Professional Employer Organization (PEO) vs. Sdn. Bhd.: Which is the Better Option for Hiring in Malaysia?

When expanding into Malaysia, businesses often face a key question: Should you establish a Private Limited Company (Sdn. Bhd.) or engage a Professional Employer Organization (PEO) or Employer of Record (EOR)?

While both options have their advantages, a PEO/EOR is often the more cost-effective, compliant, and efficient solution for businesses seeking rapid market entry. This article outlines why a PEO/EOR might be a better choice for your expansion strategy in Malaysia.

What are PEO/EOR and Sdn. Bhd.?

A PEO/EOR serves as the legal employer for your workforce in Malaysia, managing key responsibilities like payroll, tax compliance, and statutory contributions (EPF, SOCSO, EIS). This allows businesses to operate in Malaysia without registering a separate legal entity.

In contrast, a Sdn. Bhd. is a private limited company requiring formal registration, paid-up capital, and ongoing compliance with Malaysian regulations. While it offers long-term benefits, it also demands significant resources and time to establish and maintain.

PEO/EOR vs Sdn. Bhd. : A Comparison

Criteria	PEO/EOR	Sdn. Bhd
Speed of Market Entry	Immediate market entry as the PEO/EOR handles employment and compliance.	Takes weeks to months due to registration, bank account setup, and regulatory approvals.
Initial Costs	No incorporation fees or paid-up capital; costs are limited to service fees.	Requires incorporation fees, minimum paid-up capital, and other setup expenses.
Ongoing Costs	Service fees typically cover all compliance, payroll, and HR functions.	Recurring costs include company secretarial fees, audit expenses, and tax compliance.
Tax Compliance	The PEO/EOR manages all employee-related taxes and statutory contributions.	Requires filing corporate tax returns and preparing audited financial statements.
Liability	The PEO/EOR acts as the legal employer, assuming responsibility for labor compliance and disputes.	The Sdn. Bhd. bears full legal responsibility for employees and regulatory compliance.
Flexibility	Easy to scale up or down, with no long-term commitment.	Scaling operations or winding down requires compliance with legal and regulatory procedures.
Risk	PEO/EOR assumes legal and compliance risks.	The company bears all risks associated with non-compliance and employment disputes.
Best For	Short-term projects/operations, or market testing.	Long-term investments, establishing a strong local presence, or large-scale operations.

Our Practice for Client Funds

As a professional corporate service provider with payroll expertise, we ensure that clients’ monies are paid into a separate bank account (clients’ account) and kept strictly separate from all other funds. This account is used exclusively for salary payments and invoices related to our EOR services.

This approach is in full compliance with the rules set by the Chartered Tax Institute of Malaysia (CTIM), ensuring transparency and the proper management of client funds.

How to Decide?

Choosing between a PEO/EOR and a Sdn. Bhd. depends on your business goals:

Choose a Sdn. Bhd. if your goal is to establish a long-term presence, or own assets.

Opt for a PEO/EOR if you need a fast, cost-effective, and compliant way to test the Malaysian market or manage short-term projects.

As a professional corporate service provider with payroll and tax expertise , we can provide tailored advice to help you navigate Malaysia’s regulatory and tax landscape, ensuring a seamless and compliant expansion for your business.

Need Help Expanding Into Malaysia?

Expanding doesn’t have to be complicated. As experts in corporate services, payroll, and tax, POSH Corporate provides tailored guidance to help your business navigate Malaysia’s regulatory landscape seamlessly.