WE’RE HERE TO HELP – CONTACT US NOW!

MALAYSIA CORPORATE TAX

Malaysia, similar to its nearby neighbors, such as Singapore, does not restrict capital repatriation. (i.e., there is no restriction on transferring your Malaysian Company profits back to your home country or any overseas jurisdiction. The Malaysian government has adopted a territorial-based system of income tax.

This means that any income derived from outside sources of Malaysia but remitted by the resident company is exempted from tax. However, some industries, such as insurance and banking, Shipping, and Air transport, are exempted from the territorial tax system.

Tax Residency of a Company

The tax residency of a company is primarily assessed by determining whether the management and control of its affairs or at least one board of directors meeting were exercised in Malaysia. 

Income derived from Malaysia will be subjected to corporate tax at the applicable rates. 

Foreign-sourced income will be exempted from taxation unless the company engages in business activities in the selected sectors.

Year of assessment in Malaysia

The income tax year of assessment in Malaysia is from 1 January to 31 December each year. Malaysia adopts an assessment based on a current-year basis. 

A company will be assessed based on its income arising in its financial year ending in the calendar year that coincides with a particular assessment year. This means the company will be taxed on all sources of income arising in its financial year ending in the calendar year that coincides with that particular year of assessment. 

For example, a company’s financial year end is 30 June 2023.

The company will be taxed on income earned during the financial year ending on 30 June 2023 for the year of assessment 2023.

Corporate income tax return filing requirements and deadlines 

Malaysia companies must submit the corporate income tax return within seventh months from the financial year-end. Income tax payment must also be settled by the last day of the seventh month. 

Estimates of income tax payable for a year of assessment must be filed within 30 days from the beginning of the basis period. Exemptions from filing tax estimates are provided for two assessment years for newly incorporated companies with less than RM2.5 million in paid-up capital. 

A company commencing operations within a year of assessment is exempted from filing tax estimates and installment payments if the basis period is less than six months. The tax authorities encourage users to e-file tax returns. 

Malaysia inland revenue board  LHDN imposes penalties for failure to submit tax returns, incorrect or understating income, late payment of taxes, underestimation of tax estimates, and wilfully or intentionally evading tax. 

Corporate income tax deductible expenses

Generally, tax deductions are allowed for expenses wholly and exclusively incurred in the production of income.

Non-deductible expenses are typical expenses not incurred in the production of income, for example, fines and penalties, registration of trademarks, and non-approved donations.

Malaysian incorporated company with paid-up share capital not exceeding MYR 2,500,000 (US$810,000) is considered an SME based on LHDN guidelines. If your company is eligible and qualified as SME, you will be able to enjoy the following incentives –

Pioneer Status And Investment Tax Allowance

In Malaysia, direct and indirect tax incentives are provided for in the Promotion of Investments Act 1986, Income Tax Act 1967, Customs Act 1967, Excise Act 1976, and Free Zones Act 1990.

Pioneer status or investment tax allowance is awarded to qualifying companies in the agricultural, hotel and tourism, manufacturing, or other industrial or commercial sectors that actively participate in promoting activities or producing a promoting product. 

Pioneer-status companies will be given a five-year exemption from corporate income tax on 70% of the statutory income, and the remaining 30% will be taxed at the standard tax rate of 40%.

Investment tax allowance provides a company an allowance of 60% on its qualifying capital expenditure incurred within the first five years, which is utilized against 70% of the statutory income. The remaining 30% will be taxed at the standard corporate income tax rate.

Reinvestment allowance

Qualifying companies operating for more than 36 months and have spent capital expenditure to expand, automate and modernize their existing manufacturing business or agricultural industry are entitled to the reinvestment allowance incentive. 

The allowances are usually provided for 15 years, with up to 60% of qualifying capital expenditure can be offset against 70% of the statutory income. 

International trading companies

An international trading company incorporated in Malaysia with at least 60% Malaysian ownership, a revenue of at least an RM10million annually, and uses local services and infrastructure to conduct its operations will be entitled to an exemption for five years on an income of 20% of the total export revenue up to a maximum of 70%. 

Sales and Service Tax Malaysia (SST)

The Malaysian government requires resident companies to register for SS if they exceed the annual turnover threshold of RM 500,000. The Malaysia SST rates are as follows –

The following items are exempted from the:

• Dividends declared after Profit.
• Interest from loans to or from which is guaranteed by the Malaysian Government.
• Royalties are subject to terms and conditions.