Doing Business in Sabah & Sarawak 2026: Why Your Employment Pass Is Not Valid in East Malaysia — Immigration Autonomy, the RM3,000 Sarawak Salary Floor, the Non-Resident Employee Licence, UPKJ/PUKONSA and State Sales Tax

A foreign company sets up its Sdn Bhd in Kuala Lumpur, obtains an Employment Pass for its country manager, wins a contract in Bintulu or Kota Kinabalu, and flies the manager over to start work. Every step of that sequence is correct except the last one — because the Employment Pass is not valid in Sabah or Sarawak. That is not an interpretation; it is what Malaysia's own Expatriate Services Division states on the face of its Employment Pass page. East Malaysia operates as a separate immigration jurisdiction, constitutionally entrenched under the Malaysia Agreement settlement and given effect by a dedicated Part of the Immigration Act. The consequences run further than most investors expect: Sarawak sets its own expatriate salary floor of RM3,000 rather than the federal NEEP tiers; both states require a Licence to Employ Non-Resident Employee — and under the statutory definition, a Peninsular Malaysian counts as a non-resident employee; contractors need a state registration on top of CIDB; and each state levies its own sales tax under its own ordinance. This guide sets out what actually applies when a foreign-owned company operates across the South China Sea.

Why East Malaysia is a separate immigration country in all but name

The autonomy is not administrative convenience — it is constitutional. Two provisions of the Federal Constitution do the work:

• Article 161E(4) provides that rights and powers conferred by federal law on the Government of Sabah or Sarawak "as regards entry into the State and residence in the State and matters connected therewith" are treated as if embodied in the Constitution. In practice this means those powers cannot be amended without the concurrence of the Yang di-Pertua Negeri of the state concerned. Immigration autonomy is entrenched, not delegated.
• Article 9(3) qualifies the general right of every citizen to move freely throughout the Federation: so long as a State is in a "special position", Parliament may impose restrictions on movement and residence as between that State and the others. This is the constitutional permission for Sabah and Sarawak to control entry even by Malaysian citizens.

The machinery sits in Part VII of the Immigration Act 1959/63 (Act 155), headed "Special Provisions for East Malaysia":

Read s.64(4)(b) alongside the Expatriate Services Division's own description of the Employment Pass — that "the pass is only valid in Peninsular Malaysia" — and the position is unambiguous. The Immigration Department of Malaysia states the same for workers generally: applications for foreign workers to work in Sabah and Sarawak are subject to the jurisdiction of the respective State Governments according to their established procedures.

Sarawak: GENESIS, the RM3,000 floor and the Hiring Outcome Report

Sarawak has consolidated its expatriate and labour processes into GENESIS — the Gateway and Employment for Non-Sarawakians via Sarawak's Integrated System. It has four modules, and knowing which one applies saves weeks:

• EXPRT — Expatriate Platform for Recruitment and Talent: expatriates and professional visit passes.
• SANSOLS — Sarawak Advanced Non-Sarawakian Online Labour System: general and skilled workers, and the labour licence.
• HAVEN — foreign domestic helpers.
• EVDR — eVisa Dengan Rujukan (visa with reference).

Applications are lodged through ALIANCE, the Advanced Labour and Immigration Aligned for Compliance platform.

Before the pass application, most employers must clear the Hiring Outcome Report (HOR), issued through the JobSarawak platform. The employer must advertise the position on JobSarawak for a minimum of fourteen (14) days; the HOR then confirms eligibility to proceed in EXPRT. Four categories are exempt from the advertising requirement: Key Post, Shareholder, Specialist and Cross-posting. Once approved, the Approval Letter issued in EXPRT is valid for one month from issuance, within which the eVDR application must follow — a short fuse that catches employers who obtain approval before the candidate's travel is settled.

Sarawak's RM3,000 versus the federal NEEP tiers

This divergence deserves its own section because it produces genuinely counterintuitive planning outcomes. Malaysia's revised federal Employment Pass salary policy — approved by Cabinet on 17 October 2025 and effective 1 June 2026 — restructured the peninsular regime:

Sarawak publishes a single Employment Pass classification with no EP I/II/III equivalent, and a salary floor materially below the federal EP III minimum. Two cautions apply. First, neither the ESD announcement nor MIDA's Employment Pass guidelines contain any statement extending the NEEP tiers to Sarawak, and no official Sarawak statement on alignment has been published — so the divergence should be monitored rather than assumed permanent. Second, a lower salary floor is not an invitation to relocate a peninsular hire on paper: the pass is tied to a real position with a real employer in Sarawak, and the HOR advertising requirement tests whether a Sarawakian could fill it.

