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This guide provides everything you need to know about corporate income tax in Malaysia.
If you are a business owner, there are certain requirements that you must comply with, and one obligation is filing and paying corporate income tax.
Let’s find out more about such tax.
What is corporate income tax in Malaysia?
Corporate income tax in Malaysia is a direct tax paid to the government imposed on both resident and non-resident companies that receive income from Malaysia. The corporate income tax rate varies based on the type of company.
Corporate tax rates in Malaysia
The standard corporate income tax rate in Malaysia is 24%.
Other corporate tax rates include the following:
|Type of company||Tax 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 million||17% 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 million|
|Resident company that is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM 2.5 million|
Tax residency of a company and basis of taxation in Malaysia
A company is considered a tax resident in Malaysia if any time during the basis period of the year of assessment, the management and control of its affairs or at least one meeting of the Board of Directors are exercised in Malaysia.
Malaysia has a territorial tax system in which both resident and non-resident companies are taxed on income derived from Malaysia.
Foreign-sourced income is exempted from taxation unless the company engages in business activities in the banking, insurance, air transport or shipping sectors.
Year of assessment and corporate tax return filing
What is the year of assessment in Malaysia?
The year of assessment in Malaysia is 1 January to 31 December.
The basis period for a company is the financial year ending in the year of assessment.
Malaysia has a current year basis of assessment. A company is taxed on income arising in its financial year ending in the calendar year that coincides with that particular assessment year.
When to submit corporate income tax return in Malaysia?
Companies in Malaysia must submit the corporate income tax return within seven months of closing the accounts.
Tax payable must be paid by the last day of the seventh month from closing the accounts.
Companies must provide estimates of their tax payable for a year of assessment no later than 30 days before the beginning of the basis period.
A newly established company with paid-up capital of RM 2.5 million or less is exempted from providing estimates of the tax payable for two assessment years.
A company commencing operations in a year of assessment is not required to furnish an estimate of tax payable or make instalment payments if the basis period for the year of assessment the company operates is less than six months.
Corporate income tax deductible expenses
Corporate income tax deduction is allowed for expenses wholly and exclusively incurred in the production of income.
The 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
Some of 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
Companies in the agricultural, hotel and tourism, manufacturing or other industrial or commercial sectors that participate in a promoted activity or produce a promoted product are eligible for either the pioneer status (PS) or investment tax allowance (ITA).
A company granted PS is given a five-year exemption from corporate income tax on 70% of the statutory income (SI), and the remaining 30% is taxed at the standard tax rate.
ITA gives a company an allowance of 60% on its qualifying capital expenditure (QCE) incurred within five years, which is utilised against 70% of the statutory income, and the remaining 30% is taxed at the regular corporate income tax rate.
|Qualifying industry||Pioneer status||Investment tax allowance|
|Incentive||Tax relief period||Incentive||Tax relief period|
|Projects of national and strategic importance involving heavy capital investment and high technology||100% of SI||5+5 years||100% QCE against 100% SI||Five years|
|High-technology companies engaged in areas of new and emerging technologies||100% of SI||Five years||60% QCE against 100% SI||Five years|
|Companies manufacturing specialised machinery and equipment||100% of SI||10 years||100% QCE against 100% SI||Five years|
|Existing locally owned companies reinvesting in the production of heavy machinery, specialised machinery and equipment||70% of increased SI||Five years||60% new QCE against 70% SI||Five years|
|Companies providing technical and vocational training, and private higher education institutions providing qualifying science courses||–||–||100% QCE against 70% SI||10 years|
|New companies investing and existing companies reinvesting in utilising oil palm biomass to provide value-added products||100% of SI||10 years||100% QCE against 100% SI||Five years|
|Small scale companies (defined) that meet with specified conditions||100% of SI||Five years||60% QCE against 100% SI||Five years|
Malaysian companies operating for 36 months or more and has spent capital expenditure to expand, automate and modernise their existing manufacturing business or agricultural industry are entitled to the reinvestment allowance incentive:
- Allowance is given for 15 years from the first year of claim
- Allowance of 60% of QCE incurred and can be utilised against 70% of SI. The remaining 30% is taxed at the usual tax rate
- The Ministry of Finance may withdraw the allowance if the company fails to follow the taxation rules
Approved service projects
Companies operating in sectors concerning transportation, communication, utilities and services subsectors that the Ministry of Finance approves can enjoy the following incentives:
- Investment allowance of 60% of QCE sustained within five years to be utilised against 70% of SI, or income tax exemption of 70% of SI for a period of five years
- Buildings used solely for such projects qualify for an industrial building allowance
International trading companies
International trading companies are exempted for five years on the income of 20% of the total export revenue up to a maximum of 70%.
To benefit from this incentive, the company must meet the following three conditions:
- Incorporated in Malaysia with 60% Malaysian ownership
- Minimum revenue must be RM 10 million per year
- Use local services (banking, financing and insurance) and infrastructure
A principal hub is a local organisation which Malaysia is used as the base for conducting regional and international business activities and operations through management, control and support of key functions, such as management of risk, strategic decisions, finance and human resources.
The principal hub can enjoy the following incentives:
- Corporate income tax rates of 0% or 5% (new companies) of SI for 5 + 5 years or 10% of SI (existing companies) for five years
- No ownership conditions
- Flexible policies on foreign exchange
- Customs duty exemption for raw materials, repackaging materials and other finished products
The standard corporate income tax rate in Malaysia is 24% for both resident and non-resident companies which gain income within Malaysia. However, there are exceptions for certain sectors. Approved companies may apply and enjoy incentives that are available for their business sector. If you have any further enquires, feel free to contact Acclime.
Acclime is Asia’s premier tech-enabled professional services firm. We provide formation, accounting, tax, HR and advisory services, focusing on delivering high-quality outsourcing and consulting services to our local and international clients in Malaysia and beyond.