Corporate tax in Malaysia is charged at a flat rate of 24% on a company’s chargeable income, with reduced rates of 15% and 17% available to resident small and medium enterprises on their first RM600,000. Companies operate under a self-assessment system: the business estimates its own tax, pays in monthly installments, and files a final return within seven months of the end of its accounting period. Tax generally applies to income sourced in Malaysia, though certain foreign income becomes taxable when remitted into the country.
Who Pays and at What Rate
A company is treated as a Malaysian tax resident if its management and control are exercised in Malaysia at any point during the financial year. In practice, holding at least one board meeting in Malaysia during the basis year is usually enough.1Lembaga Hasil Dalam Negeri Malaysia. Tax Rate of Company Residency matters because it opens the door to preferential rates and incentives that non-residents cannot claim.
Both resident and non-resident companies that do not qualify as SMEs pay 24% on chargeable income.1Lembaga Hasil Dalam Negeri Malaysia. Tax Rate of Company Non-residents are taxed only on Malaysian-sourced income. Residents are taxed on Malaysian-sourced income and, in certain cases, on foreign income remitted into Malaysia.
SME Tiered Rates
A resident company qualifies for the SME rates if its paid-up capital is RM2.5 million or less and its gross business income does not exceed RM50 million. Chargeable income is then taxed as follows:1Lembaga Hasil Dalam Negeri Malaysia. Tax Rate of Company
- First RM150,000 at 15%
- RM150,001 to RM600,000 at 17%
- Above RM600,000 at 24%
Two ownership rules disqualify a company from SME status. First, if more than 20% of the paid-up capital is held directly or indirectly by a foreign company or non-Malaysian citizen, the company loses the preferential rates. Second, subsidiaries of large corporations, multinational groups, or government-linked entities are excluded regardless of size.2Lembaga Hasil Dalam Negeri Malaysia. SME
How Chargeable Income Is Calculated
Chargeable income begins with gross income from all taxable sources, including business revenue, rent, royalties, and interest. Allowable expenses are then deducted. The core test is that an expense must have been incurred wholly and exclusively to produce the gross income.3Inland Revenue Board of Malaysia. Malaysia Code – Income Tax Act 1967
Salaries, office rent, utilities, and routine repairs are typical deductions. Several categories are explicitly not deductible:
- Private or domestic expenses
- Capital expenditure (recovered through capital allowances instead)
- Fines, penalties, and income tax itself
- Motor vehicle lease payments to the extent they exceed RM50,000
- Payments to non-residents where the payer failed to withhold and remit the correct tax
That last item is worth flagging. If a Malaysian company pays a foreign vendor for services or royalties and skips the withholding step, the entire payment becomes non-deductible for corporate tax purposes on top of the withholding liability itself.
Capital Allowances
Accounting depreciation is not deductible. Capital spending is instead recovered through capital allowances, made up of an initial allowance in the year of purchase and an annual allowance over the asset’s useful life. Standard rates depend on the asset:4Inland Revenue Board of Malaysia. Public Ruling 12/2014 – Qualifying Plant and Machinery for Claiming Capital Allowances
- Heavy machinery and motor vehicles: 20% initial, 20% annual
- General plant and machinery: 20% initial, 14% annual
- Other qualifying assets such as furniture and office equipment: 20% initial, 10% annual
Small-value assets costing less than RM2,000 each can be written off in full in the year of purchase. For SMEs, small-asset write-offs are capped at RM20,000 per year of assessment.5Inland Revenue Board of Malaysia. Public Ruling 3/2021 – Special Allowances for Small Value Assets
Losses
Current-year business losses can offset income from any source in the same year. Unused losses carry forward for up to ten consecutive years, but only against future business income.6Inland Revenue Board of Malaysia. Public Ruling 1/2022 – Time Limit for Unabsorbed Adjusted Business Losses Carried Forward Unabsorbed capital allowances have no expiry, but they can only be applied against income from the same business source that generated them. Dormant companies lose access to both carry-forwards unless they meet a shareholders’ continuity test.
Filing, Estimates, and Payment
Every company must submit Form CP204, its estimate of tax payable for the coming year of assessment, no later than 30 days before the start of the basis period.7Lembaga Hasil Dalam Negeri Malaysia. Tax Estimation That estimated amount is then paid in 12 equal monthly installments beginning in the second month of the basis period.8Lembaga Hasil Dalam Negeri Malaysia. Tax Payment
The estimate can be revised up to three times, in the 6th, 9th, or 11th month of the basis period.7Lembaga Hasil Dalam Negeri Malaysia. Tax Estimation Getting the number roughly right matters. If the gap between the final estimate (or the original, if no revision was filed) and the actual tax payable is more than 30% of the actual tax, a 10% penalty applies to the amount by which that gap exceeds the 30% threshold.8Lembaga Hasil Dalam Negeri Malaysia. Tax Payment
The annual tax return is due within seven months after the close of the company’s accounting period. Any remaining tax, after crediting the installments, is due at the same time. Late filing and late payment each carry penalties.
