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Principal Tax Contacts
Yeo Eng Ping
Amarjeet Singh
Farah Rosley
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+60 (3) 7495-8288
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Email: amarjeet.singh@my.ey.com
+60 (3) 7495-8254
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Email: farah.rosley@my.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Amarjeet Singh
Anil Kumar Puri
Andrew Loh
Chua Meng Hui
Florence Tan
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Mobile: +60 (12) 214-7315
Email: amarjeet.singh@my.ey.com
+60 (3) 7495-8413
Mobile: +60 (19) 237-2652
Email: anil-kumar.puri@my.ey.com
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+60 (3) 7495-8585
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Email: florence.tan@my.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Sharon Yong
+60 (3) 7495-8478
Mobile: +60 (12) 397-0177
Email: sharon.yong@my.ey.com
International Tax and Transaction Services – Operating Model Effectiveness
Anil Kumar Puri
Sockalingam Murugesan
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Email: anil-kumar.puri@my.ey.com
+60 (3) 7495-8224
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Business Tax Advisory
Mark Liow Yoon Fuat
A. At a glance
+60 (4) 688-1899
Mobile: +60 (12) 479-0879
Email: mark.liow@my.ey.com
(a) The main rate of corporate tax is 24%. The rates for resident companies incorporated in Malaysia that have paid-up capital with respect to ordinary shares of MYR2,500,000 or less at the beginning of the tax-basis period, have gross income from a source or sources consisting of a business of not more than MYR50 million for the relevant year of assessment and satisfy other specified conditions (small and medium enterprises [SMEs]) are 15% on the first MYR150,000 of chargeable income, 17% on the next MYR450,000 of chargeable income, and 24% on the remaining chargeable income. From the 2024 year of assessment, the concessionary tax rates (that is, 15% and 17%) do not apply if more than 20% of the company’s paid-up capital with respect to ordinary shares is owned directly or indirectly by one or more companies incorporated outside of Malaysia or individuals who are not Malaysian citizens. The above rates do not apply to companies carrying on upstream oil and gas activities under a production-sharing contract, which are taxed at a rate of 38%. For further details, see Section B.
(b) The capital gains tax rate is 10% on the chargeable income for disposal of unlisted shares of Malaysian-incorporated companies or shares in foreignincorporated controlled companies, which substantially derive their value directly or indirectly from real property in Malaysia. However, if the shares were acquired before 1 January 2024, the disposer may opt to be taxed at 2% on the gross disposal proceeds. Capital gains tax also applies to the disposal of capital assets situated outside Malaysia if the gains are received in Malaysia. The applicable rate is the prevailing tax rate of the disposer. See Section B.
(c) Real property gains tax is imposed on gains derived from disposals of real property or shares in real property companies. The maximum rate is 30% (see Section B). Effective from 1 January 2024, real property gains tax will no longer apply on the disposals of real property companies shares by companies, limited liability partnerships, trust bodies or cooperative societies as such entities will be subject to the capital gains tax. However, Labuan entities that are subject to the Labuan Business Activity Tax Act 1990 may still be subject to real property gains tax on the disposal of real property companies shares.
(d) This is a final tax applicable only to payments to nonresidents.
(e) Bank interest paid to nonresidents without a place of business in Malaysia is exempt from tax. Interest paid to nonresident companies on government securities and on sukuk or debentures issued in Malaysian ringgits, other than convertible loan stock, approved or authorized by, or lodged with the Securities Commission (SC), is exempt from tax. Interest paid to nonresident companies with respect to sukuk originating from Malaysia issued in any currency other than Malaysian ringgit, other than convertible loan stock,
approved or authorized by, or lodged with the SC or approved by the Labuan Financial Services Authority, (LFSA) is also exempt from tax. The exemptions do not apply to interest paid or credited to a company in the same group. Effective from 1 January 2022, the exemptions no longer apply if the interest is paid or credited by a special purpose vehicle (SPV) to a company, if the interest is paid pursuant to asset-backed securities (ABS) lodged with the SC and/or approved by the LFSA and if the company receiving the interest and the originator (that is, the person who established the SPV solely for the issuance of the ABS) are in the same group. Other tax exemptions may apply to interest and other conditions may apply to the exemptions.
