Corporate income tax in Malaysia.

Corporate income tax applies to both resident and non-resident companies earning income in or derived from Malaysia. For foreign businesses entering the market and local companies planning ahead, understanding how the system works, which rates apply and what incentives are available can affect both structure and cost.

This guide covers Malaysia’s corporate tax rates, residency rules, filing obligations and the main incentive frameworks, including updates introduced under Budget 2026.

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 accruing in or derived 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:

Tax residency of a company and basis of taxation in Malaysia

A company is considered a tax resident in Malaysia if, during any part of the basis period for the year of assessment, its management and control are exercised in Malaysia or if at least one Board of Directors meeting concerning the management and control of the company is held in the country.

Malaysia operates a territorial tax system, meaning that both resident and non-resident companies are taxed on income accruing in or derived from Malaysia.

Effective 1 January 2022, foreign-sourced income received in Malaysia is subject to tax, with specific exemptions.

Year of assessment

In Malaysia, the Year of Assessment (YA) is determined based on the company’s basis period, which typically aligns with its accounting period. However, this may vary if there are changes to the accounting period or if the company begins business operations during that YA.

Corporate income tax returns

Companies in Malaysia are required to submit their corporate income tax returns within seven months after the financial year ends. The tax payable must also be settled by the last day of the seventh month following the financial year-end. Additionally, companies must provide estimates of their tax payable for the assessment year at least 30 days before the start of the basis period.

Newly established companies who fulfil the conditions to be an SME are exempt from providing tax estimates for the first two assessment years. Nevertheless, the relevant form has to be submitted to the authorities accordingly. Moreover, a company that begins operations during a year of assessment is not obligated to submit a tax estimate or make instalment payments if the basis period in which it 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 gross income.

The expenses include:

• Salary and wages
• Business insurance
• Advertisement and promotion expenses
• Employee travelling expenses
• Entertainment expenses for staff
• Repair and maintenance
• Lease rental on plants and machinery
• Recruitment expenses
• Incorporation expenses (conditions apply)

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, service fees for services performed inside Malaysia, rental of movable property, payment to a non-resident public entertainer or other payments made to non-residents which are subject to withholding tax (WHT), but the WHT was not paid

Tax incentives in Malaysia

The Malaysian government, through Budget 2026 and existing legislation, provides an array of tax incentives for companies. These are designed to foster investment in high-growth sectors, support social objectives and transition towards a green economy.

Core investment incentives

The primary frameworks for corporate investment include:

Pioneer Status (PS): This offers a partial or full income tax exemption (typically 70% to 100%) on statutory income for a period of five to ten years.

Investment Tax Allowance (ITA): An alternative to Pioneer Status, this provides an allowance of 60% to 100% on qualifying capital expenditure. This can be used to offset up to 70% or 100% of statutory income.

Reinvestment Allowance (RA): This is available to manufacturing and agricultural companies that have operated for at least 36 months and reinvest for expansion, modernisation or diversification. It provides a 60% allowance on qualifying capital expenditure for 15 consecutive years.

Budget 2026 corporate incentives

Several incentives introduced or extended under Budget 2026 apply across investment, hiring, renovation and sector-specific activities.

• Accelerated Capital Allowance on plant, machinery and ICT: Qualifying capital expenditure on heavy machinery, plant and ICT equipment can be fully claimed over a two-year period (20% initial allowance, 40% annual allowance) for expenditure incurred between 11 October 2025 and 31 December 2026.
• Accelerated Capital Allowance on Speed Limitation Devices (SLDs): A 20% initial allowance and 80% annual allowance applies to the cost of purchasing SLDs for heavy vehicles registered before 2015, capped at RM 4,000 per unit.
• Listing costs: The tax deduction of up to RM 1.5 million for listing on Bursa Malaysia (Main, ACE or LEAP markets) is extended until YA 2030 and expanded to include MSMEs in the energy and utilities sector.
• Employing vulnerable persons: Double tax deductions are available for employing senior citizens (extended to YA 2030), ex-convicts, parolees and those undergoing drug rehabilitation.
• AI training for MSMEs: A 50% further tax deduction, claimable once every two years, applies to expenses related to Artificial Intelligence (AI) training recognised by the National AI Council for Industry (NAICI).
• Training of care workers: The double deduction for sponsoring training covers care workers serving the elderly or children with special needs.
• Converting commercial buildings to residential use: A special tax deduction of up to 10% applies to capital expenditure on converting commercial buildings into residential units, capped at RM 10 million.
• Tourism renovation and refurbishment: Tourism operators can claim a deduction of up to RM 500,000 for qualifying renovation and refurbishment costs incurred between October 2025 and December 2027.

Sector-specific highlights

Digital economy (Malaysia Digital): MD-status companies can receive a reduced tax rate of 0% to 10%, or an Investment Tax Allowance, for core activities such as AI, blockchain, cybersecurity and cloud computing.

Tourism: In support of Visit Malaysia Year 2026, inbound tour operators are granted a 100% tax exemption on incremental income for YA 2026 and 2027, provided they bring in at least 1,000 foreign tourists annually.