Payments to Non-Residents
Companies that pay non-residents for Malaysian-sourced income must deduct withholding tax and remit it to the IRBM within one month of the payment.9Lembaga Hasil Dalam Negeri Malaysia. Withholding Tax The standard domestic rates are:10Lembaga Hasil Dalam Negeri Malaysia. Withholding Tax Rates
- Interest: 15%
- Royalties: 10%
- Technical services, advice, or assistance: 10%
- Rental of movable property: 10%
Malaysia has an extensive network of double taxation agreements that can reduce or eliminate these rates. A non-resident must produce a tax residency certificate from a treaty partner to claim the lower treaty rate. Where the treaty rate is lower than the domestic rate, the treaty rate applies.
A foreign company that operates through a fixed place of business in Malaysia, such as an office, branch, factory, or warehouse, creates a permanent establishment and becomes taxable here on the profits attributable to that presence. For construction or installation projects, the domestic threshold is five months in any 12-month period.11Inland Revenue Board of Malaysia. Guidelines on the Application of Subsections 12(3) and 12(4) of the Income Tax Act 1967 A relevant treaty may set a longer threshold.
Incentives That Can Reduce the Rate
Malaysia offers several tax incentives targeted at manufacturing, strategic services, and technology. These are not automatic; they require approval from the Malaysian Investment Development Authority or another designated agency.
Pioneer Status exempts 70% of statutory income from a promoted product or activity for five years, with the remaining 30% taxed at the standard rate. High-technology or nationally strategic projects can qualify for a higher exemption, up to 100%.12Inland Revenue Board of Malaysia. Public Ruling 10/2023 – Pioneer Status Incentive
The Investment Tax Allowance gives a deduction of 60% of qualifying capital expenditure over a five-year incentive period, usable against up to 70% of statutory income from the promoted activity each year. Unused allowance carries forward. Higher rates, up to 100% of expenditure or 100% of statutory income, can be approved by the Minister of Finance.13Inland Revenue Board of Malaysia. Public Ruling 4/2023 – Investment Tax Allowance Overview
The Reinvestment Allowance is aimed at existing manufacturers and agricultural businesses spending on expansion, modernization, or automation. It provides 60% of qualifying capital expenditure, offsetting up to 70% of statutory income, with a jump to 100% for companies that exceed productivity benchmarks set by the Ministry of Finance.14MIDA. Obtaining Investment Incentives and Facilitative Services – Chapter 2
Foreign-Sourced Income Remitted to Malaysia
From January 1, 2022, Malaysia began taxing certain foreign-sourced income when it is remitted into the country. Transitional exemption orders soften this rule through December 31, 2026. For companies (other than those in banking, insurance, or international shipping and air transport), only foreign-sourced dividends qualify for the exemption during this period, and two conditions must be met: the dividends must have been taxed in the source country, and that country’s highest tax rate must be at least 15%.
Other remitted foreign income for companies, such as interest, royalties, or foreign business profits, is taxable at the standard 24% rate. After 2026, the treatment of remitted foreign income could broaden, so businesses relying on the dividend exemption should watch for updates.
Other Regimes to Be Aware Of
A company selling Malaysian real property, or shares in a real property company, is subject to Real Property Gains Tax. Company rates run from 30% for disposals within three years down to 10% for disposals in the sixth year and beyond, with no zero band regardless of how long the property was held.15Lembaga Hasil Dalam Negeri Malaysia. Real Property Gains Tax Rates
Labuan operates a separate regime under the Labuan Business Activity Tax Act 1990. Labuan entities carrying on trading activities pay 3% on net profits, and non-trading activities such as investment holding can qualify for 0%. Both rates depend on meeting substance requirements covering staffing and operating expenditure in Labuan; failing them pushes the entity onto the standard 24% rate.
Related-party transactions must be priced at arm’s length, and companies are required to keep contemporaneous transfer pricing documentation. Where the IRBM makes a transfer pricing adjustment, it can impose a surcharge of up to 5% on the adjusted amount under Section 140A(3C), on top of the additional tax.16Inland Revenue Board of Malaysia. Malaysia Transfer Pricing Guidelines 2024
Mandatory e-invoicing is being rolled out in phases through the IRBM’s MyInvois portal, based on annual turnover. The largest businesses (above RM100 million) came in on August 1, 2024, and the smallest in scope (up to RM5 million) from January 1, 2026. Businesses with annual turnover below RM1 million are exempt.17Lembaga Hasil Dalam Negeri Malaysia. E-Invoice Implementation Timeline
Finally, Malaysia has enacted the OECD’s Pillar Two rules through the Finance (No. 2) Bill 2023, effective for financial years starting on or after January 1, 2025. A Domestic Top-up Tax and a Multinational Top-up Tax apply only to multinational groups with consolidated annual revenue of at least EUR 750 million, aiming for a 15% effective rate in each jurisdiction.18Lembaga Hasil Dalam Negeri Malaysia. What Is Malaysia’s Position on GMT SMEs and most domestic companies are outside the scope, but in-scope groups relying on Pioneer Status or ITA should model whether their incentivized effective rate falls below 15% and triggers a top-up.