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.
A company qualifies for the SME tiered rates only if all of these hold for the year of assessment:
- It is a resident company incorporated in Malaysia.
- Its ordinary paid-up capital is RM2.5 million or less at the start of the basis period.
- Its gross income from business is RM50 million or less.
- It does not control, directly or indirectly, another company that has paid-up capital above RM2.5 million.
- It is not controlled by another company that has paid-up capital above RM2.5 million.
- From YA 2024, no more than 20% of its paid-up ordinary capital is owned, directly or indirectly, by foreign companies or non-Malaysian individuals.
The related-company test means a small subsidiary of a larger group generally cannot use the SME scale, even if the subsidiary itself is tiny.
If the company fails any condition, the whole chargeable income is taxed at 24%.
Practical tip: check capital changes and share transfers during the year, because a new corporate shareholder or foreign investor can switch the company out of the SME scale. LHDN's published rulings give the precise wording, including how gross income and associated companies are counted; confirm against the current ruling before relying on an edge case.
Legal basis
- Income Tax Act 1967, s.2(7)-(8) (definition of SME for Schedule 1 rates)
Sources
Applies to YA 2026 · 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
- 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.
- 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.
- 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.
- 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.