Corporate taxation in Malaysia
Corporate taxation in Malaysia is generally as follows. For a finer and more technical details, it is highly advisable that professional advice from tax consultant be had. The consultant can also help you set up your company to become tax-ready.
What the Government tax from companies?
Companies are only taxed on Income accruing in or derived from Malaysia except for income of a resident company carrying on the business of air or sea transport, banking or insurance which is assessable on a world income basis. So it does not matter if your company is a Malaysian company or otherwise. However, dividend paid, credited or distributed to shareholders is exempted.
Taxation rates of corporations in Malaysia depends on two things; whether your company is a tax resident or non-tax resident and on its paid-up capital.
It is a resident company if at any time during the basis year, the management and control of the company’s business or any one of its businesses are exercised in Malaysia. Conversely, it is a non-resident if its management and control is exercised outside of Malaysia.
The tax rates are as follow;
|RESIDENT COMPANY WITH PAID-UP CAPITAL ABOVE RM2.5 MILLION||25% but reduced to 24% starting 2016|
|RESIDENT COMPANY WITH PAID-UP CAPITAL BELOW RM2.5 MILLION||The first RM500,000 – 20%, but reduced to 19% starting 2016|
|The amount after RM500,000 onwards – 25% but reduced to 24% starting 2016|
|NON-RESIDENT COMPANY||Business income||24%|
|Rental of movable properties||10%|
|Technical or management fees||10%|
|LABUAN OFFSHORE COMPANY||3% or a fixed amount of RM20,000 annually|
Basis of assessment year
The basis of assessment year is normally the financial year ending in that particular year. Therefore if your company closes its accounts on 30 June 2015, its basis year is the financial year ending 30 June 2015.
How your company pay the tax to the Government?
The Inland Revenue Board uses the Self-Assessment system where it’s your company’s duty to assess its own tax liability and submit the return to the IRB.
Estimate of tax payable must be made 1 month before the start of the assessment year. Monthly instalments must then be paid based on that estimate beginning from the second month of the assessment year. And the balance must be paid during submission of the next return.
Tax deductions allowed for companies
Before assessing the tax amount your company is liable to pay, it is allowed to deduct
A. All outgoings and expenses incurred for generating income, except;
- Capital expenditure.
- Vehicle lease exceeding RM50,000 or RM100,000 if it is new and cost RM150,000 or less.
- Employer’s contributions to unapproved pension or saving schemes. But if approved schemes, it must be more than 19% of employee’s remuneration.
- Non-approved donations.
- 50% of entertainment expenses with certain exceptions.
- Employee’s leave passages.
- Interest, royalty, contract payment, technical fee, rental of movable property or other payments made to non-residents which are subject to Malaysian withholding tax but has not yet been paid.
B. Business loss
Any loss that your company made can be set off against its income. And such losses if unutilized can be carried forward indefinitely. But if your company is dormant, the carry forward is only allowed if you can prove that the shareholders remain substantially the same in the assessment year in which the loss was incurred.
C. Group relief
Your company can transfer 70% of any loss it made to its related company too subject to the following conditions;
- Your company is a resident company incorporated in Malaysia.
- The paid-up capital must be more than RM2.5 millio
- Both companies have similar accounting period.
- Both companies are related companies and must be so throughout the assessment year and the previous year.
- Companies currently enjoying certain incentives such as Pioneer Status, Investment Tax Allowance, reinvestment allowance, et are not eligible for group relief.
D. Capital allowance
Capital and other allowances are essentially expenditures that companies incur in its business. They can be deducted from the company’s income when calculating the income to be taxed. Examples of capital expenditures are purchase or construction cost of building, plant, machinery and vehicle cost, plantation cost and infrastructure building cost.
Your company is also required by the Income Tax Act 1967 to withhold, and then pay to the IRB the tax portion of certain incomes it makes to a non-resident. The payment must be made within 30 days from the date the payment is made, or invoice is received from the non-resident. Failure to do so will make your company liable to a penalty of 10% on the amount of the unpaid tax.