For context on the federal regime that applies on the peninsula, see our detailed guide to the NEEP salary thresholds, duration caps and succession plans. Note also that MIDA's guidelines effective 1 June 2026 set minimum paid-up capital for expatriate posts approved through the MIDA route at RM250,000 for wholly Malaysian-owned companies, RM350,000 for joint ventures and RM500,000 for wholly foreign-owned companies, with a Key Post additionally requiring foreign paid-up capital of at least RM1 million.

Sabah: real autonomy, thin published guidance

Sabah's constitutional and statutory position is identical to Sarawak's — the same Part VII, the same separate Director of Immigration, the same State Authority powers. What differs is transparency. Sabah has not published a consolidated expatriate guideline comparable to Sarawak's GENESIS pages.

Three pass types are confirmed by name in official Immigration Department Sabah documentation:

• Pas Kerja Ekspatriat (PKE) — Expatriate Work Pass.
• Pas Kerja Malaysia (PKM) — Malaysia Work Pass.
• Pas Lawatan Ikhtisas (PLIK) — Professional/Specialist Visit Pass. Applications for PLIK in Sabah and Sarawak are evaluated through committees established by the respective states.

We have deliberately not stated a Sabah minimum salary, paid-up capital figure or local-equity requirement for expatriate posts, because no such criteria are officially published. Malaysia Productivity Corporation records a workshop held in June 2025 convened specifically to draft guidelines and improve procedures for PKE, PKM and PLIK applications in Sabah, citing processing-time constraints and a lack of document standardisation — which indicates no consolidated published guideline existed at that point. Companies planning a Sabah operation should engage the Sabah State Immigration Department and the Sabah Labour Department directly and treat any figure circulating in secondary sources as unconfirmed. The only officially documented local-status requirement we located anywhere in Sabah's business regime is in contractor registration, discussed below.

The trap that has nothing to do with foreign nationality

This is the single most under-appreciated compliance requirement in East Malaysia, and it catches Malaysian companies as often as foreign ones.

The Labour Ordinance (Sarawak Cap. 76), section 119 and the Labour Ordinance (Sabah Cap. 67), section 118 are mirror provisions:

"No person shall employ any non-resident employee unless he has obtained from the Director a Licence to Employ Non-Resident Employee."

The definition is where it bites. In both ordinances, a "non-resident employee" means any person who does not belong to Sarawak (or Sabah) as provided for in section 71 of the Immigration Act 1959/63. Section 71 turns on residence in the State, not on citizenship.

The consequence: a Malaysian citizen from Kuala Lumpur, Penang or Johor is a "non-resident employee" in Sarawak and in Sabah. An employer who posts a peninsular staff member to a Kuching or Kota Kinabalu office needs a Licence to Employ Non-Resident Employee for that person — a requirement with no equivalent anywhere in Peninsular Malaysia and no connection to foreign nationality.

In Sarawak the process runs in two stages: an Approval in Principle (AP) establishing the quota, then the Labour Licence issued against it. Licence validity is one year for construction workers and certain skilled categories, and two years for other sectors. Maximum cumulative renewal is ten years for plantation and six years across other MSIC codes — a hard ceiling that should be built into long-term staffing plans rather than discovered at the final renewal.

Both ordinances were amended in 2025 — the Labour Ordinance of Sarawak (Amendment) Act 2025 (Act A1754) came into operation on 1 May 2025 save for Part IVA, and a corresponding Act A1753 was gazetted for Sabah. The amendments broadly move both ordinances toward the coverage model adopted federally in the Employment Act 1955, but employers should verify the specific entitlement thresholds against the gazetted text rather than against summaries, as the detail differs from the peninsular position. For the federal comparison, see our guide to Employment Act 1955 compliance for foreign employers.

State business licensing sits on top of SSM, not instead of it

Company incorporation remains federal: a Sdn Bhd is registered with SSM under the Companies Act 2016 whether it operates in Klang or Kuching. State licensing is an additional layer.

