How to Retain Talent During Malaysia Entity Closure Without Work Visa Issues

If your company is planning to close its entity in Malaysia, one of your biggest concerns is likely this: How do we retain key talent without triggering visa issues, retrenchment penalties, or compliance headaches?

The good news? It's possible to retain your workforce while winding down operations — legally and efficiently. In fact, many regional companies use professional employment services to avoid the administrative and legal complexity of running a local entity.

In this guide, we'll walk you through:

• Understanding Malaysia's entity closure requirements
• Managing employment termination and visa implications
• Using professional employment services as a retention strategy
• Step-by-step process for smooth workforce transition

Why Companies Close Malaysian Entities

There are several reasons Singapore-headquartered or regional companies might choose to shut down a Malaysian entity:

• Cost optimization during economic uncertainty
• Strategic consolidation to simplify operations
• M&A restructuring following acquisitions
• Market pivot toward higher-growth regions

But even during closure, many companies want to retain key employees who are integral to regional operations or product continuity.

That's where it gets complex — particularly when foreign work visas are involved.

Malaysia Entity Closure: The Legal Process

Closing a company in Malaysia requires following procedures governed by the Companies Commission of Malaysia (SSM).

Key steps include:

• Strike-off application or members' voluntary winding up
• Settlement of all debts and liabilities
• Final tax clearance from LHDN (Inland Revenue Board)
• Cancellation of business licenses and permits
• Final audit and statutory filings

For more, refer to the official SSM guidelines: Suruhanjaya Syarikat Malaysia (SSM)

The Visa Complication

When you close your entity, all Employment Passes (EPs), Professional Visit Passes, and Dependent Passes issued under your company must be cancelled.

Official guide on Malaysia work visa cancellation (Immigration Department of Malaysia)

This means that any foreign employee you wish to retain cannot continue working under your Malaysian entity post-closure — unless another legal structure is in place.

Professional Employment Services: The Solution

The cleanest and fastest way to retain employees in Malaysia after closing your entity is to transition them to professional employment services.

A professional employment provider is a third-party entity that legally employs your talent on your behalf in Malaysia. You still manage day-to-day tasks and performance, but the provider handles:

• Employment contracts and HR compliance
• Payroll processing and statutory contributions
• Work permit sponsorship for foreign employees
• Employee benefits and insurance coverage
• Tax and social security obligations

This means you no longer need a local company to retain your Malaysian staff.

Employment Law Compliance During Closure

Under the Employment Act 1955, if you are terminating employees as part of the closure, you must comply with retrenchment laws:

• 30 days' written notice or payment in lieu
• Retrenchment compensation based on tenure
• Outstanding benefits payment (leave, bonuses)
• Consultation process for mass layoffs (20+ employees)

Source: Malaysia Ministry of Human Resources

If you're retaining employees via professional employment services, retrenchment may not be necessary — their employment can be transferred with consent and continuity preserved.

Step-by-Step Talent Retention Strategy

You've built a capable team. Losing them just because of entity closure would be a waste of investment. Here's how to keep your top performers:

Phase 1: Planning (2-3 months before closure)

Don't wait until the last month. Begin the transition 2–3 months before closure for smooth onboarding and visa processing.

Key actions:

• Identify critical employees to retain
• Research professional employment providers
• Estimate transition costs and timelines
• Prepare employee communication strategy

Phase 2: Employee Engagement

Incentivise employees with:

• Job security through continued employment
• Salary protection or enhancement packages
• Career development opportunities
• Transparent communication about the transition

Clearly explain:

• Why the entity is closing
• How their employment will continue
• What changes (if any) to expect
• Timeline for the transition

Phase 3: Legal Transition

For foreign staff, check:

• Current visa validity and renewal requirements
• Transfer procedures to new employer
• Documentation needed for immigration
• Timeline for work permit applications

AYP Group can help navigate this with our immigration and payroll advisory teams.

Phase 4: Operational Handover

Once you begin winding down:

• Transfer employee records to the provider
• Complete final payroll under your entity
• Issue tax clearance letters to employees
• Cancel existing work permits and benefits

LHDN Guidelines on Employee Tax Clearance

If you move to professional employment services, these responsibilities transfer to the provider immediately upon transition.

Comparing Your Options

Here's a quick comparison:

Success Story: SaaS Company Transition

A Singapore-based SaaS firm closed its Malaysian Sdn Bhd due to consolidation but wanted to retain its product and QA teams in Kuala Lumpur.

Problem: The entity held all EPs, and cancellation would force foreign team members to leave.

Solution:

• Partnered with AYP Group for professional employment services
• Transitioned 12 employees (8 local, 4 foreign) over 30 days
• Maintained full salary and benefits continuity
• Processed new work permits under AYP's sponsorship

Within 30 days, AYP Group helped:

• Transfer all employment contracts seamlessly
• Obtain new EPs for foreign employees
• Continue payroll without interruption
• Maintain full compliance with Malaysian labor law

Result:The team continued their work without disruption — and the company avoided thousands in retrenchment payouts and administrative penalties.

Learn more about AYP's professional employment solutions

Your Next Steps

Shutting down a company in Malaysia doesn't mean losing your workforce.

With the right compliance strategy and an experienced professional employment provider, you can:

• Retain critical talent without entity overhead
• Maintain business continuity during restructuring
• Reduce compliance risk through expert management
• Preserve team relationships and institutional knowledge

Need support transitioning your team or understanding professional employment options?

Talk to our Malaysia employment specialists at AYP Group — we'll help you retain your team with zero compliance risks.