Tax in Malaysia

Rates, returns, deadlines and penalties, in plain words. 54 questions answered.

What is the corporate tax rate for a small company in Malaysia?A Malaysian resident company normally pays 24% income tax. A company that meets the SME conditions pays 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000 (up to RM600,000), and 24% on anything above that.
What conditions must my company meet to get the SME tax rates in Malaysia?To use the lower 15%/17% rates, the company must be resident, have ordinary paid-up capital of RM2.5 million or less, and gross business income of RM50 million or less. It must also pass the related-company test and, from YA 2024, a foreign-ownership test.
Can a company with foreign shareholders still get the SME tax rate in Malaysia?Only if foreign ownership stays at 20% or below. The SME rates also need paid-up ordinary capital of RM2.5 million or less and gross business income of RM50 million or less. If more than 20% of the ordinary capital is held, directly or indirectly, by foreign companies or non-citizen individuals at the start of the basis period, all income is taxed at 24%.
Does a dormant company with no income still have to file a tax return in Malaysia?Yes. LHDN says companies that are dormant or have not started business must still register a tax file and file returns. A nil return tells LHDN there is no taxable income, and failing to file can be an offence even when no tax is due.
What is the Year of Assessment and how does it relate to my financial year?The Year of Assessment (YA) is the calendar year in which your company's accounting year (the basis period) ends. A company with a financial year ending 30 June 2025 reports that income in YA 2025.
When is the Form C deadline for a Malaysian company?Form C must be submitted electronically within seven months after the company's financial year end. A company with a 31 December year end therefore files by 31 July of the following year. Any tax balance is also due by the same date.
How do I file Form C through MyTax e-Filing?Form C is filed online through LHDN's MyTax portal using the company's tax number and login. You complete the company return, attach no paper, submit, and keep the confirmation. Manual paper submission is no longer accepted for companies.
Is a tax agent compulsory for a Malaysian company's tax return?No law requires a company to use a tax agent; a director can file Form C personally on MyTax. But only people approved under s.153 of the Income Tax Act may act as tax agents, tax consultants or tax advisers for a fee.
What is CP204 and why does my company have to pay tax in instalments?CP204 is the estimate of the tax a company expects to owe for the year, submitted before the year starts. The estimated tax is paid in equal monthly instalments, due on the 15th of each month from the second month, instead of one lump sum after Form C.
Does a new company need to submit CP204 in its first years?The first CP204 is due within three months of the day the company starts operating, if the first basis period is at least six months. The 85% floor starts from the second year. A new Malaysian company with paid-up ordinary capital of RM2.5 million or less needs no estimate for its first two years, unless related-company or foreign-ownership limits are breached.
How and when can I revise my CP204 tax estimate (CP204A)?A company can revise its CP204 estimate in the 6th, 9th and 11th month of its basis period, in any or all of the three. The latest revision is the one used to test the 30% under-estimation penalty. The new instalment starts from the 5th or 6th, 8th or 9th, or 11th instalment respectively.
What is the penalty if my CP204 estimate is too low?For companies the penalties sit in s.107C. If tax payable exceeds the latest estimate by more than 30% of the tax payable, 10% is charged on the part of the excess above that 30% (s.107C(10)). An instalment not paid by its due date carries 10% of the unpaid amount (s.107C(9)). With no estimate at all, 10% is added to the tax payable.
When do I pay my company income tax: instalments or after filing?Most companies pay through monthly CP204 instalments (due on the 15th of each month) and settle any balance by the Form C deadline, seven months after year end. Companies exempt from estimates pay everything by the Form C due date.
Does a new company automatically get an income tax number from LHDN after SSM registration?Yes, if the company was registered online with SSM through the MyCoID portal. LHDN says a company TIN is registered automatically for such newly incorporated companies. Otherwise, from 1 January 2024 registration is online through e-Daftar on MyTax.