• Sarawak — the Businesses, Professions and Trades Licensing Ordinance (Cap. 33) provides for the licensing and taxation of trades and gainful occupations. Trading licences run one year from issue, with the annual fee payable in half-yearly instalments. Note the liability provision: proprietors are jointly and severally liable for the tax as a civil debt to the Government of Sarawak "whether or not a licence has been issued" and whether or not payment has been demanded — operating without the licence does not avoid the charge. Sarawak also maintains its own Business Names Ordinance (Cap. 64), distinct from the federal regime. Local authority licences — premises, signage, food, entertainment — come from councils such as DBKU in Kuching.
• Sabah — the Trades Licensing Ordinance (Cap. 144) is applied by local authorities such as DBKK, supplemented by the Local Government Ordinance 1961 Uniform (Licensing the Use of Premises for Trade, Business, Industry and Profession) By-laws 2022.

We found no official source imposing a general requirement for a local branch office, a local director, or minimum local equity merely to operate in either state. The verified localisation gates are sector-specific rather than general — which is a meaningful finding, because a general local-partner requirement is frequently asserted in secondary commentary and would materially change deal structures if true.

Contractors: CIDB is necessary but not sufficient

A persistent myth holds that CIDB registration does not apply in East Malaysia. It is wrong. Section 1(2) of the Construction Industry Development Board Act 1994 (Act 520) states that the Act "shall apply throughout Malaysia", subject only to the Minister's power to suspend provisions in any part. Registration has been mandatory since 20 July 1995, and section 25(1) prohibits carrying out construction work or holding oneself out as a contractor without a valid CIDB certificate — an offence carrying a fine of not less than RM10,000 and not more than RM100,000 under section 29.

What is true is that CIDB alone is not enough for state government procurement. Federal Ministry of Finance guidance sets the requirement as CIDB registration (PPK) plus the state certificate: PUKONSA in Sabah or UPKJ in Sarawak stands in place of the SPKK, not in place of CIDB registration itself.

UPKJ — the Unit Pendaftaran Kontraktor dan Juruperunding — sits within the Procurement Division of the Sarawak State Financial Secretary's Office and registers both contractors and consultants across Works, Mechanical, Electrical, Supply and Services. Applications go through the OLAM platform. Certificates are valid two years, and UPKJ registration has been required for Sarawak State Government procurement since 1 January 1997. A CIDB certificate is mandatory for Works, Mechanical and Electrical registration (Mechanical requires CIDB category ME) but not for Supply and Services, and a NIOSH Contractor Safety Passport course is mandatory for the works categories. Electrical classes use Roman numerals I–VI rather than the letter scale.

PUKONSA — the Pusat Pendaftaran Kontraktor Kerja, Bekalan dan Perkhidmatan Negeri Sabah — sits within the Sabah State Ministry of Finance, with applications through the ePUKONSA portal. Its published paid-up capital requirements for Sdn Bhd applicants are:

Sole proprietors and partnerships face no paid-up capital requirement but must evidence bank balances at the same thresholds. The CIDB licence appears as a mandatory checklist item. Critically, Class F requires a Sijil Pengiktirafan Perniagaan Anak Negeri Sabah — a native-status business recognition certificate — which is the one verified, genuinely localised gate in either state's contractor regime. Foreign contractors should also note that a foreign contractor's CIDB certificate is project-specific: non-transferable, and unusable for other tenders. Our guide to CIDB foreign contractor registration covers the federal side in detail.

Two more sales taxes you did not budget for

Under the Tenth Schedule, Part V of the Federal Constitution, Sabah and Sarawak have additional assigned revenue sources — including their own sales taxes, which operate independently of the federal Sales Tax Act 2018 and Service Tax Act 2018. A taxpayer can face both.

One point of correction worth making, because the error appears widely: there is no "LHDN Sarawak" administering state sales tax. Sarawak's tax is administered by the Comptroller through the state's own e-SST filing portal, entirely outside the federal Inland Revenue Board structure. A company with commodity, energy, plantation or mining exposure in either state must budget for this as a genuinely separate registration, filing calendar and liability.

Incentives: SCORE is live, SDC needs checking

Sarawak — SCORE. The Sarawak Corridor of Renewable Energy is administered by RECODA, a state statutory body established under the Regional Corridors Development Authorities Ordinance 2006. It covers over 100,000 km² from Tanjung Manis to Limbang, with the Samalaju Industrial Park (8,000 hectares, 60 km from Bintulu) as its manufacturing anchor and four trigger industries: steel and metals, aluminium, glass, and oil and gas. Between 2009 and 2024 SCORE attracted approximately RM123 billion in investment and 53,829 jobs. It remains active in 2026, aligned with — not replaced by — the Post-COVID Development Strategy 2030, which targets Sarawak GDP growth from RM136 billion in 2019 to RM282 billion by 2030.

