• Types of Taxes in Malaysia for Companies

Malaysia is one of the countries who implements territorial tax system. In layman’s term, any income accrued in or derived within Malaysia is liable to tax.

However, any Companies, be it private limited Company, Public Limited Company, Limited Liability Partnership, or any other types of business entities, who runs a business and derive income from outside Malaysia but received the fund within Malaysia is normally exempted from tax.

Liyana
NOTE: Banking, insurance, sea transportation or air transportation industries are not exempted from tax.

Malaysia Corporate Tax Rate

The maximum corporate income tax rate imposed by Inland Revenue Board Malaysia is 24%.

Type of companyTax rates
Resident company with a paid-up capital of RM 2.5 million or less, and gross income from business of not more than RM 50 million17% on the first RM 600,000

24% in excess of RM 600,000

Resident company that does not control, directly or indirectly, another company that has paid-up capital of more than RM 2.5 million17% on the first RM 600,000

24% in excess of RM 600,000

Resident company that is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM 2.5 million17% on the first RM 600,000

24% in excess of RM 600,000

Non-resident companyFlat rate 24%

Basis of Taxation in Malaysia

Malaysia is adopting a territorial tax system. All resident and non-resident Companies are taxed on incomes derived from Malaysia.

In general, there are at least 5 different types of Companies available in Malaysia which are:

Some countries may impose different type of tax system basing on each type of Companies registered in the country. However, such a case is not what Malaysia is practicing. There is no such a thing called:

  • Sole proprietor tax
  • Investment holding tax
  • Partnership tax
  • Enterprise tax

Any of the mentioned companies above, if they run their business and incomes derived from Malaysia, then it is taxable between the rate of 17% to 24 %. As for foreign sourced income, it is exempted from taxation unless the Company runs a business relating to banking, insurance, sea transportation or air transportation industries.

A Company, be it private limited Company, Public Limited Company, Limited Liability Partnership etc. is considered to be a resident in Malaysia if the management and control of its affairs or Board of Directors meeting is exercise once in Malaysia at any time during the basis period for the year assessment.

Types of Tax Liable by Companies Registered in Malaysia

To ensure a smooth corporate tax filing process, it is important for business owners to understand each tax requirement that exists in Malaysia.

Corporate Tax

A corporate tax is imposed by Inland Revenue Board Malaysia (LHDN) and is governed by the Income Tax Act 1967. As mentioned, this applies to all Malaysian registered Companies regardless the type of Company they are running. All incomes derived from Malaysia are deem taxable under the law.

Withholding Tax

This type of tax is only for Companies who have the obligation to pay non-resident (Company or Individual) for the services engaged where a certain percentage of payment is deducted and paid as their income tax to LHDN. Each payment type will have different tax rates.

Malaysia tax rates for withholding tax are as follows:

Payment TypeRate
Contract payment for services done in Malaysia10% , 3%
Interest15%
Interest paid by approved financial institutions5%
Royalty10%
Special classes of income: Technical fees, payment for services, or payment for use of moveable property10%
Income of non-resident public entertainers15%
Real Estate Investment Trust10% , 25%
Family Fund / Takaful Family Fund / Dana Am8% , 25%
Others10%

It is part of every employer’s responsibility to retain a percentage of employee’s total monthly remuneration and pay off monthly tax deduction (MTD). This deduction will be made visible in the employee’s payslips inclusive EPF, SOCSO and EIS.

Stamp Duty

A stamp duty is required when an entity engage services such as drafting legal documentations, commercial as well as financial documents. For example, a partnership agreement or mortgage agreement.

This type of tax is basically a single-stage tax charged on taxable goods manufactured in or imported into Malaysia by a taxable person and is due when the goods are sold, disposed of, or first used with a total sale value of more than MYR 500,000 within 12 months. There are exemptions available for certain goods manufactured or imported.

SST is charged on taxable services available in Malaysia such as accommodations, gaming, telecommunications, services etc. provided by a taxable person with total value more than MYR 500,000 within 12 months. However, in the F&B industry, the threshold is a total value of more than MYR 1,500,000 within12 months. Credit cards services have no threshold and is charged using different rates.

Malaysia tax rates for SST are listed below:

Rate
Sales Tax5% or 10% or on specific rate
Service Tax6%

Real property gains tax (RPGT) is only applicable if the Company disposes of chargeable assets such as house, commercial buildings, farms, vacant land as well as shares in real property companies, gaining profit from the disposal.

The calculation of chargeable gain is (disposal price – acquisition price). Tax rate differs according to holding period of chargeable assets.

