COUNTRY
Malaysia
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.
Corporate tax is one of the primary forms of taxation in Malaysia.
Non-resident Companies are charged a flat 24%.
Resident companies are taxed 17% for the first RM 600,00 and 24% for profits over RM 600,000.
Generally, the corporate tax rate in Malaysia is 24%.
The Malaysian government has also signed multiple double-tax agreements with other countries.
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.
TAX INCENTIVES IN MALAYSIA 2023
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 –
SME is taxed at 17% for the first RM 500,000 and 24% on the subsequent balance
Taxes are exempt for newly incorporated companies in the first two years
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 –
| 10% on Goods | SST is charged on all goods throughout the supply chain to the final consumer and is not deductible. |
| 6% on Services | Services are only subject to SST when supplied to the non-tax registered final consumer. Example of services in this category includes hotels and lodging, flights within Malaysia, Electricity, Accounting, and legal services, among many others. |
| 5% on Selected Category | Examples of items within this category include foodstuff, petroleum-related, materials used for construction, and materials used for printing hardware. |
OTHER TAXES IN MALAYSIA
Real Property Gains Tax
Malaysia imposes a property gains tax of 30% if the gains arise on a sale of real property, including land, buildings, or shares of a real estate company, within three years of acquisition.
Petroleum Income Tax
Malaysia does practice Petroleum income tax. These are imposed at the rate of 38% on the income from petroleum operations in Malaysia. The government also imposes an income tax rate of 25% on income from petroleum operations in Marginal fields. No other taxes are imposed on petroleum-related operations.
Local Income Taxes
Malaysia does not practice the implementation of provincial, local, and state taxes on income generated in Malaysia.
Withholding Tax in Malaysia
Withholding tax is the tax the company has to withhold when making payments of certain types of income generated by a foreign company.
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.
Relin Consultants can provide tax planning and restructuring advice for Malaysia Companies to achieve tax optimization. Reach out to us at enquiry@relinconsultants.com.
FAQs
How to calculate corporate tax Malaysia?
Corporate tax in Malaysia is generally computed by assessing the company’s chargeable income multiplied by the prevailing corporate tax rate of 24%. However, do note that there are multiple tax incentives available. Hence the final corporate tax might be lower.
How much is the corporate tax in Malaysia?
The corporate tax rate in Malaysia ranges from 17% to 24%, depending on the company’s revenue and share capital.
What is the 2023 corporate tax rate?
The 2023 corporate tax rate in Malaysia is 24%.
Why is corporate tax important in Malaysia?
Most countries rely on taxation as a primary source of income. Companies failing to make corporate tax payments in Malaysia will be subjected to penalties and fines by the tax authorities.
How can companies file corporate income tax in Malaysia?
Companies can either e-file corporate taxes or engage a professional firm such as Relin Consultants to assist with tax computation and tax filing.
What are the key tax incentives for companies in Malaysia?
Pioneer Status (PS) and investment tax allowance (ITA) are the key incentives for companies in Malaysia. The incentive is provided in the form of tax exemption of up to 70% for qualifying companies that are granted status for 5 or 10 years.
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