(f) The 24% withholding tax is imposed on distributions to nonresident corporate unit holders by Real Estate Investment Trusts (REITs) and Property Trust Funds (PTFs) if the REITs or PTFs have been exempted from Malaysian income tax as a result of meeting certain distribution conditions. Distributions by such REITs and PTFs to individuals, trust bodies and other non-corporate unit holders are subject to withholding tax at a rate of 10%.
(g) This withholding tax is treated as a prepayment of tax on account of the final tax liability.
(h) This is a final tax applicable to payments to nonresidents for services rendered in Malaysia and to payments for the use of movable property excluding payments made by Malaysian shipping companies (as defined) for the use of ships under voyage charter, time charter or bare-boat charter. The rate is reduced under certain tax treaties.
(i) Withholding tax is imposed on “other gains or profits,” which includes, among other payments, commissions and guarantee fees that do not form part of the business income of the nonresident.
(j) See Section C.
B. Taxes on corporate income and gains
Corporate income tax. Resident and nonresident companies have for many years been taxed only on income accruing in or derived from Malaysia. Resident companies engaged in banking, insurance, shipping or air transport are taxed on their worldwide income. A company is resident in Malaysia if its management and control is exercised in Malaysia; the place of incorporation is irrelevant. Effective from 1 January 2022, the longstanding income tax exemption on foreign-source income received by Malaysian residents (other than resident companies carrying on the business of banking, insurance or sea or air transport) was removed. Foreign-source dividend income of companies and limited liability partnerships continues to be exempt from tax from 1 January 2022 to 31 December 2026, subject to conditions set in guidelines issued by the Inland Revenue Board of Malaysia (IRBM).
Rates of corporate tax. Resident companies incorporated in Malaysia that have paid-up capital with respect to ordinary shares of MYR2,500,000 or less, and have gross income from a source or sources consisting of a business of not more than MYR50 million for the relevant year of assessment (SMEs), are taxed at a rate of 15% on their first MYR150,000 of chargeable income, 17% on their next MYR450,000 of chargeable income, and 24% on the remaining chargeable income. The concessionary tax rates do not apply if the company controls, or is controlled directly or indirectly by, another company that has paid-up capital with respect to ordinary shares of more than MYR2,500,000 or is otherwise related directly or indirectly to another company that has paid-up capital with respect to ordinary shares of more than MYR2,500,000. From the 2024 year of assessment, the concessionary tax rates will not apply if more than 20% of the company’s paid-up capital with respect to ordinary shares is owned directly or indirectly by one or more companies
the purchase price, except in limited circumstances. A 7% withholding rate applies to a person disposing of real property who is neither a citizen nor a permanent resident of Malaysia, a foreign-incorporated company or an executor of a deceased person who is not a citizen and is not a permanent resident in Malaysia. A 5% withholding rate applies to disposals by a company incorporated in Malaysia or a trustee of a trust or body of persons registered under any written law in Malaysia if the disposals are made within three years after the date of acquisition.
Losses incurred on disposals of real property may be carried forward indefinitely to offset future real property gains. Losses on the disposal of shares in real property companies are disregarded.
Effective from 1 January 2024, real property gains tax no longer applies on the disposals of real property company shares by companies, limited liability partnerships, trust bodies or cooperative societies. However, Labuan entities that are subject to the Labuan Business Activity Tax Act 1990 may still be subject to the real property gains tax on such disposals.
Capital gains tax. Effective 1 January 2024, a company, a limited liability partnership, a trust body and a cooperative society will be subject to capital gains tax on the following:
• Disposal of shares of a company incorporated in Malaysia not listed on the stock exchange (including any rights or interests thereof) and shares of a foreign controlled company (foreign company), where the foreign company directly or indirectly owns real property in Malaysia exceeding certain thresholds, as determined based on the parameters of the law
• Disposal of all capital assets (movable or immovable property) situated outside Malaysia, including any rights or interest thereof, if the gains are received in Malaysia
However, gains or profits from the disposals of capital assets situated in Malaysia are exempted from tax if the disposal takes places between 1 January and 29 February 2024. As a result, capital gains tax ia only payable on such disposals from 1 March 2024. Gains from disposal of capital assets situated outside Malaysia is exempted from tax from 1 January 2024 to 31 December 2026, subject to economic substance requirements being met.
