Tax and Legal

A Comprehensive Guide to Corporate Tax Rates in Malaysia

The corporate tax rates of Malaysia contribute to maintaining the nation’s revenue and treasury. Malaysia is a growing nation blessed with approx. 3.7% of economic growth in the GDP allows a territorial tax structure for the income sourced by both the residents and non-residents of Malaysia. The fiscal structure of Malaysia provides for filing the diverse corporate tax rates in Malaysia under the following taxes required to be paid as Corporate income tax: Value Added tax, Personal Income tax, Digital service tax, Sales and Service tax, Withholding tax or deductions; Stamp Duty; Petroleum Income tax; and Real Property gains tax.

Insight into Corporate Income Tax in Malaysia

The Inland Revenue Board (IRB) is authorized to calculate the corporate income tax in Malaysia based on the revenue and earnings generated by the companies registered in Malaysia. The corporate tax structure of Malaysia acts as a major contributor to the nation’s economic development. The corporate income tax which is also termed as company tax or corporation tax is a direct and compulsory tax charged from legal corporate resident and non-resident entities deriving income from the nation in consonance with the provisions of the Income Tax Act of 1967 and the self-assessment system (i.e., SAS) responsible for operating the system for tax assessment in Malaysia.

The businesses willing to start a company must adhere to the rules for filing the corporate income tax according to the corporate tax rates in Malaysia, which will ultimately add to the treasury of the Malaysian government for conducting the following operations in the nation:

1. Conducting necessary government programs;
2. Developing the infrastructure facilities of the nation;
3. Supporting social welfare programs;
4. Promoting cultural stability;
5. Promoting development and expansion of the economy.

What corporate income is taxable in Malaysia?

The corporate tax rates in Malaysia are calculated based on the incomes generally falling under the categories of Retained earnings of the financial year, including the profits of the corporate entities used for the payment of corporate expenses. The following list provides information on corporate income tax in Malaysia.

1. Revenue earned from interests and discounts;
2. Revenue generated from rents, royalties, and premiums;
3. Revenue, i.e., profit and gains generated from the employment;
4. Revenue generated from carrying out the business operations in Malaysia;
5. Revenue or profit derived from the foreign income of the resident companies; and
6. Revenue generated from other sources.

However, dividends, capital gains, and foreign-sourced income are not charged as the corporation tax or the corporate income tax in Malaysia.

A detailed overview of corporate tax rates in Malaysia

The Income Tax Act of 1967 mainly provides an overview of the corporate tax rates in Malaysia, which is considered to be the standard rate between 17-24% for companies generating taxable income in Malaysia. The corporate tax rates in Malaysia are not static, and hence, they vary depending upon the nature of the business operations and the company’s budget during the tax year. A list of corporate tax rates in Malaysia is outlined below:

Taxes of Resident Companies

The companies residing and carrying out business management and operations in Malaysia at any time during the tax year fall under the category of resident companies or corporations that are authorized for the payment of special corporate tax rates in Malaysia, as provided below:

1. 15% of the corporate tax rates in Malaysia are annually charged on the initial income of MYR 1,50,000 by all the resident corporations with a minimum paid-up capital of MYR 2.5 million and maximum annual gross income of MYR50 million;
2. 24% as the corporate tax rates in Malaysia are charged on the subsequent income of MYR 1,50,000 by all the resident corporations with minimum paid-up capital of MYR 2.5 million and maximum annual gross operational revenue of MYR50 million;
3. 17% of the Corporate tax rates in Malaysia are charged on the following income of MYR 4,50,00by all the resident corporations that are not interested in directly or indirectly holding and controlling interest in another business with paid-up capital exceeding MYR 2.5 million;
4. 24% of the Corporate tax rates in Malaysia are charged on the income above MYR 6,00,000 by all the resident corporations not possessing any overseas firm or individuals directly or indirectly owning over 20% of their paid-up capital;
5. A special one-off corporate income tax in Malaysia is charged at a rate of 24% by the companies making legal profits of MYR 100 million from the situation that arose during the COVID-19, i.e., pandemic

Taxes of Non-Resident Companies

The corporate tax rates in Malaysia that are to be charged by non-resident branches of foreign companies allow 24% standard charges. The corporate tax rates in Malaysia are reduced by 10% for paying taxes on royalties, 10% for paying taxes on rents of moveable goods, 15% for paying taxes on interest, and exempted for paying taxes on dividends by the companies or corporations entering the double tax agreement with Malaysia.

The corporate tax rates in Malaysia for international trading companies are exempted for income ranging from 20-70% of the total export earnings.

What are the criteria for payment of corporate income tax in Malaysia?

The corporate income tax in Malaysia is calculated for the net revenue which includes the total calculated amount left after making relevant adjustments to the deductible expenses (including salaries of workers, cost of promotion and advertising, cost of hiring, and travel expenditure of the employees, etc.) of the corporation or company registered or not registered in Malaysia.

The duly set corporate tax rates in Malaysia are accompanied by the resident companies established in Malaysia with at least 60% ownership and minimum annual revenue of MYR10 million, including:

1. Public and private limited company (Sendirian Berhad and Berhad or Sdn Bhd);
2. Business trust;
3. Partnership firms;
4. Limited liability partnership;
5. Branch offices of the foreign companies.

The business sectors exempted from being taxed in Malaysia are the air transport industry, banking industry, insurance industry, and shipping industry.

When should corporate income tax be paid in Malaysia?

The newly registered companies in Malaysia are free to file the estimation of the corporate income tax within 3 months and start paying the monthly instalments for the established corporate tax rates in Malaysia within a period of 6 to 7 months following the end of the tax or assessment year. Companies are mandatorily required to file the annual corporate income tax return through Form C with the respective authorities of the Inland Revenue Board of Malaysia (IRBM).

Relevant considerations for corporate tax rates in Malaysia

The corporate legal entities must ensure the following responsibilities before filing the corporate income tax in Malaysia.

1. The residential status of the companies must be reviewed before filing the corporate income tax in Malaysia;
2. The operations of the company must be performed in Malaysia for the assessment or tax year;
3. The corporate income tax in Malaysia must be filed through the online application, i.e., Form C to the Inland Revenue Board of Malaysia (IRBM);
4. The estimates for the payment of the corporate income tax in Malaysia must be filed within 30 days from the beginning of the assessment year;
5. A penalty of 10% is imposed by the Inland Revenue Board of Malaysia (IRBM) for any failure or incorrect filing of the corporate tax return in Malaysia;
6. The assessment year for calculating the corporate income tax in Malaysia lies from the 1^st of January to the 31^st of December;
7.  Certain companies (involved in the agriculture, hotel, and tourism services) holding the pioneer status are exempted from the payment of corporate income tax on 70% of the statutory income generated for the next 5 years.

Conclusion

The determined corporate tax plays a crucial role in calculating the corporate tax rates in Malaysia for the resident and non-resident companies registered and carrying their business and managerial operations in the nation. The corporate income tax in Malaysia also ensures economic development, maintains government revenue, and regulates the nation’s budget structure.

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