OECD Pillar Two in Malaysia.

For global information on OECD Pillar Two and the global minimum tax for multinational groups in all markets, see Acclime Group’s guide.

Malaysia has enacted the OECD’s Pillar Two Global Anti-Base Erosion (GloBE) Rules, introducing a 15% global minimum effective tax rate for large multinational enterprise (MNE) groups operating in the jurisdiction. The rules were introduced through the Finance (No. 2) Act 2023, which inserted a new Part XI into the Income Tax Act 1967, and are administered by the Inland Revenue Board of Malaysia (IRBM). They apply for financial years beginning on or after 1 January 2025.

This guide summarises Malaysia’s implementation status, who is in scope, the filing obligations and the local considerations most relevant to in-scope groups.

At a glance

Local summary

Malaysia has adopted two of the GloBE charging mechanisms under domestic names. The Multinational Top-up Tax (MTT) is its implementation of the Income Inclusion Rule (IIR) and applies to the low-taxed profits of group entities located outside Malaysia where the Ultimate Parent Entity is in Malaysia. The Domestic Top-up Tax (DTT) is a domestic minimum top-up tax, intended to be a Qualified Domestic Minimum Top-up Tax (QDMTT), and applies to the low-taxed profits of group entities located in Malaysia. The Undertaxed Payments Rule (UTPR) has not been adopted at this stage.

For in-scope groups, where the jurisdictional effective tax rate (ETR) in Malaysia is below 15%, additional Top-up Tax may arise and be collected through the DTT and, for the low-taxed foreign operations of a Malaysian-parented group, through the MTT. The DTT is designed to allow Malaysia to collect the Top-up Tax relating to low-taxed Malaysian profits before such tax may be imposed by another jurisdiction under the IIR.

Who is in scope

The GloBE Rules apply to an MNE group with consolidated annual revenue of at least EUR 750 million in at least two of the four financial years immediately preceding the relevant financial year. For financial year 2025, the relevant test years are 2021 to 2024. A group falls within Malaysia’s regime where it has at least one Constituent Entity (CE) located in Malaysia. In line with the OECD GloBE Rules, the rules do not apply to wholly domestic groups.

The framework also reaches beyond the standard corporate income tax base. It extends to Labuan entities under the Labuan Business Activity Tax Act 1990 and to chargeable persons under the Petroleum (Income Tax) Act 1967, where these are Constituent Entities of an in-scope group.

Local deviations

Based on our review, Malaysia’s Pillar Two framework generally aligns with the OECD GloBE architecture, and no material substantive deviations have been identified to date. The principal local features are the implementation of the rules under the domestic MTT and DTT labels, the decision not to adopt the UTPR at this stage and the extension of the rules to the Labuan and petroleum income tax regimes.

Compliance and filing obligations

Once an MNE group is in scope, the return, payment and reporting obligations below apply. The key deadlines are summarised first, with the returns set out below.

Key deadlines

In practice, this means a group with a financial year ending 31 December 2025 makes its first GIR and Top-up Tax Return submissions by 30 June 2027, applying the 18-month transitional deadline.

The returns

Each Malaysian Constituent Entity furnishes its DTT return to the IRBM by electronic medium.

Tax incentive impact

Malaysia offers a range of tax incentives, including pioneer status, investment tax allowances, reinvestment allowances and various income exemptions. Although these remain available under the domestic corporate income tax regime, the introduction of the GloBE Rules may reduce the overall benefit of such incentives for in-scope MNE groups.

To the extent that an incentive reduces the jurisdictional effective tax rate below 15%, additional Top-up Tax may arise under the DTT, or under another jurisdiction’s Pillar Two rules where applicable. A substance-based income exclusion (SBIE) provides some relief by carving out a fixed return on real activity, calculated as a percentage of eligible payroll costs and of the carrying value of eligible tangible assets in Malaysia, with higher transitional percentages applying during the initial years of implementation.

Key local issues

Penalties for non-compliance follow the Income Tax Act 1967. Where no prosecution is instituted, the Director General of Inland Revenue may require a Constituent Entity to pay a penalty equal to the amount of Top-up Tax undercharged in respect of an incorrect DTT return that omits or understates the DTT. A transitional relief also applies:

Local contact

For advice on how Pillar Two applies to your group’s Malaysian operations, please contact Acclime Malaysia about our tax services regarding OECD Pillar Two.