Malaysia company formation is challenging because of bureaucratic incorporation procedures. The government cost to complete Malaysia company registration varies from US$300 to US$21,000, depending on the company's authorised and issued share capital. Confirming Malaysia's reputation as a challenging place to do business, the World Bank's Doing Business 2010 Survey ranks Malaysia as the world's 23rd-easiest place to conduct business. Additionally, Malaysia ranks 24th on the World Economic Forum's Global Competitiveness Report 2009-2010.

Entrepreneurs choosing Malaysia company formation to do international trade are restricted by limited Malaysian trade agreements. For example, despite being a member of the World Trade Organisation (WTO), Malaysia signed free trade agreements (FTAs) with only Japan and Pakistan, while FTAs with Australia, Chile, New Zealand, South Korea and the USA are under negotiation. Malaysia's economic restrictions are noted in the 2010 Index of Economic Freedom by The Heritage Foundation, where it ranks 59th globally.

Despite the above, international entrepreneurs considering Malaysia company formation find the Malaysian manufacturing sector unattractive for investment, because the manufacturer is obliged to a) meet pre-agreed performance targets b) use local raw materials in the manufacturing process and c) transfer technology to local Malaysian businesses.

Malaysia company formation is stimulated be the government's aims to attract inward investment through a) the Malaysian Industrial Development Authority (MIDA) and b) the Multimedia Super Corridor (MSC). Examples of government incentives for international entrepreneurs include:

i) Tax exemptions for qualifying companies – a Malaysian company can apply for Pioneer Status, under which it enjoys tax exemption on 70% of its income for the first five years of operation. The remaining 30% income is taxed at the standard corporate tax rate of 27%. In some sectors, for example biotechnology or information communications technology (ICT), 100% income tax exemption is available for up to 10 years. Applications for Pioneer Status are lodged with MIDA or the MSC, depending on the business activity of the investment and its location. For example, the MIDA typically handles foreign investment applications for manufacturing sectors, while the MSC handles investments in the Multimedia Super Corridor, an area of land south of the capital city Kuala Lumpur.

ii) Investment Tax Allowance (ITA) – a company granted an ITA can, for the first five years after ITA approval, set off an amount equal to a percentage of the capital expenditure incurred on a factory and machinery against its taxable profits. For example, a company which engages in a promoted activity (e g an emerging technology) is eligible for an ITA of 60% on capital expenditure. A company providing research and development (R&D) services within Malaysia is eligible for an ITA of 100% on capital expenditure incurred within 10 years of approval. A company enjoying Pioneer Status (see above) is not eligible to apply for ITA. Applications for ITA are lodged through the MIDA or the MSC.

In 2007 foreign direct investment into Malaysia reached US$9.5 billion (US$6 billion in 2006), the highest level in 10 years. Major global corporations such as Intel, Microsoft and Motorola expanded operations in Malaysia in 2007. Consequently, demand for Malaysia company start up is growing, and more than 750,000 private limited companies are currently incorporated in Malaysia.