company rates. The subsidiary pays 24% from its first ringgit of chargeable income, however small that income is.
An investment holding company that is not listed on Bursa Malaysia does not qualify for the small company rates and pays 24%.
Group Relief: Setting One Company’s Loss Against Another’s Profit
Group relief lets one company in a group set its loss against another group company’s profit. Under section 44A of the Income Tax Act 1967, a company can surrender up to 70% of its adjusted loss to one or more related companies. A company can do so for three consecutive years of assessment. That is section 44A as it stood at 1 November 2023, and the Finance Acts of 2023 (No. 2), 2024 and 2025 did not amend it.
Group relief applies only where every one of these conditions holds:
- Both in Malaysia: both companies are resident and incorporated in Malaysia.
- Related for long enough: the companies have been related throughout the basis period and the twelve months before it. Related here means that one owns at least 70% of the other, or that a third company, also resident and incorporated in Malaysia, owns at least 70% of both.
- Large enough: each company has paid-up ordinary share capital of more than RM2,500,000.
- The same year end: both companies have twelve-month basis periods ending on the same day.
- The ordinary rate: both companies are taxed at the ordinary company rate.
- An irrevocable election: both companies elect for group relief in the return, and the election cannot be withdrawn.
Group relief is sometimes given as a reason to form a group, but the paid-up capital condition shuts a small group out.
For a wholly-owned subsidiary, or one at least 70% owned, in a group large enough to qualify, group relief is one of the tax advantages of the structure, alongside dividends that pass between companies tax-free.
Dividends From a Subsidiary to Its Holding Company
A holding company pays no tax on a dividend it receives from its subsidiary. Under the Income Tax Act 1967, a single-tier dividend paid to a company is exempt from tax for the company that receives it.
Dividends that are tax-free for parent companies are not always tax-free once they reach individuals.
An individual’s dividends can be taxed at 2% once they go above RM100,000 in a year.
What Each Company in a Group Must File, Parent and Subsidiary Alike
Each company in a group keeps its own records and makes its own filings, as if it stood alone. Under the Companies Act 2016 (as at 1 August 2022), each company, its directors and its managers keep accounting records that sufficiently explain the company’s transactions and financial position. They make entries within 60 days of a transaction, and they keep the records for seven years after the transactions are completed.
Under the Companies Act 2016 (as at 1 August 2022), each private company circulates its financial statements and reports within six months of its financial year end (FYE). It then lodges them with the Companies Commission of Malaysia within 30 days of circulating them.
For the group as a whole, approved accounting standards apply to the holding company’s consolidated financial statements. The holding company’s directors must ensure those statements are prepared in line with the standards.
A wholly-owned subsidiary follows the same rules for its own financial statements as any other company.
Each company also lodges an Annual Return within 30 days of each anniversary of its registration.
Each private company in a group needs an audit every year unless it qualifies for audit exemption and chooses it, as SSM’s FAQ sets out (updated 19 May 2026).
A new company’s board appoints the first auditor at least 30 days before the deadline for lodging its first financial statements with SSM.
Some companies cannot use audit exemption, whatever their size. Under SSM’s FAQ (updated 19 May 2026) and its guidance of 16 December 2024, the exemption is closed to a public company, including a listed one. The exemption is also closed to a private company that is a subsidiary of a public company, or is jointly controlled by one.
A public company is not necessarily listed on a stock exchange such as Bursa Malaysia, so a subsidiary of an unlisted Berhad is shut out too.
A holding company can be dormant, but a dormant company still files. From the year of assessment 2014, LHDN requires a company that is dormant or has not started business to register with it and to submit Form E.
Form E is an employer’s yearly return to LHDN about its employees. A dormant company submits Form E even when it has no employees.
A dormant company also submits its income tax return, Form C, for each year of assessment. A dormant holding company or subsidiary still lodges its Annual Return with SSM every year as well.
What Directors in a Subsidiary Structure Must Watch
A director owes duties to each company separately. Under the Companies Act 2016 (text as at 1 August 2022), a director must exercise their powers for a proper purpose and in good faith, in the best interest of the company. The director must also exercise them with reasonable care, skill and diligence. A director who breaches these duties commits an offence carrying up to five years’ imprisonment, a fine of up to RM3,000,000, or both. Where one person sits on the boards of both the holding company and the subsidiary, each board decides in the interest of its own company.
The ban on loans to directors reaches across the group (Companies Act 2016, text as at 1 August 2022).
- No loans to a group director: a company may not lend to a director of the company or of a related company, or guarantee or secure a loan that anyone else makes to such a director.
- A few loans with approval: a company needs a resolution to lend to a director for expenses incurred for it, or towards a home for a director in full-time employment. The resolution is meant to come first, but a private company may pass it within six months after lending, and a public company may pass it at or before its next annual general meeting.
- Loans under an employee loan scheme: a company may lend to a director in full-time employment under an employee loan scheme it has approved by resolution. A loan under the scheme needs no approval of its own.
- No exempt private company exception for a subsidiary: the ban does not apply to an exempt private company. A subsidiary can never be one, so the exception never applies to a subsidiary. The guide to exempt private companies covers the status in full.