Here are the Malaysia tax rates of RPGT:

Disposal Period (after the year of acquisition)Rate
Within 3 years30%
The 4th year20%
The 5th year15%
The 6th year and above10%
Corporate Tax checker

Sole Proprietor and Partnership tax

Normally, sole proprietor and partnership are not charged on corporate tax basis. They are commonly charged on a gradual scale applied to Malaysia income tax from 2% to 26%.

Hence, it is common for business owners and partners to file everything in their personal income tax filing. There will not be a separate filing for the incomes they received from their business.

Investment Holding Company (IHC) Tax

Recently on 12 December 2020, LHDN released Practice Note: 4/2020 to clarify the investment holding company tax rate from 17% to 24%.

Investment holding companies are able to enjoy tax rebate amounting MYR 20,000 for the next 3 years and tax rate applied is only 17% if they meet the terms and conditions.

The investment holding Company is not entitled to enjoy the 17% rate if:

  • No business source in investment holding Company (not listed in Bursa Malaysia)
  • Ceased business operation but receiving income from rental or interest gain

Income tax deductible expenses

Some may feel that by expanding their business in Malaysia, they are liable to a high tax rate equal to high tax payable. However, Malaysia offers a lot of tax incentives and reliefs that allow a resident and non-resident to reduce their tax payable.

Corporate income tax deduction is allowed for expenses wholly and exclusively incurred in the production of income. Expenses include:

  • Salary and wages
  • Business insurance
  • Advertisement and promotion expenses
  • Employee travelling expenses
  • Entertainment expenses
  • Repair and maintenance
  • Lease rental on plants and machinery
  • Recruitment expenses
  • Incorporation expenses

The non-deductible expenses are:

  • Fines and penalties
  • Registration of trademarks
  • Non-approved donations
  • Domestic, private or capital expenditure
  • Employee’s contribution to unapproved pensions, provident or saving schemes
  • Interest, royalty, contract payment, technical fees, rental of movable property, payment to a non-resident public entertainer or other payments made to non-residents which are subject to withholding tax, but the tax was not paid

Tax incentives in Malaysia

Pioneer status and investment tax allowance

In Malaysia, if a Company ventures into certain special industries such as agricultural, tourism, and manufacturing where they participate in promoting activities or produce products, they are entitled for pioneer status (PS) and investment tax allowance (ITA).

Companies that are granted the pioneer status is given a 5-year tax exemption on 70% of the statutory income and the remaining 30% will be charged at a standard rate.

Investment tax allowance gives a Company a 60% off on its qualifying capital expenditure incurred within 5 years. This will be utilised against 70% of statutory income and remaining 30% will be charged at a standard rate.

Reinvestment allowance

For Malaysian registered Companies involved with manufacturing or agricultural industry which have been operating for 36 months or more and has spent an amount capital expenditure to expand, automate and modernise their existing business are entitled to the incentive:

  • Allowance is given for 15 years from first year claim
  • Allowance 60% off on its qualifying capital expenditure incurred s which will utilised against 70% of statutory income and remaining 30% will be charged at a standard rate.

  • Ministry of Finance (MOF) may withdraw allowance if Company fails to follow the tax regulation

Need a tax compliance expert to ensure that your company has an effective tax plan that adheres to Malaysia’s regulations?
Reach out to us for taxation services, among other corporate services like visa application and incorporation.

whatsapp us
contact us

FAQs

Are director fees taxable in Malaysia?2021-11-12T11:40:21+08:00

Fees payable to director is still deem as personal income and it is taxable by the Income Tax regulation in Malaysia.

Can a Company reduce tax payable in Malaysia?2021-11-12T11:39:57+08:00

Yes, by claiming all possible tax deduction available, submitting the tax on time as well as applying tax incentive whenever it is available, and the Company meets the requirement.

Do small businesses pay tax?2021-11-12T11:39:35+08:00

Generally, all registered Company (dormant / active) have the obligation to lodge their tax with LHDN. However, most dormant companies have no tax payable due to inactivity of business whilst an active small business may pay a lower tax after deductions of allowable expenses and other available incentives.

How many types of tax are there in Malaysia?2021-11-12T11:39:03+08:00

There are two major taxes in Malaysia namely direct tax or indirect tax. Direct tax includes income tax, real property gains tax (RPGT) and petroleum income tax whilst indirect taxes are sales & service tax (SST), exercise duty, custom duty and stamp duty.

Share This Story, Choose Your Platform!

Just keep reading…

Join our PHP Community MY Forum - Expert Tips & Resources

Join the discussions

Go to Top