An important structural point: the tax incentives in SCORE are the federal MIDA instruments — Pioneer Status at 70% or 100% income tax exemption for 5 to 10 years, Investment Tax Allowance at 60% or 100% of qualifying capital expenditure, infrastructure allowance, and import duty and sales tax exemption on machinery. What the state itself adds is not tax relief but competitive land pricing, electricity tariffs and water rates — which for energy-intensive manufacturing is often the larger number, but is negotiated commercially rather than claimed on a tax return.

Land: the area to take advice on, not guidance from articles

Land is a State List matter under the Ninth Schedule, which is precisely why the rules diverge. Sarawak operates under the Sarawak Land Code (Cap. 81) and Sabah under the Land Ordinance (Sabah Cap. 68), each with its own classification system and its own regime of native customary rights — an area with substantial and contested case law.

We are deliberately not publishing a minimum foreign purchase price for either state. The federal Guideline on the Acquisition of Properties applies on the peninsula, but we could not verify a published Sabah or Sarawak general threshold from an official state source, and figures circulating in secondary commentary should not be relied upon. The one officially published Sarawak figure we located relates to the S-MM2H programme, which requires residential property of at least RM600,000 in the Kuching Division alongside a fixed deposit of RM500,000 with a bank in Sarawak — that is an immigration programme condition, not a general foreign-purchase threshold, and must not be read across.

Whether and how a company may lease or acquire NCR land in Sarawak, or native title land in Sabah, is a question for a Sarawak- or Sabah-qualified land lawyer on the specific parcel. It is not a question to answer from a guideline summary.

Where foreign companies actually get caught

• The peninsular pass assumption. An Employment Pass is obtained through ESD and the manager flies to Kuching. The pass does not authorise work there, and the fix is a fresh state application from the beginning.
• The Malaysian staff assumption. A KL-based employee is posted to a Kota Kinabalu branch with no labour licence, on the reasoning that they are a Malaysian citizen. Under Cap. 67 s.118 they are a non-resident employee.
• The Approval Letter expiry. The Sarawak Approval Letter is obtained early to "get it done", then lapses at one month before the candidate's travel is arranged.
• Skipping the Hiring Outcome Report. The EXPRT application is attempted without the fourteen-day JobSarawak advertisement, and without qualifying for one of the four exemptions.
• CIDB-only bidding. A contractor with a valid CIDB grade tenders for state government work in Sabah or Sarawak without PUKONSA or UPKJ registration, and is not eligible.
• The renewal ceiling. A Sarawak labour licence is renewed annually without anyone tracking the six-year cumulative maximum, until a key worker cannot be renewed.
• Missing state sales tax. A commodity or energy business registers for federal SST and never registers for the state tax, which is a separate statute with a separate administrator.
• Sabah figures from secondary sources. An investment case is built on a Sabah expatriate salary threshold or land price that no official source publishes.

Getting the sequence right

East Malaysia rewards companies that treat it as a distinct jurisdiction and punishes those that treat it as a region. The workable order is: decide early whether the operation genuinely needs people resident in the state, because that single decision triggers the entire state regime; incorporate federally with SSM as normal; then run the state workstream in parallel — the labour licence under Cap. 76 or Cap. 67 for every non-resident employee including peninsular Malaysians, the immigration pass through GENESIS or the Sabah State Immigration Department, and the state trading licence under Cap. 33 or Cap. 144. For construction, add the CIDB registration and the UPKJ or PUKONSA certificate as a pair. For commodity, energy or plantation activity, add state sales tax registration. And for anything involving land or incentives, confirm the current position with the state authority directly rather than from published summaries — the areas where official publication is thinnest are precisely the areas where the assumptions are most expensive.

ONEKEY BIZ supports foreign-owned companies expanding into Sabah and Sarawak across the whole sequence — incorporation, expatriate work passes and immigration, labour licensing, contractor registration and state tax compliance. If you are bidding for work, opening a branch or posting staff to East Malaysia, talk to our team before the deployment date is committed — the state approvals run on their own clock, and it is not the federal one.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.