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.
A letter from LHDN is manageable if you handle it in order.
Steps:
- Note the date and scope. Identify the years of assessment, the issue, and the reply deadline.
- Tell your tax agent and give them the letter the same day.
- Collect records for the years in question: ledgers, bank statements, invoices, contracts, payroll and prior returns.
- Reconcile bank deposits and sales to the income reported, which is a common focus.
- Reply fully and on time. If more time is needed, ask in writing before the deadline.
- Correct honest errors and offer to pay the additional tax. Voluntary disclosure usually leads to a lower penalty than an error found by LHDN, though the exact reductions depend on LHDN's current framework.
- Keep copies of everything you send.
Why it matters: LHDN's penalties table lists failing to comply with a notice for information as an offence under s.120(1) (fine RM200 to RM20,000, up to six months, or both). Understating income can lead to fines and a penalty of up to 200% of the tax undercharged under s.113(1) on prosecution.
Disagreeing: if you disagree with an assessment, there are statutory appeal routes with strict time limits, so ask your adviser straight away.
Legal basis
- Income Tax Act 1967, s.113
- Income Tax Act 1967, s.120(1)
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 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.
- 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.
- 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.
- 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 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.