Companies in the same group, whether parent companies or subsidiaries, can deal with each other, lend to each other and charge each other for goods, services and the use of assets.
A director with a personal interest in a dealing between group companies has to disclose that interest. The group’s company secretary can confirm what approval the dealing needs.
Limited liability protects the shareholders, but a director can still be personally liable in three cases.
- Unpaid EPF contributions: where a company leaves EPF contributions unpaid, its directors are jointly and severally liable with the company for them (Employees Provident Fund Act 1991, as at 1 July 2022).
- A personal guarantee: banks often ask the directors of a small company to guarantee its borrowing personally. A director who signs a personal guarantee is liable under it whatever the company’s structure. Bank Islam’s SME Contract Financing-i, for example, asks directors for a joint and several guarantee. The requirement applies to that bank’s own product.
- After striking off: when a company is struck off, the liability of every director, officer and member continues and may be enforced as if the company had not been dissolved (Companies Act 2016, text as at 1 August 2022).
Whether a Subsidiary Still Counts as an SME for Grants
A subsidiary does not count as an SME, however small it is, if its holding company falls within SME Corporation Malaysia’s exclusions. SME Corporation Malaysia’s definition, in effect from 1 January 2014, excludes entities listed on the main board. The definition also excludes subsidiaries of main-board listed companies, of large firms, of multinational corporations (MNCs), of government-linked companies, of Syarikat Menteri Kewangan Diperbadankan and of state-owned enterprises.
The size test applies on top of the exclusions. An SME in manufacturing has sales turnover of no more than RM50 million or no more than 200 full-time employees. An SME in services and other sectors has sales turnover of no more than RM20 million or no more than 75 full-time employees.
A business counts as an SME if it meets either criterion, whichever is lower.
SME Corporation Malaysia measures each company on its own sales and staff, not its group’s.
A subsidiary of an unlisted company can therefore be an SME, as long as its holding company is not a large firm or another kind of company the exclusions name.
Selling or Closing a Subsidiary
A subsidiary leaves its group when the holding company sells its shares in it. The shares change hands through an instrument of transfer, on which stamp duty is paid. The company whose shares were sold then updates its register of members and notifies SSM of the change.
A dormant subsidiary can be closed by applying to SSM to strike it off, under section 550 of the Companies Act 2016 and SSM’s guideline of 9 June 2017, revised 14 July 2026.
- Check that the subsidiary qualifies. SSM accepts the application only where the company:
- has no assets and no liabilities
- has no outstanding charges, penalties, compounds or tax, with a tax clearance obtained where it has operated
- has its records at SSM up to date
- is in no legal proceedings
- has made no return of capital to shareholders
- is not a holding company
- is not a guarantor corporation
- has not declared or paid a dividend, according to its last audited financial statements
- Pass the members’ resolution. SSM accepts the application only where the members have resolved to apply.
- Get the shareholders’ consent. A wholly-owned subsidiary attaches a consent letter from its holding company, signed by one of the holding company’s directors on the holding company’s letterhead. Any other subsidiary attaches consent letters from all its shareholders.
- Declare there is no investigation. Both the subsidiary and its holding company declare that, to the signatories’ knowledge, they are under no investigation or prosecution.
- Apply through CRS. The application is made through CRS, and SSM’s fee is RM100.00.
A company that is a holding company cannot be struck off. It winds up voluntarily instead.
So a group that is closing down closes its subsidiaries before the holding company, or winds the holding company up.
Other Questions About Subsidiary Companies in Malaysia and Their Holding Companies
A subsidiary or a holding company in Malaysia is not an LLC, because LLC is not a Malaysian company form. The private company limited by shares, the Sdn Bhd, does the job the LLC label describes, limiting its owners’ liability to their shares. Most subsidiary companies and parent companies in Malaysia take that form. The word corporation in the definition of a holding company is a general term for a body corporate, a Sdn Bhd included.
A holding company can employ staff and pay salaries, because it is a company like any other. As an employer it registers with SOCSO and EPF.
A director who draws a salary from their own Sdn Bhd is generally treated as the company’s employee for EPF. The company therefore registers and contributes for them.
An unlisted investment holding company deducts salaries only as permitted expenses, under a formula in the Income Tax Act 1967 (as at 1 November 2023). The formula caps the deduction at 5% of its gross income from dividends, interest and rent.
To check who owns a company, or whether it is a subsidiary, buy its Company Profile from SSM. Anyone who buys a company’s information from SSM can also look up its directors, shareholders and registered office address. SSM sells the Company Profile through its e-Info and MyData portals.
Control through the board or through voting rights may not show in a profile, so a company can be a subsidiary without a majority shareholder appearing in its profile.
What to Settle First When You Create a Subsidiary or Run a Group
A subsidiary is a company of its own, with its own filings, its own tax return and directors who owe their duties to it. The group’s tax advantages come with thresholds a small group may not meet. Group relief needs more than RM2,500,000 of paid-up capital in each company. Dividends that pass tax-free between companies can be taxed at 2% once an individual shareholder’s dividends go above RM100,000 in a year. The exit is worth planning from the start, because a holding company cannot be struck off. A subsidiary whose last audited financial statements show a dividend declared or paid cannot apply to be struck off either.
