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Malaysia SMEs tax rate 2021

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Malaysia SMEs tax rate 2021

2021-02-22T12:03:20+08:00January 14, 2021|0 Comments

The economic situation that disturbed the entire world due to the COVID-19 pandemic may have left many investors wondering about what will happen to the tax incentives that were ending in 2020. The Malaysian government has extended a few incentives for another 2 years. . Those who most benefited are the M40 (Middle-income group) who saw a 1% tax reduction for income in the range of RM50, 001 to RM70, 000. RM200 may not look much but it is a great relief to the middle-class.

The Malaysian budget of 2021 is the largest ever tax budget by the Malaysian government in its history. It has shown how the Malaysian government recognizes the Small and Medium-sized Entrepreneurs (SMEs) as especially important to its economic growth.

The 2021 SME Tax Rate

Tax rates

  • SMEs with paid-up capital less than RM2.5 million enjoy 1% Corporate Tax rate reduction from 18% to 17%. This same incentive also applies to businesses with RM500, 000 or less that is taxable annually. New Malaysian SMEs are exempted for two years from estimated tax payment.
  • There will be a reduction of the minimum EPF (Employees Provident Fund) employee contribution to 9%.
  • SMEs can also make RM6000 per year maximum withdrawal from their Account 1.
  • SMEs may also make withdrawals towards the purchase of takaful products, life insurances, or for life-threatening illnesses from Account 2.
  • A 1% reduction on income tax for incomes between RM50, 000 to RM70, 000 annually. In a bid to help those who have lost employment due to the corona pandemic, the exemption limit on income tax will be raised from RM10, 000 to RM20, 000 for every year served in full.
  • Non-Malaysian who are leaders in companies relocating operations under the Penjana incentive package will receive a preferential 15% personal tax rate when relocating their business to Malaysia.
  • Those dealing with the manufacture of pharmaceutical products will get a preferential corporate income tax rate ranging from 0% to 10% spanning 10 years.
  • The annual allowance will be increased to 40% from an initial rate of 20% as a capital allowance for machinery and equipment expenses.
  • There will be double tax deductions for expenses incurred during international shipping for companies registered in Malaysia.
  • There will be a tax deduction for expenses incurred in the facelift and refurbishment of business premises.
  • An SME registered and in operation from July 2020 to December 2021 will receive a maximum tax rebate of RM20, 000 for the initial three assessment years.
  • Instruments executed by SMEs for the merger will receive a Stump Duty exemption.
Malaysia SME Tax Rate 2021

Wage Subsidies

The wage subsidy program will be extended for three more months at a budget of RM1.5 billion. This will benefit many, especially those in the tourism sector.

Job creation

  • PenjanaKerjaya allocation aimed at creating motivating employers to create more jobs.
  • JanaKerja Scheme allocation for new jobs.

Aim of the Malaysian Budget 2021

  • The wellbeing of the rakyat
  • Economic resilience
  • Business continuity

The 2021 budget aims to alleviate the pain that Malaysians face and to ensure sustainability for businesses in these harsh times in a bid to bring about economic recovery in Malaysia.

The T20 and M40 groups will see a 1% tax rate reduction for those in between the bracket of RM50, 001, and RM70, 000. This reduction will enable expenditure related to sports, behavior-changing lifestyle, and at the same time, provide relief to personal tax.

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How Malaysian SME tax measures are Promoting investment?

Apprenticeship hiring incentive

SMEs that employ fresh graduates will receive an incentive of RM 1000 monthly for three months.

Relocation tax incentive

  • This relocation training and assistance benefits airline employees who got unemployed due to the coronavirus pandemic.
  • The digitization sectors and IR 4.0 are among the sectors that will benefit from this tax incentive.

Enhanced loan repayment assistance

  • Providing a separate 5-year renewable 10% concessionary tax rate on the Global Trading Centre.
  • Relaxing conditions related to the Principal Hub tax incentive and extension of the same tax for the next year.
  • Rolling out of a tax incentive for the manufacturing sector aimed at encouraging relocation of manufacturing businesses to Malaysia.

There is also a concessionary tax rate of up to 10 % span for up to 10 years for some businesses that have a multiplier effect in the service sector to the benefit of the economy of Malaysia.

