Malaysia legal and accounting and tax considerations in 2024
Healy Consultants Group will be pleased to assist our Clients for timely compliance of their annual legal, accounting and tax obligations.
- Both resident and non-resident Malaysian companies are subject to an income tax of 25% on taxable income;
- Companies are liable to pay withholding tax on the following types of payment made to a non-resident: interest, royalties, contract and other service fees, lease rentals (for movable property) and technical fees. Withholding tax rates are 10%, 15% or 20% of the gross payment;
- Effective 1 September 2018, Malaysia Goods and Services Tax (GST) was replaced by a Sales and Services Tax (SST);
- Sales tax is chargeable on the manufacture of taxable goods in Malaysia and the import of taxable goods into Malaysia, at a rate of either 5% or 10%, or a specified rate depending on the category of taxable goods;
- A 6% service tax is imposed on i) the provision of taxable services by a registered person in the course of business in Malaysia, and ii) imported taxable services;
- The scope of taxable services include the provision of accommodation services, food and beverage preparation services, consultancy and management services, courier services, information technology services and advertising services;
- Effective 1 January 2020, registered foreign service providers who provide any digital service to a consumer in Malaysia would be required to charge 6% service tax on the digital services provided.
- From 1 January 2022, foreign-sourced income received by Malaysian residents will be taxable.
- In 2022, current unused business losses that can be carried forward from 2019 onwards will be extended from a maximum period of 7 consecutive years of assessments to a maximum period of 10 consecutive years of assessments.
Malaysia tax exemptions, rebates and tax planning structures
- Malaysia has double tax treaties with 68 countries. Under the ‘tax sparing’ provision, a dividend distributed from tax-exempt profits under the Malaysian tax incentive regime is deemed to be have been paid out of taxed profits. This enables a non-resident to claim a tax credit on the exempt dividend in his home country. Likewise, interest on an approved loan or approved royalty, which is exempted from Malaysia tax, is deemed to have paid taxes;
- 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;
- Offshore Trusts and Foundations are another effective tool for tax planning in Malaysia. Offshore Trusts and Foundations are ideal for entrepreneurs and high net worth investors interested in Malaysia business who need to legally minimise their international tax exposure and optimise asset protection;
- If a Malaysia company is properly structured, the profits of a Malaysia offshore company (see Labuan) are legally tax-exempt.
Tax reporting, accounting and audit considerations
- A Malaysian company’s taxable income is calculated on the audited accounting profit, as adjusted for tax purposes, for the accounting year ending in the preceding calendar year;
- It is important our Clients’ are aware of their personal and corporate tax obligations in their country of residence and domicile, and that they fulfil those obligations annually. Healy Consultants can help clarify your annual reporting obligations.
- Effective March 1 2020, SSM has issued new guidelines for annual AMLA reporting and maintenance of records for Beneficial Owners (BO) of all local and foreign entities. Therefore, there will be additional annual costs incurred by our Clients for the maintenance of BO records.
- Since 1 January 2021, 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.
If required, Healy Consultants Group will be happy to assist you with preparing quality versions of these documents. Our one-time fee for the same is US$ 7,970.
- The service tax is levied only when the money is collected, not when the invoice is issued. If no payment is received within 12 months of the invoice date, the taxable person must pay service tax on the invoice amount after the next 12-month period.
- If the company wishes to pay on an invoice basis instead, they are required to go to their local customs office for approval.
- For sales within i) Designated area (DA) (Langkawi, Labuan, Tioman, Pangkor), and ii) Special area (SA) (free zone, licensed warehouse, license manufacturing warehouse, joint development area, petroleum supply base) the service not subject to service tax. However, if there are sales outside of DA and SA, the service will be subject to Service tax.
- Starting 1 January 2020, service tax has already been imposed for digital services (any service that is delivered or subscribed over the internet or other electronic networks where the delivery of service is essentially automated). Example of company under digital services are Microsoft office, Spotify, Amazon, Agoda, Netflix)
Legal and compliance
- According to the Malaysia Company Act, a resident company must have at least one director who is “ordinarily resident in Malaysia” i.e. either citizens, permanent residents, or employment pass holders. Each Malaysian company must also appoint a resident company secretary and a registered office in the country;
- Malaysia business requires accounting and other records to be kept that are necessary to explain the transactions and financial position of the company and to allow a profit and loss account and a balance sheet to be prepared;
- As a director of the company, one shall disclose to the company: any material personal interest they have in a matter which relates to the affairs of the company, and any other interest which the director believes is appropriate to disclose in order to avoid an actual conflict of interest or the perception of a conflict of interest;
- After establishing a company in Malaysia, it is mandatory to file annual return with Company Registrar and annual tax return with Revenue Authority. Each time a change occurs in the particulars of the company or to its officers, the change must be lodged with the Malaysian companies registry;
- It is necessary to apply for a Malaysian manufacturing license if i) the share capital exceeds of RM2.5 million or ii) the Malaysian business entity hires more than 75 employees. Healy Consultants fees approximate US$ for this service is US$11,750 including third party costs and it takes three months to obtain approval.
When deregistering a Malaysian company
- Healy Consultants Group will ensure that there are no outstanding penalties, compounds, tax and other liabilities prior to submitting an application to the Companies Commission of Malaysia (SSM) for company strike-off. This is to avoid unnecessary delays in the deregistration process;
- It may take between 6 months to 1 year from the date of application to obtain the approval to strike off the company from SSM;
- Thereafter, Healy Consultants Group will submit the application to the Inland Revenue Board of Malaysia (IRB) for tax clearance;
- Following receipt of the letter from the IRB, Healy Consultants Group’s Accounting and Tax Department will email our Client a Summary of Obligations.
Recruitment in Malaysia
- For investors planning to incorporate a company in Malaysia and hire staff, the minimum age for an IT position is 21 years, and for management posts is 27 years;
- The criteria for the employment of foreign labour by non-export orientated industries are: i) Total sales of RM2 million (US$511,000) and above; ii) The company’s minimum paid-up capital is RM100,000 (US$25,500);
- If you incorporate a Malaysia company which is active in the manufacturing, service or construction sectors, it is possible to hire citizens from Turkmenistan, Uzbekistan, and Kazakhstan;
Licensing in MalaysiaWhen incorporating a company in Malaysia, a licence is required for the following business activities:
- Manufacturing – any manufacturer incorporating a company in Malaysia which employs at least 75 full-time employees must apply for a licence from the Malaysia Investment Development Authority;
- Banking – under the Malaysia Banking and Financial Institutions Act, 1989, the Malaysian Central Bank licenses and regulates businesses such as banking, money brokering, discount houses, provision of credit and finance, merchant banking, deposit taking and certain other financial businesses. This includes all foreign banks which are required to operate in Malaysia through incorporated local companies;
- Building and Construction – all companies must obtain a licence from the Construction Industry Development Board (CIDB) prior to incorporating in Malaysia and before undertaking any construction and related activities in the country;
- Oil and gas – companies wishing to explore and develop upstream oil and gas reserves are required to sign a production sharing agreement with Malaysian state oil company Petronas;
- Wholesale and Retail Trade – all proposals for foreign involvement in wholesale and retail trade be approved by the Ministry of Domestic Trade and Consumer Affairs.