Malaysia legal and accounting and tax considerations in 2024

Since 2003, Healy Consultants Group assists our multi-national Clients’ to timely accurately and completely discharge their annual legal & accounting & audit and tax statutory reporting obligations. This web page will help our multi-national Clients’ understand their statutory reporting obligations in Malaysia:

  • Malaysian tax summary

    • The Malaysian corporation tax rate is 24% of annual net profits from the audited financial statements. Small and medium enterprises (SMEs) enjoy an income tax of 15% on the first MYR150,000 of chargeable income, 17% on the next MYR150,001 up to MYR600,000 and 24% on the remaining chargeable income. SMEs are companies with a paid-up capital of not more than MYR2.5 million (US$572,000), turnover of less than MYR300,000 or less than 5 full-time employees. The preferential rate for SMEs will not be applicable if more than 50% of the paid-up capital is directly or indirectly owned by a related company; and
    • Unutilised business losses can be carried forward for a maximum period of 10 consecutive years and offset against annual net profits from any business source; and
    • The taxation system in Malaysia is territorial in nature. All income accrued in, derived from or received in Malaysia from outside of Malaysia, is liable to income tax. However, foreign sourced income received in Malaysia from outside Malaysia by any person is exempted from income tax in Malaysia; and
    • Any dividends distributed by the Malaysian entity are exempt in the hands of the shareholders. There is no withholding tax on Malaysian dividends. Under the Income Tax Act, dividends received from foreign companies by a Malaysian company do not suffer Malaysian corporation tax; and
    • Interest paid to a foreign corporate shareholder is subject to a withholding tax of 15%, which can be reduced if a double tax treaty exists. Royalties paid to foreign corporate shareholders are subject to withholding tax of 10%, which can be reduced if a double tax treaty exists; and
    • The default rate of sales tax is 10% and is imposed on taxable goods manufactured in Malaysia that are subsequently sold or used by a registered manufacturer or imported into Malaysia by any person. All goods exported from Malaysia are exempted from sales tax. A manufacturer of taxable goods whose total sales value of goods manufactured over a 12-month period exceeds or is expected to exceed RM500,000 is liable to register not later than the last day of the month following the month when the threshold is reached; and
    • The rate of service tax is 8% effective from 1 March 2024 for all taxable services including digital services. Service tax is a consumption tax levied and charged on i) any taxable services (including digital services) provided in Malaysia by a registered business and ii) any imported taxable services acquired by a business in Malaysia and iii) any digital services provided by a foreign registered person to a Malaysian consumer. Service providers outside Malaysia who provide online services to Malaysian consumers will be required to register in Malaysia and charge service tax, if the total value of digital services provided to Malaysian consumers for a 12-month period exceeds or is expected to exceed the prescribed registration threshold of RM500,000; and
    • There is no capital gains tax on gains from the sale of investments or capital assets. However, the sale of land and buildings attracts a 30% capital gains tax. In addition, Starting 1 January 2024, company, limited liability partnership, trust body and co-operative society require to file capital gain tax return form with LHDN.
    • Malaysia entered into over 80 double tax treaties, of which 74 are in force, including with China, Japan, the UK, many EU countries and the US. A full list of the countries can be found on the Inland Revenue Board website (www.hasil.gov.my). To avoid double taxation by doing business in Malaysia, Healy Consultants will assist secure the Certificate of Residence (COR) for our Client’s Malaysian company. For companies with e-residence access, Healy Consultants will file a COR application online. Otherwise we will complete and file Form STM1 manually to the Kuala Lumpur branch of the Inland Revenue Board of Malaysia (IRB), together with signed Form 49 and relevant company documents included IRB checklist;
  • Legal and compliance considerations

