Are you considering how to reduce your company tax in Malaysia? This is a common concern among business owners, and fortunately, there are ways to minimize your tax burden. However, it is important to first understand the Malaysian tax regulations, which can be complex and require careful consideration.
Corporate taxes in Malaysia are levied on taxable revenue earned by a company while conducting business in the country. The self-assessment system (SAS) is used to compute corporate taxes, replacing the manual tax return and payment process. It is essential to remember that taxable profits are not regarded as company expenditures, and tax is payable on these profits.
Taxable gains are classified into two categories – retained earnings and profit dividends. Retained earnings are profits used to cover expenditures or expand the company, while profit dividends are not included in the Malaysian corporate tax computation.
The standard corporate tax rate in Malaysia is 24%, but there are other rates based on the type of company. For instance, a resident company with a paid-up capital of RM2.5 million or less and a gross income from a business not exceeding RM50 million will have a tax rate of 17% for the first RM600,000.
To reduce your company tax in Malaysia, there are several strategies you can employ, such as taking advantage of available tax incentives, maximizing allowable deductions, and engaging a tax consultant to help you navigate the regulations. Additionally, you can consider restructuring your business to benefit from lower tax rates, such as incorporating a subsidiary in a tax haven country.
Reducing your company tax in Malaysia requires careful planning and execution. With the right strategies in place, you can effectively minimize your tax burden and increase your business profits.
WHAT ARE THE CORPORATE TAX RATES IN MALAYSIA?
- Malaysia’s standard corporate income tax rate is 24%.
- Other corporate tax rates are as follows: –
|No.||Type of company||Tax rates|
|1.||A resident company with a paid-up capital of RM2.5 million or less, and a gross income from a business that is not more than RM50 million.||17% for the first RM600,000|
|2.||A resident company that does not control, directly or indirectly, another company with a paid-up capital that is more than RM2.5 million.||24% after the first RM600,000|
|3.||A resident company that is not controlled, directly or indirectly, by another company with a paid-up capital that is more than RM 2.5 million.|
|4.||A non-resident company.||24%|
WHEN DO I NEED TO PAY THE CORPORATE TAX IN MALAYSIA?
- Newly incorporated companies must file an estimation of tax payable within 3 months of operation and pay monthly installments starting from the 6th month of the assessment year by the 15th of each month.
- After the assessment year ends, a company must file its tax with Lembaga Hasil Dalam Negeri Malaysia (LHDN) via the e-filing system within 7 months.
- If the actual tax liability exceeds the taxes paid based on estimation, the difference must be paid. On the other hand, if your actual tax liability is less than the taxes paid, you can seek a refund.
HOW CAN I REDUCE THE CORPORATE TAX FOR MY COMPANY IN MALAYSIA?
There are two main methods of how you can reduce the corporate tax for your company in Malaysia, which are as follows: –
- Corporate income tax deductible expenses
- Tax incentives
Further explanations of both of these methods can be seen below.
Corporate income tax deductible expenses
- Corporate income tax deductions are permitted for expenses incurred entirely and only in the generating of income. Among the expenses are: –
- Wages and salaries
- Business Insurance
- Advertisement and marketing expenses
- Entertainment expenses
- Maintenance and repair
- Plant and machinery lease rental
- Incorporation expenses
- Recruitment expenses
Are there any non-deductible expenses for a company in Malaysia?
- Among the non-deductible expenses for a Malaysia company are as follows: –
- Penalties and fines
- Trademark registration
- Non-approved funding
- Interest, royalties, contract payments, technical fees, moveable property rental, payment to a non-resident public performer, or other payments made to non-residents that are liable to withholding tax but are not paid.
There are a few tax incentives that your company in Malaysia might be eligible for. Listed below are the ones that we feel are the most common.
Pioneer status and investment tax allowance
- Companies that are in the agricultural, hotel and tourism, manufacturing, or other industrial or commercial sectors that engage in a promoted activity or create a promoted product are eligible for either pioneer status or an investment tax allowance.
