• Corporate Tax in Malaysia PHP

In developing countries, corporate taxes are essential as they do not have as much source of revenue for the government as compared to other countries. Malaysia is one of these countries and the establishment of corporate tax helped the country’s economy to grow significantly.

The Malaysian tax system is territorial, and bot residents and non-residents are required to pay taxes on the source of their income.

What is the Corporate Tax in Malaysia

The corporate tax rate for non-resident firms is taxed at a flat rate of 24% regardless of their capital structure. The income is only exempted if they are derived from abroad and remitted into Malaysia.

A company is considered a tax resident if its management and control is defined as the location where the directors meet to discuss the company’s affair. Most tax resident companies are taxed on an annual basis of 24% as well which is a lowered rate as compared to the 30% in 1997.

Corporate tax standard rate24%
Corporate tax rate for resident small and medium-sized enterprises (with capitalization under MYR 2.5 million)17% on the first MYR 600,000

24% above MYR 600,000

Non-resident companies24%
Corporate tax for companies originating in the Territory of Labuan and operating a trading activity in this territory3% of audited income
Petroleum income tax38% on income from petroleum operations in Malaysia

25% on income from petroleum operations in marginal fields

NOTE: The tax rate of 24% represents a decline in tax rate when compared to previous years’ rates. The corporate tax rate for tax resident companies was lowered from 25% to 24% in 2015. This rate was already a lowered one; the corporate tax rate peaked at 30% in 1997.

Other Corporate Taxes in Malaysia

Aside from the standard corporate tax in Malaysia, there are a few other taxes that need to be noted by companies in Malaysia. These include:

Employer’s contributions

Both employers and employees must contribute to the Malaysian Social Security Organization (SOCSO). The tax rates are as follows

  • Employer’s contributions to SOCSO: Generally 1.75% of salaries

  • Employer’s contributions to Employees’ Provident Fund (EPF): 12% – 13% of the salary

  • Employee’s & Employer’s contributions to Employment Insurance Scheme: 0.2% of employee’s salary (capped at MYR 4,000 per month)

For those employers in the manufacturing and services sectors thatemploy more than a specified number of employees must contribute to the Human Resource Development Fund (HRDF), at the rate of 0.5% (5 to 9 employees) or 1% (10 employees or more) of the monthly wage.

Gains from disposals of real property are subject to a real property gains tax (RPGT) (link to RPGT article). The rates are listed below:

For companies established in Malaysia

Within 3 years

30%
4th year after acquisition20%
5th year after acquisition15%
For companies established outside Malaysia (within 5 years)30%
6th year onwards10%

Petroleum income tax is imposed at the rate of 38% on income from petroleum operations in Malaysia. An effective petroleum income tax rate of 25% applies on income from petroleum operations in marginal fields.

  • A levy is imposed on crude palm oil and crude palm kernel oil where the price exceeds MYR 2,500 per ton in Peninsula Malaysia, and MYR 3,000 per ton in the states of Sabah and Sarawak.
  • A levy of 0.125% on contract works having a contract sum above MYR 500,000 is imposed on every registered contractor by the Construction Industry Development Board.

Local companies are subject to an incorporation fee of MYR 1,000, while foreign companies pay a higher fee (from MYR 5,000 to MYR 70,000). Stamp duty is levied at rates ranging from 1% to 4% of the value of property transfers, and at 0.3% on share transaction documents.

What is the Corporate Tax in Labuan

Corporate tax in the Malaysian federal territory, Labuan greatly differs from that of Peninsular Malaysia.

Business activities in Labuan are categorised into 4 different categories, namely:

  • Trading activities
  • Investment holding activities
  • Dormancy
  • Non-Labuan activities

Companies involved in any of these fields, banking, management, trade, licensing, insurance, consultancy, imports, exports, and advisory services are taxed at a rate of 3%.

Labuan companies that deal with other Malaysian entities are considered to be involved in non-Labuan business activity. According to the Income Tax Act, such companies are to pay a 24% corporate tax on their net profit.

Tax Compliance for Corporations

It is compulsory that each company file its own tax return unless they fit the requirements for a group relief. Companies are deemed to be related if at least 70% of the paid-up capital of the surrendering company is either directly or indirectly owned by the claimant company or vice versa.

The alternative scenario is that at least 70% of the paid-up capital of the surrendering company and claimant company is either directly or indirectly owned by another company which is a tax resident of and incorporated in Malaysia.

NOTE: Group relief allows a tax resident company to relinquish up to 70% of its adjusted losses in the current YA to one or more companies which are likewise Malaysian tax residents and incorporated in Malaysia.

Advance corporate tax is to be paid in 12 monthly instalments, and all companies are also required to file a tax return within seven months of the due date, which is the date when their financial year ends.

Failure to comply with Malaysian corporate tax laws will cause one or more punishments to be meted out by the authorities and is considered a tax crime

TIP: If you are unsure about taxation in Malaysia, you can engage a tax agent to avoid penalties. The penalties are dependent on the type and severity of the offense, which may include fines between RM200 to RM20,000, imprisonment, a tax surcharge of 200% to 300% of any amount undercharged, or any combination of the preceding.

Ready to incorporate a company in Malaysia or require a tax agent for taxation matters? Reach out to us today for a free consultation and see how we can best incorporate your company in the most tax-efficient way!

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FAQs

Are there any tax exemptions or incentives for companies in Malaysia?2021-09-23T17:25:35+08:00

Yes, the Malaysia government is pro-business so there are a lot of tax exemptions and incentives available. You can find out more about them here!

Do Dormant Business Entities need to submit an ITRF?2020-04-27T13:01:59+08:00

Companies, limited liability partnerships, trust bodies, and cooperative societies that are dormant or have not commenced business are nevertheless required to submit the ITRF. This has been true ever since the 2014 year of assessment. 

How does Tax Administration in Malaysia work?2021-06-07T21:24:42+08:00

Tax administration in Malaysia is based on the concepts of  payingself-assessing, and filing. Monthly salary deductions are made for individuals with an employment income; they may also be made through installments for individuals with a business income. Taxpayers are to compute their own taxes and submit the ITRF to the IRB. The ITRF is to be accompanied by the payment for the balance of the income tax to be paid so as to meet any shortfall in the monthly payments or a claim for repayment if there is an overpayment.

How is Income Tax submitted in Malaysia?2021-06-07T21:23:01+08:00

Every individual who is to be taxed is required to declare income to IRB. The taxpayer is responsible for obtaining and forwarding the Income Tax Return Form (ITRF)The taxpayer has to submit an ITRF that has been duly completed before April 30 every year. 

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