Tax rates in Malaysia

Company Tax

24%

Tax Rate For Foreign Companies

The Malaysian tax system is territorial. Residents and non-residents alike are taxed on their Malaysian-sourced income while foreign-sourced income is usually not taxed even in the case of resident and/or local firms. Non-resident companies are taxed at a 24% flat rate, regardless of their capital.
Foreign-source dividend income received by resident companies and limited liability partnerships from 1 January 2022 to 31 December 2030 is generally tax-exempt.
Branches of foreign corporations are typically categorized as non-residents unless there is sufficient evidence to demonstrate that their management and control are established within the country. As such, payments received by non-resident contractors for services rendered within Malaysia under a project contract may be subject to tax withholding by the payer. The withholding tax is typically levied at a rate of 10% on the contractor's income tax liability, in addition to 3% on the income tax payable by the non-resident contractor's employees. These amounts are deemed creditable against the contractor's overall tax liability.
It should be noted that non-residents are generally not eligible to receive investment incentives or exemptions under Malaysian law.

Capital Gains Taxation

Gains from the disposal of real property in Malaysia may be subject to real property gains tax (RPGT). However, from January 1, 2024, an exemption from RPGT applies if the gains are subject to capital gains tax (CGT). For Malaysian companies, RPGT rates are 30% for disposals within three years of acquisition, 20% in the fourth year, 15% in the fifth year, and 10% thereafter. Foreign companies face 30% RPGT for disposals within five years and 10% thereafter. Starting January 1, 2024, share disposals in real property companies are exempt from RPGT, as they will be subject to CGT, except for Labuan entities, which remain subject to RPGT on such disposals.

The government introduces CGT on disposals of capital assets by companies effective January 1, 2024. CGT rates vary based on acquisition dates and asset locations. For Malaysian assets acquired before January 1, 2024, the rate is 10% on chargeable income from disposal or 2% on the gross price. For assets acquired on or after that date, the rate is 10% on chargeable income. Capital assets outside Malaysia are taxed at the prevailing income tax rate (currently 24% for companies) on chargeable income brought into Malaysia.

Main Allowable Deductions and Tax Credits

Deductions are allowed for any revenue expenditure incurred wholly and exclusively in the production of income, including interest, royalty payments and certain taxes.
Interest expense is allowed as a deduction if the expense was incurred on any money borrowed and employed in the production of gross income or laid out on assets used or held for the production of gross income. Where borrowing is partly used to finance non-business operations, the proportion of interest expense will be allowed against the non-business income.
A deduction is allowed for cash donations to approved institutions, capped at 10% of the aggregate income of the company for a year of assessment.
Incorporation and recruitment expenses are deductible, the same as bad debts (which however need to be identified and reasonably estimated to be irrecoverable).
Unutilised losses in a year of assessment can only be carried forward for a maximum period of ten consecutive years of assessment while unabsorbed capital allowance can be carried forward indefinitely (except in the case of a significant change in the ownership structure of a dormant company). The carryback of losses is not permitted.
Companies can deduct royalties, management service fees, and interest charges paid to foreign affiliates, provided these payments are made at arm's length and any applicable withholding taxes have been deducted and remitted to the Malaysian tax authorities.

A wide range of incentives is available for specific industries, including manufacturing, hotels, healthcare services, information technology, biotechnology, Islamic finance, venture capital, tourism, energy conservation, and environmental protection. These incentives include tax holidays of up to 10 years (pioneer status); investment tax allowances ranging from 60% to 100% on capital investments for up to 10 years; accelerated capital allowances; double deductions; and reinvestment allowances at 60% on qualifying project investments. Additionally, incentives such as accelerated capital allowances and automation equipment allowances are available to promote the adoption of "Industry 4.0" technologies, including big data analytics, autonomous robots, and the industrial internet of things within the manufacturing sector and related services. For further information, click here.

Other Corporate Taxes

Employers and employees alike must contribute to the Malaysian Social Security Organisation (SOCSO), with the employer's contributions generally at 1.75% of salaries. Employer contributions to the Employees' Provident Fund (EPF) range from 12% to 13% (for monthly remunerations up to MYR 5,000) of the salary. Employers and employees contribute 0.2% of the employee's salary (capped at MYR 6,000 per month) to the Employment Insurance Scheme (EIS).

Employers engaged in the manufacturing and services sectors that employ more than a specified number of employees must contribute to the Human Resource Development Fund (HRDF), at the rate of 1% of the monthly wage.

Gains from disposals of real property are subject to a real property gains tax (RPGT). The RPGT rate is tiered based on the timing of the property disposal. Disposals within three years of acquisition are subject to a 30% rate, while disposals in the fourth and fifth years are taxed at 20% and 15%, respectively. For disposals made in the sixth year and beyond, the rate is 10%. Companies incorporated outside of Malaysia are subject to a 30% rate for disposals made within five years and a 10% rate thereafter.

Petroleum income tax in Malaysia is levied at 38% on income from petroleum operations, while an effective rate of 25% applies to income from petroleum operations in marginal fields. No other taxes are imposed on income from petroleum operations.

A levy is imposed on crude palm oil and crude palm kernel oil when the price exceeds MYR 3,150 per ton in Peninsula Malaysia and MYR 3,650 per ton in Sabah and Sarawak. Additionally, the Construction Industry Development Board imposes a 0.125% levy on contract works with a contract sum above MYR 500,000 for every registered contractor.
Local companies are subject to an incorporation fee of MYR 1,000, while foreign companies pay a higher fee (from MYR 5,000 to MYR 70,000).

Stamp duty is levied at rates ranging from 1% to 4% of the value of property transfers, and at 0.3% on share transaction documents.

Other Domestic Resources

Inland Revenue Board

Tax Rate

Allowable Deductions and Tax Credits

Employees can deduct expenses incurred solely and directly in the course of their work duties. However, tax depreciation is not allowable. Expenditures of a private or domestic nature are explicitly excluded from deduction, such as hiring domestic help for housekeeping while at work. Deductions are permitted for subscriptions to professional associations relevant to the individual's occupation.
Donations to approved institutions or organisations are deductible (limits apply). Mortgage interest incurred to finance the purchase of a house is deductible only if income is derived from the house.

Several personal reliefs apply: a standard allowance of MYR 9,000, MYR 4,000 for a spouse (in case of joint assessment), MYR 2,000 for each child below 18 years of age, plus extra allowances for disabled persons.

Other deductions include medical expenses (MYR 10,000), pension/provident funds (MYR 4,000) and insurance premiums (MYR 3,000), education fees (MYR 7,000), certain childcare (MYR 3,000), contribution to SOCSO (MYR 350), etc. Click here for further info.

Special Expatriate Tax Regime

Individuals who do not meet the residence requirements are taxed at a flat rate of 30% on total taxable income.