Taxes of a nation contribute to the country’s revenue, helping to pay for necessary government programs and the expansion of its infrastructure. By supporting social welfare programs and promoting economic stability, these taxes provide a just and equal distribution of financial obligations among firms.
The fiscal structure of Malaysia is heavily influenced by corporate income taxes. They contribute to the nation’s overall economic expansion and provide the government with a crucial source of funding. If you are operating a corporation in Malaysia, you must pay corporate income taxes in the nation.
In this guide, we will be explaining corporate income taxes in Malaysia. We will go over the rates of corporate taxation, and information on submitting tax returns in Malaysia.
About Corporate Income Taxes in Malaysia
Corporate income taxes in Malaysia are assessed on the earnings made by enterprises operating in the nation. The government needs to collect these taxes in order to pay for public services, infrastructure improvements, and social welfare programs. As such all earnings from activities in Malaysia, comprising royalties, dividends, and premiums, have to be given to the governmental authorities.
The nation’s taxation structure was developed and assessed by the Inland Revenue Board of Malaysia (IRBM). The corporate income taxes in Malaysia are imposed on the resident as well as non-resident businesses on the revenue they generate in the nation in accordance with the Income Tax Act of 1967 (Customs Act). The rates of corporate income taxes in Malaysia differ depending on the form of firm.
Rates of Corporate Income Taxes in Malaysia
The two categories of businesses are listed below along with their respective rates of corporate income taxes in Malaysia:
Corporation Type | Chargeable Income | Taxation rate |
Resident Corporations |
| 24% |
Resident corporations have a minimum paid-up capital of MYR 2.5 million & a maximum annual gross revenue from operations of MYR 50 million. | On the initial MYR150,000
| 15% |
Resident corporations that don’t directly or indirectly hold a controlling interest in another business with paid-up capital exceeding MYR 2.5 million | On the following MYR450,000
| 17% |
Resident corporations have no overseas firm or individual owning over 20% of its paid-up capital, either directly or indirectly. | More than MYR 600,000
| 24% |
Non-resident Corporations |
| 24% |
Requirements for Malaysian Tax Residency and Taxation
The need for taxation is frequently determined by the residency status of a corporation. Both resident and non-resident businesses in Malaysia are subject to taxation on income earned there under the country’s territorial tax regime.
Nevertheless, there are three primary factors that determine whether a company is a complete tax resident in Malaysia:
- If Malaysia is the country where the fundamental period year of assessment is conducted.
- If Malaysia manages the affairs and exercises control over them.
- If the board of directors and executive committee’s meeting is held in Malaysia.
Revenue from foreign sources is exempt from this taxes scheme unless the corporation conducts operations in the financial services, insurance, air transportation, or shipping industries.
Incentives for Tax in Malaysia
Malaysia provides a number of tax benefits for corporations in order to encourage investment, economic expansion, and a number of industries. These benefits include pioneer status, tax breaks for investments and reinvestments, and unique tax deductions for R&D operations. These incentives are meant to entice both domestic and international investment as well as promote growth and innovation in specific industries.
Here are the numerous tax incentives available in Malaysia:
Pioneer status(PS) and investment tax allowance(ITA)
- The Pioneer Status (PS) and Investment Tax Allowance are tax benefits in Malaysia that are available to businesses in the agricultural, manufacturing, lodging, and tourism industries.
- For five years, 70% of the statutory income (SI) of a company that receives PS is free from CIT; the other thirty percent is subject to normal tax.
- ITA grants a business a 60% deduction for qualified capital expenditures (QCE) made within a five-year period. This deduction is applied to 70% of SI and the other thirty percent is subject to the standard CIT rate.
Companies that trade internationally
For a period of five years, international trade enterprises receive a break from paying taxes on income ranging from 20% to 70% of the total export earnings.
The business must fulfill the following requirements in order to qualify for this incentive:
- Established in Malaysia and Malaysians own 60% of the company.
- Minimum annual revenue of MYR 10 million is required.
Malaysian CIT Deductions Expenses
In Malaysia, costs that are entirely and solely borne while a business makes profits are eligible for income deduction. These costs are separated into two categories: deductible and non-deductible.
The following are typical examples of business expenses that qualify as tax deductions:
- Salaries of workers
- Costs for promotion and advertising
- Leasing of equipment and plants
- The price of workplace maintenance and renovations
- Insurance for businesses
- Expenditure for travel by employees
- The cost of hiring
- Entertainment and recreation costs for employees
The following are the most typical instances of corporation tax non-deductible expenditures:
- The filing of trademarks
- Personnel contributions to unauthorized pensions, provident funds, or savings plans
- Corporate and charitable donations
- Fines and sanctions
- Private, national, or capital spending
When should Malaysian corporations file their income tax returns?
Companies have to fulfill corporate tax obligations in Malaysia when doing business. These commitments include adhering to tax laws, filing tax forms on schedule, and accurately disclosing income and spending.
Companies in Malaysia are required to file an annual tax return, known as Form C, to the Inland Revenue Board of Malaysia (IRBM). Within seven months following the end of the fiscal year, Malaysian businesses are required to file their corporate income tax returns.
The deadline for paying taxes due is the seventh month after the accounts were closed.
Businesses are required to submit estimates of their tax liabilities for the upcoming assessment year within thirty days prior to the start of the base period.
For newly founded enterprises with paid-up capital of MYR 2.5 million or lower, the requirement to provide estimates of the tax due for two assessment years is waived.
Tax Assessment Year in Malaysia
The tax year for companies in Malaysia follows the calendar year, running from 1st January to 31st December. The fiscal year that ends in the year of assessment is the base term for a corporation.
Malaysia bases its assessments on the current year. A corporation is subject to taxation on income received throughout the fiscal year that ends in the assessment year.
Conclusion
Corporate income taxes in Malaysia play a crucial role in the nation’s budgetary structure. They aid in economic growth, support governmental revenue, and offer funding for essential services and infrastructure. Businesses should understand the tax rates, incentives, and filing requirements to ensure smooth operations and contribute positively to Malaysia’s economy.
If you need guidance on corporate income taxes in Malaysia, trust Odint Consulting. Our business experts are ready to address your queries and provide professional assistance.
FAQ’s
The normal rate of corporate income tax in Malaysia is 24%.
Yes, Malaysia provides a number of tax breaks for startup companies, including pioneer status, tax breaks for investments, and unique deductions for R&D expenses.
Corporate income tax regulations violations may incur fines, penalties, and legal repercussions. Additionally, it can harm an organization’s finances and reputation.
Yes, Malaysia has double taxation agreements (DTAs) with a number of nations to prevent taxing businesses with cross-border operations twice on their profits. These agreements offer assistance and procedures for requesting tax breaks or exclusions.
