Note: This guide outlines the key points in a simplified manner and omits certain details. For practical application, a more comprehensive understanding of the law is required. Please consult us separately for further advice.
Last updated: December 5, 2024
What is the corporate tax rate?
The standard corporate tax rate in Malaysia is 24%.
However, for small and medium enterprises (SMEs), a reduced tax rate of 17% applies on chargeable income up to RM600,000.
What preferential tax rates are available?
Reduced tax rate for SMEs (Small and Medium Enterprises):
Conditions:
- Paid-up capital of RM2,500,000 or less
- Paid-up capital of related companies also RM2,500,000 or less
- Not a publicly listed company or its subsidiary
Rates:
- Chargeable income up to RM600,000 → 17%
- Chargeable income exceeding RM600,000 → 24%
Can business losses be carried forward?
- Business losses can be carried forward for 10 years.
- Restrictions may apply if there is a significant change in shareholding or business activities.
How are capital gains treated?
In principle, capital gains are not taxable in Malaysia.
However, gains from the disposal of real property are subject to the Real Property Gains Tax (RPGT).
- Applies to both individuals and corporations
- Tax rate depends on holding period, e.g.:
- Disposal within 3 years → up to 30%
- Held for more than 5 years → 5%
How is depreciation treated?
Accounting depreciation is not deductible for tax purposes.
Instead, Capital Allowances are applied.
- Applies to assets such as factories, machinery, and vehicles
- Includes an Initial Allowance (in the first year) and an Annual Allowance (on a declining-balance basis thereafter)
What are the characteristics of deductible expenses?
In Malaysia, expenses incurred wholly and exclusively in the production of income are deductible, with some limitations:
- Certain entertainment expenses are non-deductible
- Private car-related expenses are restricted
- Donations are deductible only if made to approved institutions, subject to limits
- Only Capital Allowances, not depreciation, are deductible
Resident vs. non-resident companies
- Resident companies: Managed and controlled in Malaysia (e.g., board meetings held locally)
→ Eligible for tax incentives and treaty benefits - Non-resident companies: Managed and controlled outside Malaysia
→ Not eligible for incentives and subject to withholding tax
How is foreign-sourced income treated?
Malaysia adopts a territorial tax system, taxing only Malaysia-sourced income.
However, since 2022, foreign-sourced income remitted into Malaysia by resident companies may be taxable under certain circumstances.
Transfer Pricing (TP)
- Related-party transactions must follow the Arm’s Length Principle.
- TP documentation is mandatory if revenue exceeds RM25 million or related-party transactions exceed RM15 million.
Group Relief
- A group relief system exists in Malaysia.
- Losses can be transferred within a group with at least 70% ownership.
- Only companies incorporated for more than 3 years are eligible.
Tax Audits
- Tax audits are conducted in two forms: desk audits and field audits, both relatively frequent.
- Errors may result in additional tax assessments plus penalties of up to 45%.
Corporate Tax Filing and Payment Schedule
The tax year generally follows the company’s financial year.
- Provisional tax estimate (Form CP204): To be submitted within 3 months from the beginning of the financial year
- Monthly installment payments: 12 monthly installments
- Final tax return (Form C): To be filed within 7 months after the financial year-end
Summary: If you are unsure about corporate tax
Malaysia’s corporate tax system applies a standard rate of 24%, which is higher than Singapore’s, but offers benefits such as SME concessions and non-taxation of capital gains.
On the other hand, rules on foreign income taxation and transfer pricing have become stricter, making proactive tax planning increasingly important.
At Phoenix, our experts with in-depth knowledge of the Malaysian corporate tax system provide comprehensive support — from company incorporation to tax filing and audit assistance. Please feel free to contact us.