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23 JAN 2024
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11:34 AM

What is the Definition of an SME in Malaysia?

Small and medium-sized enterprises (SMEs) make up the backbone of our economy. Malaysia has over 1 million registered SMEs in various sectors such as agriculture, manufacturing, services and others. According to data by SME Corporation Malaysia and the Department of Statistics Malaysia (DOSM), SMEs employ almost 70% of the workforce in the country and contribute around 38.3% to Malaysia’s Gross Domestic Product (GDP). In 2020, SMEs also accounted for approximately 18.6% of the country’s total exports.

Given the significant roles they play in job creation and economic output, efforts have been made to improve access to financing for SMEs so that they continue thriving. One milestone achievement, led by the National SME Development Council (NSDC), was to introduce a common basis of SME definitions. This ensures that SMEs are easily identified across various industries and can benefit from targeted assistance such as development policies, support programmes, as well as technical and financial help. 

The criteria used in defining SMEs are based on annual sales turnover and number of employees of the SMEs. A broad definition of SMEs is provided, along with specific definitions for micro, small and medium enterprises. Read on to learn how SMEs are defined by key authorities. 

SME in Malaysia – Definition by Ministry of Human Resource

The Ministry of Human Resources (MOHR) takes a personnel-first perspective and categorizes SMEs in Malaysia based on the number of people they employ.

Employee number (Including foreign workers and expatriates)Less than 7576-200Above 200

SME in Malaysia – Definition by Bank Negara Malaysia

According to the central bank and leading financial institution, businesses are considered an SME as long as they meet either the threshold set for annual sales turnover OR in terms of number of full-time employees.

SectorAnnual Sales TurnoverFull-Time Employees
Manufacturing<RM50 million<200 workers
Service and Others<RM20 million<75 workers

Whereby in

  • Manufacturing: Sales turnover not exceeding RM50 million OR full-time employees not exceeding 200 workers; and
  • Services and other sectors: Sales turnover not exceeding RM20 million OR full-time employees not exceeding 75 workers.

BNM also provided a more detailed definition by category, namely micro, small and medium, as follows:

Source: Bank Negara Malaysia

SME in Malaysia – Definition by LHDN

Next, let’s take a look at how SMEs are defined by Malaysia’s tax authority body. Lembaga Hasil Dalam Negara (LHDN) uses the following guidelines in determining if a company falls within the SME category.

SME refers to business entities that are: 

  1. Incorporated in Malaysia under the Companies Act 2016 (replacing Companies Act 1965)

And registered under:

  1. the Business Registration Act (1956) or Limited Liability Partnership Act (2012)
  2. Authorities or District Office in Sabah and Sarawak
  3. Statutory Bodies for Professional Services Supply

With paid up capital not more than RM2.5 million and yearly sales value not more than RM50 million.

They also provide more details in terms of sectors, that are aligned with BNM’s classifications, below:

  • Manufacturing – The yearly sales should not be more than RM50 million or the full time workers not more than 200 people.
  • Services – Yearly sales should not be more than RM20 million and full time workers not more than 75 people.

The categories are further defined into micro, small and medium by LHDN as follows:

Source: LHDN, Malaysia

Grow as an SME in Malaysia 

Thanks to NSDC’s concerted efforts to standardize what it means to be an SME company in Malaysia, business owners now have more clarity from the tax authorities, human resources and Bank Negara’s perspectives. This in turn allows them crucial access to funding and support from various government agencies and financial institutions that will boost their growth. 

If you’re an SME in Malaysia, here’s a list of tax incentives and deductions that you may be eligible for. 

And if you’re in need of tailored business and financial solutions for small and medium-sized enterprises (SMEs) in Malaysia, including accounting, tax compliance, company incorporation and financial due diligence, Bispoint Group is here to help. Our team of highly skilled professionals can swiftly and expertly implement solutions to meet your business needs. Currently, we have over 70 dedicated teams, including Chartered Accountants, managers, supervisors, and junior associates in our offices serving over 1,000 private companies.

Speak to us to explore how we provide long-term support for your business growth.

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