What Does "Related Company" Mean in Malaysia?
- Chow Ping
- Jun 30
- 5 min read
What Does "Related Company" Mean in Malaysia?
Ask three different people what "related company" means in Malaysia, and you might get three different (and correct) answers.
Your company secretary might point you to the Companies Act. Your accountant might mention a 20% shareholding rule. And if you've recently dealt with e-invoicing, you've probably seen LHDN ask you to tick "yes" or "no" on the spot, with no clear explanation of what counts.
Malaysian law doesn't have one single definition of "related company." It has several, and which one applies depends entirely on what you're trying to do.
Why this term keeps causing confusion
"Related company" shows up in at least three completely different corners of Malaysian law:
The Companies Act 2016, for general company structure purposes
The Companies (Amendment) Act 2024, for corporate rescue mechanisms
Tax legislation and e-invoicing rules, where the definition depends on shareholding percentages and paid-up capital
Each one was written to solve a different problem. None of them were written with the others in mind. That's why the confusion exists.
Related company under the Companies Act 2016 (the classic definition)
This is the original, most widely known definition.
Under the Companies Act, two corporations are "related" if:
One is the holding company of the other, or
One is a subsidiary of the other, or
Both are subsidiaries of the same holding company
Think of it as a family tree test. Parent and child companies are related. Sibling companies — two subsidiaries sharing the same parent — are related to each other too, even if they've never directly dealt with one another.
This definition matters for general corporate governance: disclosure obligations, director duties, audit independence rules, and how group structures are treated under the Act.
A newer definition, just for corporate rescue (2024 amendment)
In 2024, Malaysia introduced a separate definition of "related company", but only for a specific purpose: corporate rescue mechanisms like restraining orders and judicial management.
Here, a "related company" means a subsidiary, holding company, or ultimate holding company of a "subject company". Meaning a company that has applied to the court for a restraining order.
Why does this exist? Because financial trouble rarely stays contained to one entity. If your main operating company is in distress and applies for protection from creditors, the companies tied to it through shareholding can be dragged into the chaos too.
Receivers, terminated contracts, frozen assets, even though they themselves haven't done anything wrong.
This amendment lets related companies apply for their own restraining order, riding alongside the subject company's protection, provided they play a "necessary and integral role" in the rescue plan and their creditors aren't unfairly prejudiced.
This one's a narrow, specialised provision. Most businesses won't encounter it unless they're already dealing with serious financial distress in the group. But if you are, it's worth knowing it exists.
Related company for e-invoicing and tax purposes (the 20% rule)
This is the definition that's most likely to affect you every time you submit an e-invoice.
For months after e-invoicing rolled out, business owners were stuck guessing what "related company" meant on the form. LHDN finally clarified it in a FAQ update: for e-invoicing purposes, "related company" follows the definition under the Promotion of Investments Act 1986.
Under this Act, a company is related to another in two situations:
One company controls the operations of the other, or
Both companies are controlled by the same person or entity
There's a big that might catch you off guard: if a company holds 20% or more of another company's shares — directly or indirectly — they're automatically considered related. You don't need to prove actual control. The shareholding alone is enough.
A few examples to make this concrete:
If your Sdn Bhd owns 25% of a supplier, that supplier is a related company. Tick "yes."
If a supplier owns 21% of your company, same answer. The direction of ownership doesn't matter. Once either side crosses 20%, they're related.
If both companies hold 20% of each other, they're still related. There's no scenario where mutual 20% stakes cancel each other out.
One important carve-out: this only applies to companies registered under the Companies Act 2016, meaning Sdn Bhd and Berhad entities. Sole proprietorships and partnerships don't count, even if the business is run by your brother, your cousin, or your old uni buddy.
If your supplier is a sole prop sharing your warehouse, you're not required to declare it as related for e-invoicing purposes.
Related company in income tax exemptions (the RM2.5 million rule)
There's a third version of "related company" buried in income tax legislation, and this one exists specifically to stop companies from gaming SME tax incentives.
Certain SME tax perks, like the exemption from submitting an estimate of tax payable in your first two years, or claiming special capital allowances on small-value assets without the usual cap, are reserved for companies with paid-up capital of RM2.5 million or less.
Without a "related company" rule, a larger business could simply split itself into several smaller entities, each one individually staying under the RM2.5 million threshold, and have all of them enjoy SME-level tax breaks.
So the law closes that loophole. Under this rule, a "related company" is one with paid-up capital of more than RM2.5 million.
If more than 50% of your company's paid-up capital is owned by such a related company, or if your company owns more than 50% of a related company, or if a third company owns more than 50% of both, the SME tax exemptions don't apply to you.
The logic: if you're effectively part of a larger group, you don't get small-business treatment.
There's also a newer wrinkle to be aware of. Companies with more than 20% foreign ownership (whether by foreign companies or non-citizen individuals) may also lose access to these specific exemptions, even if they technically qualify as a small company by paid-up capital.
So which definition applies to you?
Here's the short version, depending on what you're dealing with:
Sorting out group structure, governance, or disclosure obligations? Use the Companies Act 2016 holding/subsidiary test.
Dealing with a restraining order or judicial management situation? Use the 2024 amendment's definition, tied to the subject company.
Filling out an e-invoice? Use the Promotion of Investments Act definition — control, or the 20% shareholding rule.
Trying to figure out if your company qualifies for SME tax incentives? Use the RM2.5 million paid-up capital rule, and check the foreign ownership condition too.
Confused by everything you just read? No problem. Let us handle all the complicated bits for you.