Malaysian Tax Incentives for SMEs

The Malaysian government has laid out tax incentives in terms of reduction to the following categories of SMEs:

  • Class G1 to G4 contractors
    This incentive of RM2.5 billion will help these SMEs to sustain their businesses and enable them to bring about a multiplier economic effect.

  • SMEs in the retail and tourism sectors
    The Subsidiary Program rolled out for retail and tourism sectors can be taken advantage of by SMEs who are part of these sectors.

  • SMEs relating to the government
    As a tax incentive to encourage SMEs which are linked with the government or are working closely with it, the government has put out the JanaNiaga initiative. JanaNiaga is aimed at increasing cash flow to such SMEs.

Other areas of the Malaysian Budget benefiting SMEs and Micro-SMEs

  • Grants and Financing
    • Given in form of soft loans and grants,
    • Loans aimed at assisting SMEs and Micro-SMEs at a cumulative budget of RM2 billion under the facility for Targeted Assistant and Rehabilitation.
    • Financing for working capital, and automation system upgrading.

     

  • Cash Flow
    • This is a cash flow increment in the form of loan repayment enhancements.
    • For SMEs which qualify for Targeted Repayment Assistance,
      Two new options: A three-month loan repayment postponement or a 50% monthly installment reduction for six months

Deduction and Incentive for Hiring:

PenjanaKerjaya

It is also this 2021 budget’s aim to encourage investments that enable retaining of jobs and at the same time creating new ones. Employers will receive a hiring incentive in the form of 20%, monthly income for the employee. Employers who want to put local workers in the positions previously held by foreign workers will receive a cumulative total of 60% for employee’s monthly income and other special incentives. It also covers the income for hiring the retrenched workers, disabled persons, and the long-term unemployed workers,

Bumiputera Entrepreneurs Support

This will assist the SMEs in key sectors like tourism, sustainable development, maritime development, and public transport among other sectors. It is aimed at capacity building programs such as professional development.

Buy Made in Malaysia Program

This is an incentive to promote the consumption of locally made products and thus motivate Small and Medium-Size Entrepreneurs to venture into the industry of local franchising.

Akin to this is an incentive to encourage Malaysians to shop online. This will help SMEs in the digitization and e-commerce sectors.

Micro-SME and SME campaign

This incentive is aimed at training SMEs, financing digital equipment, and sales assistance to encourage electronic commerce adoption.

Women Entrepreneurs

This is rolled out to assist women entrepreneurs and to encourage more women to venture into entrepreneurship through micro-financing facilities. They would also receive guidance training.

Summary

A government that wishes to stand strong minds the citizens for they are its backbone. Therefore, tax rates should be aimed at making the lives of citizens better in terms of alleviating harsh conditions through better wages, job retention programs, and job creation programs. All this is determined by how the tax regime lays out its taxes.

Malaysia SMEs tax rate 2021 FAQs

How should the government motivate SMEs to be creative in the job sector?2021-01-14T11:06:33+08:00

To motivate SMEs to be creative in the job sector, the government should promote reskilling among the workforces. Reskilling may be viewed from two angles, to give a new skill or to reinforce an existing skill. The former perspective requires training a person to have a different mindset from what they previously had.

For example, if one’s mentality was to be trained to be employed by that organization or a similar one, the same person can be trained to change that perspective to a mind of job creation. In reinforcing, you equip an individual with additional skills necessary to help them retain their jobs, create new ones, or do both. An example is giving technology-related training for someone to move to the electronic commerce environment or to embrace work-from-home methods.

What were the SMEs’ expectations for the 2021 budget?2021-01-14T11:06:09+08:00

By the end of 2020, the SMEs had certain expectations of what the budget would be. They expected the government to:

  • Allocate development funds for investment in electronic commerce, technology, and digital platforms.
  • Double deduction on reskilling and upskilling training.
  • Availing of tax deductions for SME rescheduling and restructuring their finances to finance in creativeness and enhancements of their business operations.
  • Include SMEs in the Real Property Gains Tax exemptions when they are disposing of real properties.
What is Malaysia’s definition of an SME?2021-01-14T11:06:19+08:00

In Malaysia, anycompanies or Limited Liability Partnerships with a paid-up ordinary share of RM2.5 million and generates a gross income of RM50 million and below in the assessment year are considered SMEs.

Why do I need to pay corporate tax in Malaysia as an SME entrepreneur?2021-01-14T11:02:47+08:00

It helps in financing support and growth for Small and Medium-Sized Entrepreneurs.

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