So if your company pays any of the incomes below the withholding tax rates it must withhold and pay to the IRB are as follow;
|Types of income paid to non-resident company||Rate %|
|Rental of moveable property||10|
|Technical or management service fees||10|
|Contract payment to contractor||10|
|Contract payment to employees||3|
|Other income like commission, guarantee fee and agency fee||10|
|Payment to entertainers and sports person||10|
But for interest, royalties and special classes of income paid to a resident of countries that has a double taxation agreement (DTA) with Malaysia, the rates prescribed by the relevant DTA would apply. Those countries are as follows;
|TREATY COUNTRIES||WITHOLDING TAX RATES %|
|Albania||10 or Nil||10||10|
|Argentina||Restricted DTA covering air & sea transport operations in international traffic|
|Australia||15 or Nil||10 or Nil||Nil|
|Austria||15 or Nil||10||10|
|Bahrain||5 or Nil||8||10|
|Bangladesh||15 or Nil||10 or Nil||10|
|Belgium||10 or Nil||10||10|
|Bosnia||10 or Nil||8||10|
|Brunei||10 or Nil||10||10|
|Canada||15 or Nil||10 or Nil||10|
|China||10 or Nil||10||10|
|Croatia||10 or Nil||10||10|
|Czech Republic||12 or Nil||10||10|
|Denmark||15 or Nil||10 or Nil||10|
|Egypt||15 or Nil||10||10|
|Fiji||15 or Nil||10||10|
|Finland||15 or Nil||10 or Nil||10|
|France||15 or Nil||10 or Nil||10|
|Germany||10 or Nil||7||7|
|Hong Kong||10 or Nil||8||5|
|Hungary||15 or Nil||10||10|
|India||10 or Nil||10||10|
|Indonesia||10 or Nil||10||10|
|Iran||15 or Nil||10||10|
|Ireland||10 or Nil||10 or Nil||10|
|Italy||15 or Nil||10||10|
|Japan||10 or Nil||10||10|
|Jordan||15 or Nil||10||10|
|Kazakhstan||10 or Nil||10 or Nil||10|
|Korea||15 or Nil||10||10|
|Kyrgyz||10 or Nil||10||10|
|Kuwait||10 or Nil||10||10|
|Laos||10 or Nil||10||10|
|Lebanon||10 or Nil||8||10|
|Luxembourg||10 or Nil||8||8|
|Malta||15 or Nil||10||10|
|Mauritius||15 or Nil||10||10|
|Morocco||10 or Nil||10||10|
|Mongolia||10 or Nil||10||10|
|Myanmar||10 or Nil||10||10|
|Namibia||10 or Nil||5||5|
|Netherlands||10 or Nil||8 or Nil||8|
|New Zealand||15 or Nil||10 or Nil||10|
|Norway||15 or Nil||10 or Nil||10|
|Pakistan||15 or Nil||10 or Nil||10|
|Papua New Guinea||15 or Nil||10||10|
|Philippine||15 or Nil||8||10|
|Poland||10 or Nil||8||8|
|Qatar||5 or Nil||10 or Nil||8|
|Romania||15 or Nil||10||10|
|Russia||15 or Nil||10||10|
|San Marino||10 or Nil||8||10|
|Saudi Arabia||5 or Nil||10||10|
|Senegal||10 or Nil||10||8|
|Seychelles||10 or Nil||10||10|
|Singapore||10 or Nil||10||10|
|Sri Lanka||10 or Nil||5||5|
|South Africa||10 or Nil||5||10|
|Spain||10 or Nil||7||5|
|Sudan||10 or Nil||10||10|
|Sweden||10 or Nil||8||8|
|Switzerland||10 or Nil||10 or Nil||10|
|Syria||10 or Nil||10||10|
|Thailand||15 or Nil||10 or Nil||10|
|Turkey||15 or Nil||10||10|
|Turkmenistan||10 or Nil||10||Nil|
|UAE||5 or Nil||10||10|
|UK||10 or Nil||8||8|
|USA||Restricted DTA covering air & sea transport operations in international traffic|
|Uzbekistan||10 or Nil||10||10|
|Venezuela||15 or Nil||10||10|
|Vietnam||10 or Nil||10||10|
|Zimbabwe||10 or Nil||10||10|
There are also other taxes imposed by the Government which have the effect of indirectly taxing companies. Although companies are not taxed directly, the amount nevertheless is considerable and a burden to business and consumers alike. They are;
- Custom duties
Custom duties are tax levied on goods imported in and exported from Malaysia. It refers to any import duty or surcharge imposed by the Government and includes any royalty payable in lieu of export duty.
- Excise duties
Excise Duty is a form of sin tax levied on locally manufactured goods which are considered not good to the public like intoxicating liquors and tobacco products.
- The Goods and Services Tax or GST
The GST was introduced by the Government in early 2015 to replace the Sales Tax and Services Tax where certain goods and services are now taxed a flat rate of 6%. Companies who supply any of the taxable supplies and make an annual sale of more than RM500,000 are required to collect the tax from their customers. For this they are required to register with the Royal Malaysian Custom Department. However the GST that they themselves paid they can reclaim back from the Government.
When your company does business in Malaysia it can also avail itself of the various tax incentives offered by the Government, consequently reducing tax rate. Again, the information below is just a general overview. For a more thorough advisory we highly recommend that you obtain a professional advice from Business Incentives Advisor. The advisory is a bespoke one where you will normally be required to tell your whole business story. The advisor will then scour the entire incentive system to look for, structure and then help negotiate those that will give your business the best value.
If your company’s business involves certain types of promoted products or activities and done in certain promoted areas like a designated industrial areas or Free Trade Zones, it is eligible to claim for various types of incentives. They are provided under various Acts consisting of fiscal and non-fiscal incentives where the latter are further divided into direct and indirect tax incentives. They are;
- Pioneer Status which entitles companies to a 5 to 10 year exemption from income tax on 70% to 100% of statutory income.
- Investment Tax Allowance of 60% to 100% on qualifying capital expenditure within 5 to 10 years which will then be offset against 70% of statutory income. Any unutilised allowance can be carried forward.
- A 100% Infrastructure Allowance in certain promoted areas which is then offset subject, to a maximum of 85%, against the statutory income.
- Reinvestment Allowance.
- Allowance for Increased Exports of Manufactured Products or Agricultural Produce.
- Incentives for Food Production.
- Incentives for Tourism Industry.
- Incentives for Research and Development.
- Incentives for Approved Service Projects.
- Incentive for Technical or Vocational Training Activities.
- Incentives for Inward Reinsurance and Offshore Insurance.
- Shipping Incentives.
- Accelerated Capital Allowance.
- Qualifying Pre-Operational Business Expenditure.
- Tax Exemption on Foreign Income.
- Taxation of Profit of an Offshore Company in Labuan, and others.