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%.
The Income Tax Act sets several tests for the SME rates of 15%, 17% and 24%. All must be met.
The tests (Schedule 1, Part I, paragraphs 2A to 2C):
- The company is resident and incorporated in Malaysia.
- Paid-up ordinary share capital is RM2.5 million or less at the beginning of the basis period.
- Gross business income for the basis period is RM50 million or less.
- The ownership limits below are not breached.
Ownership limits (paragraph 2B). The SME rates do not apply if more than:
- 50% of the ordinary capital is owned, directly or indirectly, by a "related company" (one with ordinary capital above RM2.5 million), or the reverse, or both are more than 50% owned by another company; or
- 20% of the ordinary capital at the beginning of the basis period is owned, directly or indirectly, by companies incorporated outside Malaysia or by individuals who are not Malaysian citizens.
In practice
- A company owned 85% by Malaysian citizens and 15% by a foreign individual can still qualify if the other tests are met.
- A company with more than 20% foreign ownership pays 24% on all its chargeable income.
- Permanent residents are not citizens, so their shares count towards the 20%.
- Holding through a Malaysian company does not avoid the test, because indirect ownership is counted.
Timing. Ownership is measured at the beginning of the basis period, so a share issue part-way through a year generally affects the following year of assessment rather than the current one.
LHDN's company rate table lists the rate bands but not these conditions, so read the Act or ask a tax agent if your shareholding is close to the limit.
Legal basis
- Income Tax Act 1967, Schedule 1, Part I, paragraphs 2A to 2C
Sources
Applies to YA 2024 onwards · Last reviewed 29 October 2026
General information for business owners, not legal, tax or professional advice. Rules change, so check the sources or ask a licensed professional before you act.
Related questions
- 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.
- 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.
- 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.