Corporate Income Tax

Residence status

A company is tax resident in Malaysia if its management and control are exercised in Malaysia. Management and control are normally considered to be exercised at the place where the directors’ meetings concerning management and control of the company are held.

Income tax rates

Resident companies are taxed at the rate of 24% while those with paid-up capital of RM2.5 million or less*, and gross business income of not more than RM50 million are taxed at the following scale rates:

^{* The companies must not be part of a group of companies where any of their related companies have a paid-up capital of more than RM2.5 million, and no more than 20% of its paid-up capital is owned (directly or indirectly) by companies incorporated outside Malaysia or non-Malaysian citizens.}

Non-resident companies are taxed at the following rates:

<sup>Note: Where the recipient is resident in a country which has a double tax treaty with Malaysia, the tax rates for the specific sources of income may be reduced.
* Interest paid to a non-resident by a bank or a finance company in Malaysia is exempt from tax.</sup>

Collection of tax

An estimate of a company’s tax payable for a YA must be furnished to the Director General of Inland Revenue (DGIR) not later than 30 days before the beginning of the basis period, except for the following:

• A newly established company with paid-up capital of RM2.5 million and less is exempted from this requirement for two to three YAs, beginning from the YA in which the company commences operation, subject to certain conditions.
• A company commencing operations in a YA is not required to furnish an estimate of tax payable or make instalment payments if the basis period for the YA in which the company commences operations is less than six months.

The estimate of tax payable is generally payable in 12 equal monthly instalments, beginning from the second month of the company’s basis period. Budget 2026 proposed a restructuring to the instalments scheme. The instalments are to begin from the first month of the company's basis period (w.e.f. YA 2028).

The balance of tax payable by a company, based on the return submitted, is due to be paid by the due date for submission of the return.

In general, tax of a non-resident company on all income other than income from a business source is collected by means of withholding tax. Under the law, withholding tax is payable within one month of crediting or paying the non-resident company.

Profit distribution

Tax on a company’s profits is a final tax and dividends paid, credited or distributed are tax exempt in the hands of shareholders. Individuals are, however, subject to dividend tax (see Personal Income Tax)

Losses

Business losses can be set off against income from all sources in the current year. Any unutilised losses can be carried forward for a maximum period of ten consecutive YAs to be utilised against income from any business source. 

For a dormant company, the unutilised losses will be disregarded if there is a substantial change in shareholders. 

Group relief

Under the group relief provision, a company may surrender a maximum of 70% of its adjusted loss for a YA to one or more related companies, for the first three consecutive YAs after having completed its first 12-month basis period from commencement of its operations. Conditions to be met by the claimant and surrendering companies include the following:

• Resident and incorporated in Malaysia.
• Paid-up capital of ordinary shares exceeding RM2.5 million at the beginning of the basis period.
• Both companies have the same (12-month) accounting period.
• Both companies are “related companies” as defined in the law, and must be “related” throughout the relevant basis period as well as the 12 months preceding that basis period.

Companies currently enjoying certain incentives such as pioneer status (PS), investment tax allowance (ITA), reinvestment allowance, etc. or which have unutilised ITA or unabsorbed pioneer losses upon the expiry of its ITA or PS incentives, are not eligible for group relief.

Tax deductions

Generally, tax deduction is allowed for all outgoings and expenses wholly and exclusively incurred in the production of gross income.

Certain expenses are specifically disallowed, for example:

• Domestic, private or capital expenditure.
• Lease rentals for passenger cars exceeding RM50,000 or RM100,000 per car, the latter amount being applicable to vehicles costing RM150,000 or less which have not been used prior to the rental. For YA 2023 to YA 2025, deduction is given for rental of non-commercial electric vehicles. Refer to “Automotive” in the Tax Incentives chapter.
• Employer’s contributions to unapproved pension, provident or saving schemes.
• Employer’s contributions to approved schemes in excess of 19% of employee’s remuneration.
• Non-approved donations.
• 50% of entertainment expenses with certain exceptions.
• Employee’s leave passages with certain exceptions.
• Interest, royalty, contract payment, technical fee, rental of movable property, payment to a non-resident public entertainer or other payments made to non-residents which are subject to Malaysian withholding tax but where the withholding tax was not paid.
• Payments made to a Labuan entity – the percentage of non-deduction is 25% for interest and lease rental, and 97% for other payments.

Carbon tax

The Government plans to implement a carbon tax on the iron, steel, and energy industries in Malaysia by 2026. This tax is designed to promote the adoption of low-carbon technologies. The revenue generated will be allocated to fund green technology and research programs.

Budget 2026 announced that the mechanism of carbon tax will be coordinated with the National Carbon Market Policy and the upcoming National Climate Change Bill.