- A company that earns the pioneer status receives a five-year exemption from corporate income tax on 70% of its statutory income, with the remaining 30% taxed at the standard corporate income tax rate.
- The investment tax allowance allows a company to receive an allowance of 60% on its qualifying capital expenditure incurred within five years, which is used against 70% of the statutory income. The remaining 30% is taxed at the standard corporate income tax rate.
- Malaysian companies who have been in operation for 36 months or longer and have spent capital to expand, automate, and modernise their current industrial or agricultural company are eligible for the reinvestment allowance incentive:
- Allowance is granted for 15 years from the first year of the claim.
- Allowance of 60% of its qualifying capital expenditure incurred, which can be applied against 70% of the statutory income. The remaining 30% is taxed at the standard rate.
- If the company does not obey the tax regulations, the Ministry of Finance has the authority to revoke the allowance.
Authorized service projects
- Companies that operate in the transportation, communication, utilities and services sub sectors that are approved by the Ministry of Finance can benefit from the following incentives:
- Investment allowance of 60% of the qualifying capital expenditure sustained over five years to be used against 70% of the statutory income, or income tax exemption of 70% of the statutory income over a five-year period.
- Buildings that are used exclusively for such projects are eligible for an industrial building allowance.
International trading companies
- Exemptions for five years on the income of 20% of the total export revenue up to a maximum of 70% may be obtained by international trading companies.
- To be eligible for this particular incentive, the company must fulfill the following conditions: –
- Established in Malaysia with 60% Malaysian ownership.
- RM10 million per year for its minimum revenue.
- Utilizes local infrastructure and services such as banking, finance, and insurance.
- A principal hub is a local organization that Malaysia uses as a platform for performing regional and worldwide commercial activities and operations by managing, controlling, and supporting essential services such as risk management, strategic choices, finance, and human resources.
- The principal hub may obtain the following incentives: –
- New companies – According to the Malaysian Investment Development Authority (MIDA), new companies are subject to a corporate income tax rate of 0% or 5% of statutory income for 5 + 5 years.
- Existing companies –10% of statutory income for 5 years.
- No ownership requirements.
- Versatile foreign exchange policies.
- Exemptions from customs duty on raw materials, repackaging materials and other finished products.
Feeling a bit confused with all the numbers and percentages? Don’t worry, we’ve been there as well. Fortunately for you, Relin Consultants’ are highly qualified in the world of taxation for Malaysian companies, and we are always looking forward to assisting you in your efforts to reduce the corporate tax for your company in Malaysia. Reach out to us for further assistance on how to reduce your company’s corporate tax.
Relin Consultants is a professional firm specializing in Malaysia company registration.
Which business entities are subjected to paying taxes in Malaysia?
According to the Malaysian Inland Revenue Board, all resident and non-resident companies operating in Malaysia are subject to paying corporate tax. Resident companies are those incorporated in Malaysia or have their management and control within the country, while non-resident companies refer to those incorporated outside of Malaysia but have operations within the country.
The current corporate tax rate for resident companies in Malaysia is 24%, while non-resident companies are subject to a 24% tax on income derived from Malaysia. However, non-resident companies may be eligible for reduced tax rates under certain double tax agreements.
Additionally, certain industries in Malaysia, such as the banking, insurance, and oil and gas industries, may be subject to specific tax regulations and exemptions. For example, oil and gas companies may be eligible for tax incentives such as capital allowances and tax holidays.
It’s important for businesses operating in Malaysia to stay up-to-date with the latest tax regulations and requirements to ensure compliance and avoid penalties.
What is the Malaysian corporate tax regulated by?
The corporate tax for companies in Malaysia is regulated or governed by the Income Tax Act 1967, which applies to all companies that are registered in Malaysia.
What is the significance of corporation taxes in Malaysia?
Malaysia’s corporation tax structure is seen as a major contributor to the country’s economic progress. As a result, corporate tax revenue is one of Malaysia’s most important sources of income.