How do I register as an employer with LHDN and get an E number?Register as an employer on MyTax to get an employer number (the E number). It is used to pay monthly PCB, file Form E with CP8D, and notify LHDN of new employees within 30 days of them starting.
What are Form E and CP8D, and when are they due?Form E is the employer's yearly return and CP8D lists each employee's pay. LHDN says both are due by 31 March of the following year. For YA 2025, one guide listed 30 April 2026 as the e-Filing date, so check the calendar for any grace period.
What is PCB or MTD and what must I deduct from employees' salaries?PCB (also called MTD) is the monthly tax an employer deducts from an employee's pay and pays to LHDN. LHDN requires the amount to come from its MTD schedule or computerised method and to be remitted by the 15th of the following month.
Which business expenses can a Malaysian company deduct for tax?An expense is deductible if it is incurred in producing business income, and it is revenue rather than capital in nature. Typical examples are salaries, rent, utilities, interest on business loans, and professional fees. Capital items get capital allowances instead.
Which expenses are not deductible for tax in Malaysia?Private or domestic expenses, capital expenditure, fines and penalties, income taxes, and goodwill are not deductible. Entertainment of customers and unapproved donations are also restricted. Accounting profit must be adjusted by adding these back.
Are entertainment expenses tax deductible in Malaysia?Only partly. Business entertainment, such as meals with customers or suppliers, is generally 50% deductible, while entertaining potential customers is not deductible. Entertainment provided purely to your own employees is generally deductible in full.
How do capital allowances work for equipment and vehicles in Malaysia?Because accounting depreciation is not deductible, a company claims capital allowances on qualifying assets: an initial allowance plus annual allowances. General plant and machinery gets 20% initial and 14% annual, and assets under RM2,000 can be written off in full, up to a total of RM20,000.
Are there double or extra tax deductions available to Malaysian SMEs?A few exist but they are narrow. Budget 2026 adds an extra 50% deduction for certified AI and cybersecurity training for SMEs, and there is a 200% automation capital allowance on up to RM10 million of qualifying spending until YA 2027.
How long can a Malaysian company carry forward its tax losses?Unused business losses can be carried forward for up to 10 consecutive years of assessment, against income from the same business. They cannot be carried back. A dormant company loses its losses if more than half of its shareholders change.
How are dividends taxed in Malaysia under the single-tier system?Malaysia taxes company profits once, at the company level. A company pays no withholding tax on dividends it distributes, and shareholders do not receive tax credits. Dividends from single-tier companies are generally exempt in the shareholder's hands, apart from a new 2% tax for individuals receiving over RM100,000 a year.
How are directors' fees and salaries taxed in Malaysia?A director's salary and fees are employment income taxed in the director's hands at personal rates, and are deductible to the company if incurred for the business. Salary goes through payroll with PCB; fees are often paid once a year, so check which year each fee falls into.
What personal income tax rates apply to business owners in Malaysia?Resident individuals pay progressive tax from 0% on the first RM5,000 up to 30% on income above RM2 million. Non-residents pay a flat 30%. The rates apply to total chargeable income after reliefs.
Which personal tax form do I file, Form BE or Form B, and when?Use Form BE if you have only employment income and no business income, and Form B if you run a business or earn freelance or partnership income. For YA 2025, the e-Filing deadlines listed were 15 May 2026 for Form BE and 15 July 2026 for Form B.
Do I pay tax on dividends from my own company as an individual shareholder?Usually no for single-tier dividends, but from YA 2025 individuals pay 2% tax on dividend income above RM100,000 a year (Schedule 1, Part XXII). It applies to resident and non-resident individuals and to Malaysian-source dividends. Where there is other income, a formula in the 2025 Rules sets the dividend share. Announced exclusions include distributions by KWSP, ASNB and unit trusts.
Who must register for sales tax in Malaysia and what are the rates?Sales tax is charged on taxable goods made in Malaysia by registered manufacturers and on taxable imports. Rates are 5%, 10% or a specific rate; since 1 July 2025, goods not listed in the 5% or specific-rate orders are taxed at 10%. A manufacturer must register once taxable sales exceed RM500,000 in 12 months.
