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Income tax rates

Rising Global Consultants

Corporate income tax rates

Malaysia adopts a territorial taxation system. Regardless of residency status, companies or businesses are assessed based on income derived from or received in Malaysia. Income remitted from outside Malaysia by resident companies is tax-exempt, except for banking and insurance businesses, as well as maritime and aviation businesses. Starting from the 2022 tax year, foreign-sourced income received by Malaysian residents (both companies and individuals) may be subject to tax.

2022

  • Resident companies (SMEs) with paid-up capital of RM2.5 million or less at the start of the benchmark period (Note 1)
  • The total business income of the company from one or more sources in the relevant tax year does not exceed RM50 million.

First RM600,000 of taxable income – 17%

Subsequent taxable income – 24%

  • Resident companies with paid-up capital exceeding RM2.5 million at the start of the benchmark period – 24%
  • Non-resident companies/branches – 24%

In 2022, taxable income exceeding RM100 million is subject to prosperity tax – 33%

 

2023

  • Resident companies (SMEs) with paid-up capital of RM2.5 million or less at the start of the benchmark period (Note 1)
  • The company’s total business income from one or more sources in the relevant tax year does not exceed RM50 million.

First RM150,000 of taxable income – 15%

Subsequent taxable income from RM150,001 to RM600,000 – 17%

Subsequent taxable income – 24%

  • Resident companies with paid-up capital exceeding RM2.5 million at the start of the benchmark period – 24%
  • Non-resident companies/branches – 24%

SMEs are defined as companies in Malaysia that have a paid-up share capital of RM2.5 million or less at the start of the benchmark period for the tax year

  • For the company’s ordinary shares, no more than 50% of the paid-up capital can be directly or indirectly owned by related companies
  • For the company’s ordinary shares, no more than 50% of the paid-up capital can be directly or indirectly owned by the companies first mentioned; 
  • For the company’s ordinary shares, no more than 50% of the paid-up capital can be directly or indirectly owned by the companies first mentioned and their related companies
  • Total business income does not exceed RM50 million

“Related companies” refer to companies that have a paid-up share capital exceeding RM2.5 million at the start of the benchmark period for the tax year.

From the 2024 tax year onwards, to qualify for SME tax relief, an additional condition is that no more than 20% of the paid-up share capital or total contribution at the start of the benchmark period can be directly or indirectly owned/contributed by companies established outside Malaysia or individuals who are not Malaysian citizens.

Newly established SME income tax rebate

Newly established SMEs (including companies and Limited Liability Partnerships (LLP)) that commenced operations between July 1, 2020, and December 31, 2022, and meet the conditions announced by the government, are eligible for a tax rebate of RM20,000 per year for three tax years

Condition

  1. The company or Limited Liability Partnership (LLP) must be incorporated or registered in Malaysia and be a tax resident
  2. At the start of the benchmark period for the tax year in which the rebate is claimed, the company or Limited Liability Partnership (LLP) must have paid-up ordinary share capital/contribution not exceeding RM2.5 million
  3. The total business income from all sources for the tax year in which the rebate is claimed does not exceed RM50 million
  4. The employees of the company or Limited Liability Partnership (LLP) should be different from those of its related companies (excluding the Chief Executive Officer (CEO) and directors); the new company or LLP should have commenced operations before December 31, 2022
    1. Must not be directly or indirectly owned by related companies/LLPs with paid-up capital/contribution exceeding RM2.5 million at the start of the benchmark period
    2. The operating location of the company or Limited Liability Partnership (LLP) must be different from the business premises of its related companies/LLPs
    3. The company or Limited Liability Partnership (LLP) must not use factory buildings, equipment, and facilities owned or disposed of by its related companies/LLPs
    4. The employees of the company or Limited Liability Partnership (LLP) should be different from those of its related companies (excluding the Chief Executive Officer and directors)
    5. The company or Limited Liability Partnership (LLP) must issue documents that are different from those of its related companies/LLPs
    6. The company or Limited Liability Partnership (LLP) cannot be formed through the merger or acquisition of two (2) or more companies/LLPs that qualify as SMEs
    7. The company or Limited Liability Partnership (LLP) cannot be a partnership or a conversion from a company to a Limited Liability Partnership

If the company or Limited Liability Partnership (LLP) fails to comply with the specified tax year conditions, the rebate eligibility for that tax year and subsequent years will be canceled.

If the rebate amount exceeds the tax assessed, the excess will be disregarded. This means that the authorities will not refund the excess rebate and it cannot be used to offset the company’s or LLP’s tax obligations in other tax years.

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