Sole Proprietor vs Sdn Bhd Tax Rates for Online Sellers in Malaysia

Sole proprietor. Business profit is added to other income of the owner, then personal reliefs are deducted. LHDN's resident individual scale starts at 0% on the first slice and rises in bands. For YA 2023 to 2025, chargeable income from RM600,001 to RM2,000,000 is taxed at 28%, and income above RM2,000,000 at 30%.

Company. The standard rate is 24%. An SME company pays 15% on the first RM150,000, 17% on the next RM450,000 and 24% above RM600,000 of chargeable income.

Why a simple comparison can mislead

• A company's profit is taxed in the company. Money taken out as salary is taxed again in the owner's hands as employment income, and dividends have their own treatment.
• A company can pay the owner a salary that is deductible, with employer EPF contributions.
• The company has set-up and compliance costs that a sole proprietor does not.
• The SME rates need conditions to be met, including a foreign ownership limit.

The lower tax at similar profit levels is often cited as a reason to incorporate, but the saving depends on how much profit stays in the company. A tax agent can model the owner's situation.