Corporate Tax in Malaysia
Updated on Friday 31st July 2020
The Malaysia corporate tax rate has a standard rate as well as a smaller one applicable under certain conditions to small and medium resident companies. This tax is imposed on income that is derived from or accruing in the country both in the case of resident and non-resident legal entities.
Our tax lawyers in Malaysia can give you complete details on the applicable taxes for companies as well as the accounting and reporting compliance. In this article, we highlight the main issues concerning corporate taxation and the basic reporting obligations, however, for more in-depth information we invite you to reach out directly to our team of attorneys.
What is the general Malaysia corporate tax rate?
The standard corporate tax rate is 24% for Malaysian companies as well as for branches that operate here. Small and medium companies are subject to a 17% tax rate, with the balance in this case being subject to the 24% rate.
For the purpose of the Malaysia corporate tax rate, a small or medium company is one that is incorporated in the country and has a paid-up capital of 2.5 million MYR or less and it is not part of a group of companies where a legal entity exceeds this threshold. Another condition is for the company to have a gross income from business sources of no more than 50 million MYR for the year of assessment.
Investors can reach out to our lawyers for more information on how small and medium companies as defined and an assessment on whether or not they can qualify for the reduced Malaysia corporate tax rate.
What companies are considered resident ones for tax purposes?
Companies are taxed in Malaysia based on their residence. All income derived from the country is taxed, however, foreign-sourced income is subject to a tax exemption (unless the resident company that receives this said foreign income is involved in banking, insurance, air transport, or shipping).
In general, branches are taxed in the same manner as subsidiaries, meaning that they will be subject to the same general Malaysia corporate tax rate. However, as long as the branch’s place of management and control is not in the country, then it is treated as a non-resident (meaning that is can be subject to a different tax on income from payments on contracts for work rendered in the country). In most cases, branches are not subject to investment exemptions and incentives because of their non-resident status.
What are other taxes applicable to Malaysian companies?
Some of the most important taxes applicable to companies apart from the corporate income tax are the following:
- Sales and services tax: with a 6% service tax and a 10% sales tax and two reduced rates for the latter (0% and 5% in some cases);
- Withholding tax: a 15% rate applies to interest payments and a 10% tax is applicable in case of royalties as well as fees on onshore services or for the use of moveable property; dividend payments are not subject to this tax;
- Social security contributions: these are submitted to the Social Security Organization and the employer will generally pay a rate of 1.75% of the employee’s remuneration for each employee registered with the Organization; different rated apply for the contributions with the Employees Provident Fund;
- Stamp duty: ranges between 1% and 4% of the value of the property that is being transferred; the rate is 0.3% on share transaction documents.
There is no capital duty in Malaysia, however, an incorporation fee applies to local and foreign companies.
You can reach out to our lawyers for more information about these taxes that apply in addition to the Malaysia corporate tax rate.
Can you list the main reporting requirements?
Our agents summarize the main requirements for corporate filing and payment below:
- The tax year: it is generally the same as the fiscal year;
- Assessment: Malaysia has a self-assessment regime and the estimated tax (the advance corporate tax) is payable in 12 monthly installments;
- Tax return: this is to be filed within seven months of the end of the company’s financial year;
- Others: companies are not allowed to submit consolidated returns; each company in Malaysia is required to file a separate tax return.
Investors should also note that Malaysia has singed more than 70 income tax treaties that protect companies that derive income from both Malaysia and another jurisdiction form being taxed twice on the same type of income.
You can contact the experts at our law firm in Malaysia for more information about the corporate tax, its rate, recent tax changes as well as complete information on the legal provisions for accounting and reporting.