When does my business have to register for service tax in Malaysia, and at what rate?Service tax is charged on listed taxable services at 8%, except 6% for food and beverage, logistics, telecommunications, parking, construction, private healthcare and private education. Registration depends on the service: RM500,000 in 12 months for rental or leasing and financial services, RM1.5 million for food and beverage, construction and private healthcare, and private schools charging over RM60,000 per student a year.
What changed in service tax from 1 July 2025?From 1 July 2025 Customs extended service tax to rental or leasing (8%), financial services (8%), beauty treatment (8%), construction (6%), private healthcare (6%) and private education (6%), subject to thresholds and exclusions. Sales tax rates changed on the same date, with unlisted goods taxed at 10%.
How often do I file the SST-02 return and when is it due?Registered businesses file the SST-02 return and pay for each two-month taxable period. The return and payment are due by the last day of the month after the period ends, so January-February is due by 31 March. Customs can set a different taxable period on written application, and a return is required even when no tax is payable.
When does e-Invoicing become mandatory for my Malaysian business?LHDN's timeline: above RM100 million from 1 August 2024, RM25m to RM100m from 1 January 2025, RM5m to RM25m from 1 July 2025, and up to RM5 million from 1 January 2026. Businesses with turnover below RM3 million are exempt, per LHDN's page updated 30 August 2026.
Is a small business exempt from e-Invoicing in Malaysia, and below what turnover?Yes. Under LHDN's current guideline (v4.8, 30 August 2026), taxpayers with annual turnover or revenue below RM3 million are exempt. The exemption is lost if the taxpayer has a non-individual shareholder, holding company, or related company or joint venture with RM3 million or more.
What is a consolidated e-invoice and when can I use it?A consolidated e-invoice sums up transactions for buyers who do not ask for an e-invoice, submitted within seven calendar days after month end. During the relaxation period (to 31 December 2027 for the smallest group) LHDN allows consolidation for all transactions.
What is the penalty for not issuing e-invoices in Malaysia?Non-compliance can be prosecuted under s.120(1) of the Income Tax Act, with a fine of RM200 to RM20,000, up to six months in prison, or both. LHDN will not prosecute during the relaxation period if the consolidated e-invoice conditions are met, and has a voluntary disclosure programme to 31 December 2027.
What do I need to set up before I can issue e-invoices?You need a company tax identification number (TIN), MyTax access, and a way to submit invoices to LHDN's MyInvois system: the MyInvois portal or accounting software linked through the API. You also need customers' TINs for e-invoices.
When must I withhold tax on payments to non-residents in Malaysia, and at what rates?Withhold when you pay certain income to a non-resident: 10% plus 3% on contract payments (s.107A), 15% on interest and 10% on royalties (s.109), and 10% on technical fees, service fees and rental of movable property (s.109B). A tax treaty can reduce the rate.
When do I pay withholding tax to LHDN and what is the penalty for paying late?Withholding tax must reach LHDN within one month after you pay or credit the non-resident, even if you did not deduct it. Late payment adds 10% of the unpaid amount under s.107A(2), s.109(2) or s.109B(2), depending on the payment, and the related expense can be disallowed.
Do I need to withhold tax when I pay an overseas freelancer, consultant or software provider?It depends on what the payment is and where the work is done. Services rendered and performed wholly outside Malaysia are exempt by order, so s.109B withholding does not apply. Services performed in Malaysia, royalties and rental of movable property are generally subject to 10% (contract payments 10% plus 3%). A treaty may also apply.
Does capital gains tax apply when a company sells unlisted shares in Malaysia?Yes, for disposals from 1 March 2024. Companies, LLPs, trust bodies and co-operatives pay capital gains tax on gains from unlisted shares in Malaysian companies. Individuals are not covered. The return and payment are due within 60 days of disposal.