Agriculture and food security: The tax incentive for food security projects (formerly food production) provides a 100% income tax exemption for 10 years for new projects or five years for expansion, restricted to income from domestic sales.

Venture capital: From YA 2025, Venture Capital Companies (VCCs) are subject to a preferential corporate tax rate of 5%, while Venture Capital Management Companies (VCMCs) are taxed at 10%.

Sustainability and ESG incentives

• Green technology: The Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE) remain available for projects in green hydrogen, integrated waste management and EV charging stations.
• ESG reporting: Companies can claim a tax deduction of up to RM 50,000 for expenses related to ESG reporting, Tax Corporate Governance Framework (TCGF) preparation and e-invoicing software consultation.
• SRI Sukuk and Bonds: The income tax exemption for the SRI Sukuk and Bond Grant Scheme is extended until 2028, with the grant for external review expenses increased to 100%, capped at RM 300,000.

International and cross-border tax matters

Foreign-Sourced Income (FSI): The income tax exemption on dividends and gains from the disposal of foreign capital assets is extended until 31 December 2030 for resident companies, LLPs, co-operative societies and trust bodies, subject to conditions.

Capital Gains Tax (CGT): CGT is charged at 10% on gains from the disposal of unlisted shares in Malaysia and Section 15C shares, with specific exemptions for group restructuring exercises and Initial Public Offerings (IPOs).

Tax compliance and administration

Corporate tax compliance in Malaysia follows a structured self-assessment regime, requiring companies to manage filings, payments and record-keeping throughout the financial year. Ongoing compliance obligations are closely monitored by the IRBM to ensure accuracy and timeliness.

Tax returns payment and audit investigations

Companies must file their income tax returns within seven months from the end of their financial year. Tax payable (if any) is also due and payable by the last day of the seventh month from the end of the financial year. The tax return is deemed a notice of assessment and served to the company upon the date the tax return is submitted.

Key compliance obligations include:

• Submission of initial tax estimate form (Form CP204) 30 days before the beginning of the basis period
• Monthly tax installment payments
• Submission of annual income tax return (Form C) within seven months from the end of the accounting period/financial year
• Settlement of any balance of tax payable upon submission of the income tax return

The IRBM conducts regular tax audits and investigations to ensure compliance. The statute of limitations for tax assessments is generally five years, but this can be extended in cases of fraud, willful default or negligence.

Reporting tax estimates with Form CP204

Form CP204 is used by companies in Malaysia to estimate tax payable for the upcoming year of assessment and must be submitted to the IRBM at least 30 days before the start of the basis period. The estimate determines monthly instalment payments throughout the year.

Submission requirements for new companies

Submission of CP204 is mandatory for new companies that commenced operations. SME companies are exempt from providing estimates for their first two years of assessment, though they are generally advised to submit a nil estimate, while companies with a first basis period of less than six months are not required to submit CP204 or pay instalments. Failure to submit on time may result in penalties issued by the IRBM.

CP204 revisions and minimum thresholds

Companies can revise the estimates using Form CP204A in the sixth, ninth and eleventh months of the basis period. Submitting a revision adjusts the remaining monthly instalments accordingly. If the revised estimate increases, the balance is spread over the remaining instalments, while revisions outside these periods require IRBM approval.

The CP204 estimate should not be less than 85% of the estimated or revised tax in the preceding YA.

Final tax comparison and penalties

When the annual income tax return (Form C) is filed, actual tax liability is compared with the estimate. If the actual tax exceeds the estimate by more than 30%, a 10% penalty applies to the excess. Overpaid instalments are refundable, while underpaid amounts must be settled upon filing. If CP204 is not submitted where tax is payable, a 10% increase is imposed on the final tax. Regular reviews of your projected income and timely CP204A revisions can help businesses stay within acceptable limits.

Conclusion

Malaysia’s corporate income tax system offers a competitive environment for businesses while providing various incentives to promote economic growth and development. As the country continues to evolve its tax policies in response to global trends and domestic priorities, businesses operating in Malaysia must stay informed about these developments and their potential impact.

Understanding the nuances of Malaysia’s corporate tax framework is crucial for effective tax planning and compliance. Companies should regularly review their tax positions, explore available incentives and seek professional advice to optimise their tax strategies while ensuring full compliance with Malaysian tax laws and regulations.

How Acclime can help with corporate income tax compliance

Malaysia’s corporate income tax system can be complex and challenging, especially for businesses looking to optimise their tax strategies while ensuring full compliance with the latest regulations. Acclime offers expert guidance and support to help companies effectively manage their corporate tax obligations in Malaysia. With deep local knowledge and experience, Acclime assists in tax planning, ensuring your business takes full advantage of available tax incentives while minimising liabilities.

Our comprehensive services include accurate tax filings, compliance with the Inland Revenue Board of Malaysia’s requirements and proactive strategies to mitigate risks during tax audits. Partnering with Acclime ensures your business remains compliant and strategically positioned in Malaysia’s dynamic tax environment, allowing you to focus on growth and operations.