Income tax guidelines

Malaysia adopts a territorial tax system.

Regardless of residency status, companies or businesses are assessed on income derived from or sourced in Malaysia. Income sourced from outside Malaysia and remitted by resident companies is exempt from tax, except for banking, insurance, and sea and air transport businesses. Starting from the 2022 tax year, foreign-sourced income received in Malaysia by Malaysian residents (both companies and individuals) may be subject to tax.

A company is considered a Malaysian tax resident for a basis year if its management and control are exercised in Malaysia at any time during that year.

“Management and control” is the key factor in determining whether a company is a Malaysian resident. It refers to the control over the policies that the company follows. Regardless of where the company is incorporated, the place where the board of directors conducts its business/affairs is regarded as the place where management and control are exercised. The residency status depends on how the company is managed.

If any board of directors’ meeting concerning the company’s management and control is held in Malaysia during the basis year of a tax year, the company is considered a Malaysian resident for that year, even if other meetings are held outside Malaysia.

Overseas branches of Malaysian companies are generally considered non-Malaysian residents unless it can be established that management and control, or any of their business activities, are exercised in Malaysia.

The tax rate for resident companies is 24%.

For small and medium-sized enterprises (SMEs), the first 150,000 MYR of taxable income is taxed at 15%, income from 150,001 MYR to 600,000 MYR is taxed at 17%, and income exceeding 600,000 MYR is taxed at 24%.

An SME is defined as a company registered in Malaysia with a paid-up ordinary share capital not exceeding 2.5 million MYR. It must not be directly or indirectly owned by a company with paid-up capital exceeding 2.5 million MYR. Additionally, it must have a total business source or revenue not exceeding 50 million MYR.

From the 2024 tax year onwards, to qualify for the reduced tax rate, an additional condition is that no more than 20% of the paid-up capital/total contribution at the start of the baseline year should be owned/contributed directly or indirectly by a company established outside Malaysia or by non-Malaysian citizens.

Under the single-tier tax system, the taxable amount of a company’s taxable income is the final tax liability. Any dividends distributed to shareholders will be tax-exempt.

Generally, all expenses and costs specifically incurred to produce income are deductible.

Here is a list of common deductible items. However, note that expenses can vary between different types of businesses and industries. The tax authority will assess according to common industry practices and review the relevance of the expenses to the income-generating activities.

• Employment costs for employees, such as salaries, allowances, provident fund, and social security
• Business insurance
• Leased property
• Promotional advertising
• Leased factories and machinery
• Electricity, water, telephone, and internet expenses
• License renewal
• Maintenance and repairs
• Promotional gifts
• Promotional samples
• Gifts with company trademarks
• Printing and stationery
• Transportation allowances for employees
• Business travel allowances
• Employee-reimbursed fuel expenses
• Legal fees for recovering trade debts
• Sales commissions
• Repainting property
• Employee entertainment expenses
• Write-off of specific trade debts (subject to conditions)
• Training employees

Certain expenses are often disallowed for tax deduction, even though they are necessary business costs for entrepreneurs. Understanding which expenses are non-deductible can help a company reduce such expenditures in the future.

The following are more common non-deductible expenses.

Uninsured expenses:

• Expense provisions
• General bad debt provisions
• Depreciation and losses on assets sold
• Unrealized foreign exchange losses

Capital expenditures:

• Pre-operational expenses
• Costs related to acquiring, improving, or altering assets, including incidental costs
• Costs related to maintaining, protecting, or defending asset ownership
• Renovation or construction costs of a property
• Procurement repairs
• First-time painting of property
• Licensing and registration fees
• Income tax, tax penalties, and appeal costs
• Fines and penalties
• Donations
• Legal fees for purchasing property or for bank loans
• Club membership fees
• Trademark registration
• Design fees for company logos

Non-deductible expenses

• Expenses not entirely incurred for generating income
• Domestic, private, or capital expenditures (companies may apply for capital allowances on capital expenditures)
• Car rental exceeding RM50,000 per vehicle or RM100,000 for vehicles rented before being used, where the vehicle’s price is RM150,000 or below.
• Employer contributions to unapproved pension, provident fund, or savings plans
• Employer contributions to approved plans exceeding 19% of employee salaries
• Unapproved donations
• Employee vacations
• Interest, royalties, contract payments, technical fees, movable property rentals, payments to non-resident public entertainers, or other payments to non-residents subject to withholding tax but where the withholding tax has not been paid
• If a person is required to register for Goods and Services Tax (GST) but fails to do so, their input tax cannot be deducted.
• The input tax incurred by the person can be claimed by the person.
• Input tax borne or absorbed by a person who is registered for Goods and Services Tax (GST) or should be registered for GST.
• Entertainment for potential clients
• Entertainment for existing clients (50% allowed)
• 应酬供应商（50%被允许）

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这些税收优惠以各种形式出现，如收入免税、所发生的资本支出有额外补贴、双重扣除费用、特别扣除费用、促进部门的优惠税收待遇、免征进口税和消费税等。

虽然马来西亚既不是避税天堂也不是低税收辖区，但对于有资格享受税收优惠的公司而言，有效税率可能远低于24%的正常公司税率。例如，具有先锋地位税收优惠的制造业公司以7.2%的税率支付有效税，因为它们仅需为利润的30%缴纳税款。马来西亚提供的一些主要税收优惠政策是先锋地位（PS）、投资税务补贴（ITA）和再投资补贴（RA）。