This guide gives all the information you need about corporate tax in Malaysia. If you have a business, there are some regulations and laws you need to follow and one is paying taxes on the money your company makes. What exactly is this tax requirement? Let’s take a look.
Content Outline
What is corporate tax in Malaysia?
In Malaysia, corporate tax is a direct payment to the government made by any resident or non-resident company that earns revenue from Malaysia. Different types of business entities or business structures are subject to different corporate income tax rates.
Malaysia corporate tax rates
In Malaysia, the standard corporate income tax rate stands at 24%. Additionally, there are various other corporate tax rates applicable.
| Type of company | Tax rates |
|---|---|
| For resident companies with a paid-up capital equal to or less than RM 2.5 million, and a gross income from business not exceeding RM 50 million. | 17% on the first RM 600,000 24% in excess of RM 600,000 |
| A resident company that doesn’t have direct or indirect control over another company with a paid-up capital surpassing RM 2.5 million | |
| A resident company that is not under the direct or indirect control of another company having a paid-up capital exceeding RM 2.5 million. | |
| Non-resident company | 24% |
Understanding the tax residency of a company and the basis of taxation in Malaysia
A company is considered a Malaysian tax resident if, during any part of the basis period of its assessment year, it has its management and control or holds at least one Board of Directors meeting in Malaysia.
Malaysia adopts a territorial tax system, levying income taxes on resident and foreign companies for business done in Malaysia. On the other hand, income from outside of Malaysia does not have to be taxed unless it is related directly or indirectly to business conducted by the firm in banking, insurance, air transport or shipping.
Year of assessment and filing of corporate tax returns
What is the year of assessment in Malaysia?
In Malaysia the year of assessment runs from January 1st to December 31st.
The basic period for a company comprises the financial year ending before the assessment year.
Malaysia uses the current year basis of assessment. This means that the company is taxed on income earned over its fiscal year in which the specific assessment year falls.
What is the deadline for filing corporate income tax returns in Malaysia?
Companies registered in Malaysia should submit their corporate income tax return within seven months of closing the books. The tax must be paid by the last day of the seventh month after the close of the account.
Estimates of the amount payable for each year of assessment shall be made no later than 30 days before the beginning of that basis period.
Paid-up capital of less than RM 2.5 million newly established company are exempted from tax payable estimates for two assessment years.
If a company commences operations in that same assessment year with a basis period of fewer than six months in length, then it need not supply an estimate of tax payable or make installment payments.
Allowable deductions for corporate income tax expenses
Certainly! Businesses in Malaysia can claim corporate income tax deductions for expenses that are solely incurred in generating income. These deductible expenses include:
- Salaries and wages
- Business insurance
- Advertising and promotions
- Employee travel
- Entertainment costs
- Repair and maintenance
- Lease rentals for machinery
- Recruitment and incorporation expenses
However, certain expenses are not eligible for deduction, such as:
- Fines and penalties
- Trademark registration
- Non-approved donations
- Domestic, private, or capital expenses
- Employee contributions to unapproved schemes
- Payments to non-residents subject to withholding tax, where the tax remains unpaid
These guidelines outline what expenses can and cannot be claimed for corporate income tax purposes in Malaysia.
Malaysia tax incentives
Pioneer status and investment tax allowance
Incentives will be available for any company if it engages in any of the promoted activities or produces any of the promoted products authorized with activities such as agriculture, hotels and tourism, manufacturing, and numerous industrial or business categories. The incentives include either the Pioneer Status (PS) or Investment Tax Allowance (ITA).
With Pioneer Status (PS) a company has a five-year exemption from corporate income tax on 70 % of its statutory income (SI). The remaining 30 % then is normal taxed.
On the other hand, under the Investment Tax Allowance (ITA) system, a firm can be allowed 60 % of its qualifying capital expenditure (QCE) up to a limit of five years. With this allowance, 70 % is subtracted from the statutory income limit, and what remains is subject to taxation in accordance with the standard corporate income tax rates.
Reinvestment allowance
| 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:
- One can claim for a period up to 15 years after the first year.
- QCE incurred can be deducted against 60 % of the current year’s facilities expenses. The remaining 30 percent is taxed at the ordinary rate.
- The Ministry of Finance reserves the right to revoke the allowance if the company does not comply with the tax regulations.
Approved service projects
Companies operating in sectors concerning transportation, communication, utilities and services sub sectors that the Ministry of Finance approves can enjoy the following incentives:
- It would be 60 % of the QCE sustained over five years and investment allowance used against 70 % of the SI or income tax exemption for a period of five years.
- Buildings devoted to these projects alone even qualify for an industrial building allowance.
International trading companies
Five years of relief have been granted. A high rate of 20 % is allowed for income obtained by international trading companies from up to 70 % of export revenue.
To benefit from this incentive, the company must meet the following three conditions:
- Malaysia (incorporated, 60 % Malaysian-owned)
- Minimum revenue must be at least 10 million Ringgit a year.
- Use local services (banking, financing and insurance) and local infrastructure.
Principal hub
A principal hub is a local organization that Malaysia uses as the base for management, control, and administration of key functions (such as risk management, decisions on strategy regional and international business operations) at the regional or global level in order to carry out its overall business activities.
The principal hub can enjoy the following incentives:
- Low rates of corporate income tax (0-10 %) for 5 + 5 years (new companies), or 10% of SI (existing companies).
- No ownership conditions
- Flexible policies on foreign exchange
- Duty-form tax on raw materials, repackaging materials and finished goods
Conclusion
In Malaysia, the basic income tax rate for corporate business is 24 %, whether or not corporations have locations there. Nevertheless, there are some exceptions. It is understood that companies approved under the program can request incentives appropriate to their business sector. For company taxation advisory and compliance, contact FastLane Group.