    • The Inland Revenue Board (IRB) is the responsible regulatory body for the administration of direct taxes, whilst the Royal Malaysian Customs Department (RMCD) administers customs and excise duties and sales and services tax; and
    • Within 7 months after the closing of accounts, Malaysian companies are required to submit a corporation tax return. ‘E-filing’ or online filing of tax returns via the Internet is encouraged by the IRB; and
    • Within 30 days of the beginning of the new accounting year, Malaysian companies are required to furnish to the Director General of Inland Revenue (DGIR), estimates of the corporation tax payable for the coming accounting period. Corporation tax is paid via monthly instalments. If certain conditions are met, a newly established Malaysian company is exempted from this requirement for 2 years. For example, the entity must have a minimum paid-up capital of RM 2.5 million; and
    • Within six months of its financial year-end, annual audited financial statements must be signed off by the directors. All amounts shown in the financial statements and directors’ reports shall be presented in the Malaysian currency. The directors must present a set of financial statements in accordance with the approved accounting standards issued or adopted by the Malaysian Accounting Standards Board (MASB) and the requirements of the CA 2016. The following categories of private companies may qualify for an exemption from an independent statutory annual audit i) dormant companies and ii) zero-revenue companies and iii) companies with revenue less than RM100,000 and total assets less than RM300,000 with less than 5 employees; and
    • No later than 30 days from the anniversary of the date of incorporation, Malaysian companies are required to file annual return with the Inland Revenue Board of Malaysia and with the Company Registrar. Failure to file an annual return is an offense and if convicted, the company and its directors will face penalties under sections 165 and 169 of the Companies Act; and
    • A company is a tax resident in Malaysia if the management and control of its business is exercised in Malaysia. Management and control is considered to be exercised at the place where the directors hold their meetings. A company is tax resident in Malaysia for the basis year for a year of assessment if at any time during the basis year, the management and control of its affairs was exercised in Malaysia. Generally, a company would be regarded as resident in Malaysia if at any time during the basis period for a year of assessment, at least one meeting of the Board of Directors is held in Malaysia concerning the management and control of the company; and
    • Malaysian laws contain transfer pricing provisions that govern transactions between related companies, requiring them to be conducted at arm′s length. All companies with intercompany transactions must furnish transfer pricing documentation complying with the Malaysian TP Guidelines (MTPG) (click link for more details). Companies that fail to timely complete this filing can be subject to a Government penalty, of up to US$ 24,000; and
    • There are no controlled foreign company rules in Malaysia; and
    • Malaysia is a federation made up of 13 states and the federal territories of Kuala Lumpur, Putrajaya and Labuan. 9 of these states are headed by hereditary rulers, the Sultans, who serve as constitutional heads of state. The remaining 4 states are headed by the Yang Di-Pertua Negeri (governors) who are appointed for fixed terms of office to serve as constitutional heads of state. Each state has its own written constitution and an elected legislative assembly. Each State Government is led by a Menteri Besar (Chief Minister), who is appointed from among the members of the legislative assembly. The division of powers between the various State Governments and the Federal Government is defined by the Federal Constitution, which provides for a measure of autonomy for the 13 constituent states; and
    • The Malaysian court system is substantially based on the British legal system and principles of common law. There is a parallel system of state Syariah Courts which has limited jurisdiction over matters of state Islamic law. The Syariah Courts have jurisdiction only over matters involving Muslims.
    • Under the Monthly Tax Deduction (MTD) system, payroll taxes are collected from employees through compulsory monthly deductions from their remuneration by the 15th of the following month. Total remuneration including benefits in kind and the value of accommodation provided to employees is subject to MTD; and
    • In Malaysia, all employees are required to file an annual income tax return that discloses their wages. The deadline for filing these taxes is April 30 of the following year. Failure to submit this form by either the employer or the employee can result in Malaysian government penalties. The tax return form can be completed online; and
    • The Employees Provident Fund Act 1991 requires employers and employees to make monthly contributions to the EPF to secure payments to employees at the age of 60 or earlier in the case of incapacity or upon permanent departure from Malaysia. Contributions are mandatory for employees who are Malaysian citizens or permanent residents. Expatriates and foreign workers, who are not Malaysian citizens or permanent residents, are not required to contribute to EPF although they may elect to do so. The standard rates of contribution by an employer for working personnel are 12% or 13%, depending on income threshold, and 9% by the employee; and
    • All employers who hire foreign workers are required to register and contribute to EIIS under SOCSO. A monthly contribution must be made for each eligible employee. SOCSO is an insurance scheme that covers the Employment Injury and Invalidity Pension Schemes. It is mandatory for all private sector employers to make monthly contribution for each of their employees to the Employment Insurance System (EIS); and
    • Employers that fall under the industries listed by HRDF are required to register with the Human Resources Development Fund (HRDF) and contribute in respect of their employees who are Malaysian citizens.

Contact us

For additional information on our accounting and legal services in Malaysia, please contact our in-house country expert, Ms. Chrissi Zamora, directly:
client relationship officer - Chrissi
MY Intl. chamber of commerce and industrymicpaMY accountantsmitimfapkfzMY Customsmaicsa