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 an Employer of Record (EOR) to avoid the administrative and legal complexity of running a local entity.

In this guide, we’ll walk you through:

• How to close a company in Malaysia
• Implications on Malaysia work visas and employment passes
• Retrenchment and termination compliance under the Malaysia Employment Act 
• Workforce retention strategies during wind-down 
• How to retain employees legally without maintaining a local entity 

Why Companies Are Closing Entities in Malaysia

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

• Cost reduction due to overhead in managing multiple subsidiaries 
• Restructuring or M&A activity 
• A strategic pivot in business direction
• Moving from a local entity model to a global EOR model for leaner operations 

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.

Step-by-Step: How to Close a Company in Malaysia

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

Key Steps to Close a Company in Malaysia:

1. Determine Closure Type

• Voluntary winding-up (Members or Creditors’ Voluntary) 
• Strike-off under Section 550 of the Companies Act 2016   

‍2. Settle All Debts and Liabilities

• Including outstanding taxes with the Inland Revenue Board (LHDN), EPF, SOCSO, and HRDF.

3. Notify Employees

• Proper notice and compensation must be given under the Malaysia Employment Act. 

4. Submit Final Audited Accounts

• Final accounts and tax clearance are required.

5. Submit Application for Strike-Off

• To the Companies Commission of Malaysia.

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

What Happens to Foreign Employees on a Malaysia Work Visa?

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

Malaysia EP Cancellation Process:

• You must submit the cancellation request to the Expatriate Services Division (ESD) or MDEC (for digital companies) 
• Return the original EP card to the Immigration Department 
• The cancellation is usually processed within 5–10 working days 
• The employee is required to exit Malaysia within 30 days unless another valid pass is issued 

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.

Can You Retain Talent Without a Local Entity? Yes — With an EOR

The cleanest and fastest way to retain employees in Malaysia after closing your entity is to transition them to an Employer of Record (EOR).

An EOR 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 EOR handles:

• Work visa sponsorship
• Local compliance
• Payroll and statutory contributions
• Contracts aligned with Malaysian labour laws

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

Explore AYP Group’s Malaysia EOR Services

Compliance Requirements: Malaysia Employment Act & Retrenchment

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

Malaysia Employment Act Retrenchment Obligations:

• Notice Period: 4–12 weeks depending on tenure 
• Termination Benefits (for employees with ≥12 months service):
  • 10 days’ wage/year (1–2 years)
  • 15 days’ wage/year (2–5 years)
  • 20 days’ wage/year (>5 years)
• Report to Authorities: Submit the Borang PK to the Labour Department (JTK) 

Source: Malaysia Ministry of Human Resources

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

Key Workforce Retention Strategies During Entity Wind-Down

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:

1. Transition Talent to an EOR Early

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

2. Offer Retention Incentives

Incentivise employees with:

• Completion bonuses
• Remote work flexibility
• Job continuity under a trusted EOR

3. Transparent Communication

Clearly explain:

• Why the entity is closing
• That jobs are not being terminated, but restructured 
• What the new arrangement via EOR entails

4. Consult on Immigration Options

For foreign staff, check:

• Eligibility for EOR-sponsored EP 
• Whether family visas (Dependent Passes) will be affected

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

What to Do with Payroll, Tax, and Statutory Contributions?

Once you begin winding down:

• Cease EPF/SOCSO/HRDF contributions after final payroll 
• File tax clearance for all employees and obtain CP21 (for foreigners) 
• Prepare and issue final EA forms for tax reporting 

LHDN Guidelines on Employee Tax Clearance

If you move to EOR, these responsibilities transfer to the EOR provider immediately upon transition.

Why Use an Employer of Record When Closing an Entity?

Here’s a quick comparison:

Case Study: Retaining a 10-Person Tech Team Post-Closure

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:

Within 30 days, AYP Group helped:

• Transfer 8 Malaysian nationals and 2 foreign EP holders to our Malaysia EOR entity
• Ensure no employment break
• Secure new EPs under our sponsorship
• Set up payroll, statutory filings, and benefits

Result:

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

Learn more about AYP's Employer of Record (EOR) solution

Final Thoughts: Retain Talent the Smart Way, Even During Wind-Down

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

With the right compliance strategy and an experienced Employer of Record, you can:

• Navigate Malaysia work visa and EP rules
• Avoid retrenchment penalties
• Maintain workforce continuity
• Exit your local entity cleanly and legally

Need support transitioning your team or understanding EOR options?

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