For disposals of shares under the first bullet above, the following are the tax rates:
• If the shares were acquired before 1 January 2024, the disposer has the option of paying capital gains tax of either 10% of the gain (as calculated based on capital gains tax principles) or 2% on the gross disposal price.
• If the shares were acquired on or after 1 January 2024, the capital gains tax rate is 10% of the gain.
For disposals of capital assets situated outside Malaysia, the rate of tax is the prevailing tax rate of the disposer (for example, generally 24% for a company).
Administration. For tax purposes, companies may adopt their accounting year as the basis period for a year of assessment.
Income tax is chargeable in the year of assessment on the income earned in the basis period for that year of assessment.
Malaysia has a self-assessment regime under which companies must file their tax returns within seven months after the end of their accounting period. A tax return is deemed to be an assessment made on the date of filing the return. Effective from the 2014 year of assessment, the tax return must be filed electronically and based on audited accounts.
Companies must provide an estimate of their tax payable no later than 30 days before the beginning of their basis period (different rules may apply to a company in the year of assessment in which it commences operations). The estimated tax is payable in 12 equal monthly installments by the 15th day of each month beginning in the second month of the basis period. SMEs (as defined) that begin their operations during a year of assessment are exempt from paying their tax by installments in the year of assessment in which they commence business and in the immediately following year of assessment. They are required only to settle the tax due when they file their income tax returns. All companies may revise their estimate of tax payable in the sixth and/or ninth months of their basis period. Effective from the 2018 year of assessment, estimates and revised estimates may only be filed electronically. Companies are also able to revise their estimates in the 11th month of their basis period from the 2024 year of assessment.
Companies must pay any balance of tax due by the tax filing deadline.
Different rules apply under the Labuan tax legislation and to taxpayers undertaking upstream oil and gas operations.
E-invoicing. E-invoicing will be implemented in Malaysia in stages. The mandatory e-invoicing deadline for taxpayers with annual turnover or revenue exceeding MYR100 million (for the 2022 financial year) is 1 August 2024. Implementation of mandatory e-invoicing for other taxpayers will be undertaken in phases, with full implementation targeted from 1 July 2025. The IRBM will adopt the Continuous Transaction Control model in the implementation of e-invoicing, where the e-invoice is validated in real time (or near real time). There are two options for the e-invoice transmission mechanisms to facilitate transition of businesses to the e-invoice regime. Taxpayers may opt for the following:
• MyInvois Portal: This is a portal hosted by the IRBM and it is accessible to all taxpayers at no cost.
• API: This is a set of programming code that enables direct data transmission between the taxpayers’ system and the MyInvois Portal.
Dividends. Effective from the 2008 year of assessment, a singletier system of taxation replaced the full imputation system. Under the single-tier system, dividends paid, credited or distributed by a company are exempt from tax in the hands of the shareholders. Certain transitional rules applied up until 31 December 2013.
Foreign tax relief. Malaysian law allows both bilateral and unilateral foreign tax relief, subject to conditions.
Agriculture. Annual allowances are given on capital expenditure incurred on new planting (50%), roads or bridges (50%), farm buildings (10%) and buildings for accommodation of farm workers (20%). Accelerated allowances may be allowed at the discretion of the Minister of Finance.
Forestry. Annual allowances are given on capital expenditure incurred for purposes of extraction of timber from a forest. Effective the 2015 year of assessment, the capital allowances are available only to persons with a concession or license to extract timber. The rates are 10% for a road or building and 20% for a building for accommodation of employees.
Other matters. Capital allowances are generally subject to recapture on the sale of an asset to the extent the sales proceeds exceed the tax written-down value. To the extent sales proceeds are less than the tax-depreciated value, an additional allowance is given.
Relief for trading losses. Current-year trading losses may offset all other chargeable income of the same year. Unused losses may be carried forward for offset against chargeable income from business sources only. Excess capital allowances from a business source may be carried forward indefinitely for offset against income from the same business source that generated the capital allowances.