For unlisted shares, which capital gains tax rate applies: 10% of the gain or 2% of the price?Shares acquired before 1 January 2024 can be taxed at the disposer's choice of 10% of the chargeable gain or 2% of the gross disposal price. Shares acquired on or after 1 January 2024 are taxed only at 10% of the gain.
How does real property gains tax (RPGT) work in Malaysia?RPGT is charged on gains from disposing of land, buildings and shares in real property companies. Rates fall with the holding period. For Malaysian citizens and PRs it is 30%, 30%, 20%, 15% in years 1 to 5, and nil from the 6th year. Companies pay 10% from year 6.
How far back can LHDN audit my company or raise additional tax?LHDN can generally raise an additional assessment within five years after the end of the year of assessment, and seven years for transfer pricing. These limits do not apply to fraud, wilful default or negligence.
How long must a Malaysian company keep its accounting and tax records?Seven years. LHDN tells employers to keep records for seven years and to make them easy to retrieve. Failing to keep proper records without reasonable excuse is an offence, with a fine of RM300 to RM10,000, up to a year in prison, or both under s.119A.
What should I do when LHDN sends my company an audit or query letter?Read the deadline, appoint a tax adviser if needed, collect the documents requested, reply on time, and correct any errors you find. Ignoring a notice for information can itself be an offence with a fine of RM200 to RM20,000.
What happens if my company files Form C late?Not filing a return on time is an offence under s.112(1): a fine of RM200 to RM20,000, imprisonment of up to six months, or both. In practice LHDN often offers to compound the offence for a lower amount, and late payment penalties may also apply.
What is the penalty for paying company income tax late?Company tax unpaid after its due date is increased by 10% under s.103(3). The earlier extra 5% step has been deleted from the Act. A company's balance is due on the last day of the seventh month after year end. A CP204 instalment not paid by its due date carries 10% under s.107C(9).
What is the penalty for understating income or giving incorrect information on a tax return?On prosecution, s.113(1) carries a fine of RM1,000 to RM10,000 plus 200% of the tax undercharged. Wilful evasion under s.114 can mean 300%, a fine of RM1,000 to RM20,000 and up to three years in prison. LHDN can instead require a penalty of 100% of the tax undercharged under s.113(2).
What tax incentives can a Malaysian SME realistically use?Most major incentives, such as pioneer status, investment tax allowance and reinvestment allowance, target manufacturing and approved activities and need approval. Pioneer status exempts 70% of statutory income for five years; reinvestment allowance gives 60% of qualifying spending for established manufacturers.
What is stamp duty and when does a Malaysian business pay it?Stamp duty is charged on documents such as property transfers, share transfers, loan or mortgage instruments and leases. Share transfers are RM3 per RM1,000 (0.3%), most loan or charge instruments RM5 per RM1,000 (0.5%) and a simple agreement RM10. From 1 January 2026 employment contracts with wages up to RM3,000 a month are exempt, up from RM300.
Do related-party transactions between my group companies need transfer pricing documents?Prices between related parties must be at arm's length for every company. A full transfer pricing document is required if gross business income exceeds RM30 million and cross-border related-party transactions are RM10 million or more, or financial assistance exceeds RM50 million. Smaller taxpayers use a lighter minimum document, unless exempt.
How do I change my company's tax agent in Malaysia?Appoint the new tax agent through MyTax and remove access for the old one, then hand over the tax file records. Check that the new adviser is approved under s.153. The company stays responsible for filings, so settle any open deadlines first.
What did Budget 2026 change for Malaysian SMEs?Budget 2026 (tabled 10 October 2025) left income tax rates unchanged but added an extra 50% deduction for recognised AI and cybersecurity training for SMEs, a green asset allowance, stamp duty relief for low-paid employment contracts, an 8% stamp duty on residential transfers to non-citizens, and full e-invoicing and stamp duty self-assessment in 2026.