The carryforward of losses and excess capital allowances is subject to the shareholders remaining substantially (50% or more) the same at the end of the year in which the losses or capital allowances arose and on the first day of the year of assessment in which the losses or unabsorbed capital allowances are to be used. If the shareholder of the loss company is another company, the loss company is deemed to be held by the shareholders of that other company. Under an administrative concession, the authorities have indicated that they will not enforce the shareholding test except in the case of dormant companies. In addition, under the concession, the substantial change in shareholder rule only applies to changes in the immediate shareholder of the loss company. As a result, unused losses of non-dormant companies may continue to be carried forward even if a substantial change in shareholders occurs.
Effective from the 2019 year of assessment, the carryforward of unused losses is limited to 10 years of assessment. Any unused losses will be disregarded thereafter. To ease the transition for taxpayers, special provisions stipulate that unused losses for any year of assessment before the 2018 year of assessment, and current year losses for the 2018 year of assessment, can be carried forward for 10 consecutive years from the 2018 year of assessment; that is, until the 2028 year of assessment. Similar rules apply for unused reinvestment allowances and investment allowances but with a shorter carryforward period of seven years of assessment.
Groups of companies. Under group relief provisions, 70% of current-year adjusted losses may be transferred by one company to another company in a group. A group consists of a Malaysianincorporated parent company and all of its Malaysian-incorporated subsidiaries. Two Malaysian-incorporated companies are
members of the same group if either of the following circumstances exist:
• One is at least 70% owned (through other companies resident and incorporated in Malaysia) by the other.
• Both are at least 70% owned by a third Malaysian-incorporated company.
To obtain group relief, the recipient of the losses and the transferor of the losses must have the same accounting period and each must have paid-up capital in respect of ordinary shares exceeding MYR2,500,000. Effective from the 2019 year of assessment, a company can only surrender its losses after it has been in operation for more than 12 months, and the surrendering period is limited to three consecutive years of assessment from the year of assessment in which the surrendering company commences operations. In addition, a claimant company is not eligible to claim the group relief if it has carryforward or current-year investment allowances or pioneer losses. Other conditions also apply. Effective from the 2022 year of assessment, for the scenario in the second bullet above, in the case of indirect shareholdings, surrendering and claimant companies are treated as being in the same group of companies only if both companies are at least 70% owned by a third Malaysian-incorporated resident company, through the medium of other companies resident and incorporated in Malaysia. Limited exceptions apply.
D. Sales Tax and Service Tax
Goods and Services Tax was abolished and replaced with Sales Tax and Service Tax, effective from 1 September 2018. Sales Tax is imposed at a rate of 5%, 10% or at a specific rate with respect to petroleum, while Service Tax is imposed at a rate of 6% or at a specific rate for credit card services. Sales Tax applies to locally manufactured and imported taxable goods (unless exempted). Service Tax applies to certain prescribed services locally supplied or imported into Malaysia. Any person that manufactures taxable goods and/or provides taxable services in Malaysia, and that has annual taxable turnover exceeding the prescribed registration threshold in a 12-month period, is required to register for Sales Tax and/or Service Tax.
Effective from 1 January 2020, Service Tax is also charged and levied on any digital service provided by a foreign service provider to any consumer in Malaysia. If a foreign service provider provides digital services to consumers in Malaysia and if the value of the digital services for a period of 12 months or less exceeds the threshold or MYR500,000, the service provider is required to register for Service Tax in Malaysia, and account for Service Tax accordingly.
Effective from 1 January 2024, sales tax may also be charged and levied on low-value goods (LVGs), brought into Malaysia by a seller that is an online platform or an online marketplace operator (whether from Malaysia or overseas) to any consumer in Malaysia. If the total value of LVGs brought into Malaysia by land, sea or air mode, for a period of 12 months or less exceeds the threshold of MYR500,000, the seller is required to register for sales tax in Malaysia, and account for sales tax accordingly.
(a) No dividend withholding tax is imposed in Malaysia.
(b) This is the income tax treaty between the Taipei Economic and Culture Office (TECO) in Malaysia and the Malaysian Friendship and Trade Centre (MFTC) in Taipei.
(c) This treaty has been ratified, but it is not yet in force.
(d) Approved royalties are exempt from Malaysian tax.
(e) Malaysia is honoring the USSR treaty with respect to the Russian Federation. Malaysia has entered into separate tax treaties with Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan.
Malaysia has also entered into limited agreements covering only aircraft and ship transportation with Argentina and the United States.