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.
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:
Chargeable income |
Rate (%) |
The first RM600,000 |
17 |
In excess of RM600,000 |
24 |
* 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.
For YA 2022 only, a special one-off tax (Cukai Makmur) will be imposed on companies, excluding companies which enjoy the 17% reduced tax rate above, which have generated high income during the COVID-19 pandemic, as follows:
Chargeable income |
Rate (%) |
The first RM100 million |
24 |
In excess of RM100 million |
33 |
W.e.f 1 January 2022 to 30 June 2022, foreign-sourced income of resident companies remitted to Malaysia will be taxed at 3% on gross income.
Non-resident companies are taxed at the following rates:
Type of income |
Rate (%) |
Business income |
24 |
Royalties |
10 |
Rental of moveable properties |
10 |
Advice, assistance or services rendered in Malaysia |
10 |
Interest |
15* |
Dividends |
Exempt |
Other income |
10 |
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.
An estimate of a company’s tax payable for a YA must be furnished by all companies to the DGIR not later than 30 days before the beginning of the basis period, except for the following:
The estimate of tax payable is generally payable by 12 equal monthly instalments, beginning from the second month of the company’s basis period (FY).
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. The withholding tax is payable within one month of crediting or paying the non-resident company.
Tax on a company’s profits is a final tax and dividends paid, credited or distributed are tax exempt in the hands of shareholders.
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 7 consecutive YAs (10 consecutive YAs w.e.f YA 2019) to be utilised against income from any business source. Unutilised losses accumulated as at YA 2018 can be utilised for 7 consecutive YAs (10 consecutive YAs w.e.f YA 2019) and any balance will be disregarded in YA 2026 (disregarded in YA 2029 w.e.f YA 2019).
For a dormant company, the unutilised losses will be disregarded if there is a substantial change in shareholders.
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 3 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:
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 under the Promotion of Investments Act 1986, are not eligible for group relief.
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:
*regardless of whether it meets the substantial activity requirements (w.e.f 1 January 2021)
The definition of ‘control’ is:
common shareholding of 20% of shareholding or more; and
the operations of the affiliate depend on the proprietary rights of the shareholder of 20%, or its affiliate; or
the shareholder / affiliate is able to influence decisions relating to the business activities of the company, including the receipt of services, and the pricing of the acquisition of such services; or
one or more of the directors or members of the board of directors of a person are appointed by the shareholder / affiliate.
The following rules and guidelines have been issued by the IRB:
Documentation requirements are broadly consistent with requirements under Action 13 of the Base Erosion and Profit Shifting (“BEPS”) Plan.
Master file: Provides an overview of the multinational group’s business, value drivers, intangibles, financing arrangements, and supply chain. The master file is only required if (i) the Group is headquartered in Malaysia and has consolidated revenue exceeding RM3 billion; and / or (ii) the Group is required to prepare a master file in any other location.
Local file: Local transfer pricing documentation which substantiates the arm’s length nature of intercompany transactions.
Country-by-country report: This is addressed under the Income Tax (Country-by-Country Reporting) Rules 2016.
- Gross income exceeding RM25 million, and total amount of related party transactions exceeding RM15 million.
- For financial assistance, the threshold is RM50 million.
* Not applicable to permanent establishments (PE)
- Actual business transactions (conduct) should be identified, and the transfer pricing arrangements should not be based on contractual arrangements which do not reflect reality
- Contractual allocation of risks should be respected only when supported by actual decision-making
- Capital without functionality will generate no more than a risk free return
- The IRB may disregard transactions when exceptional circumstances of commercial irrationality occur
- Identifying the intangible
- Analysing contractual terms
- Functional analysis (identifying economically significant functions related to the development, enhancement, maintenance, protection and exploitation (DEMPE) of the intangibles, and demonstrating control over these functions)
The Income Tax (Country-by-Country Reporting) Rules 2016 and Labuan Business Activity Tax (Country-by-Country Reporting) Regulations (collectively “CbC Rules”) require Malaysian multinational corporation (MNC) groups with total consolidated group revenues of RM3 billion and above in the financial year preceding the reporting financial year to prepare and submit CbC Reports to IRB no later than 12 months after the close of each financial year.
Malaysian entities of foreign MNC groups will generally not be required to prepare and file CbC Reports as the obligation to file will be with the ultimate holding company in the jurisdiction it is tax resident in. However, the Malaysian entities of the foreign MNC group will have an obligation to inform/notify the IRB if it is the holding company or has been appointed as the surrogate holding company. If it is neither the holding company nor surrogate holding company, the Malaysian entities must notify the IRB of the identity and tax residence of the entity responsible for preparing the CbC Report.
Failure to comply with the CbC Rules may result in a fine of RM20,000 to RM100,000 or imprisonment of up to 6 months or both. In the case of Labuan entities, non-compliance with the CbC Rules may result in a fine of up to RM1 million or imprisonment of up to 2 years or both.
- a taxpayer who is a company assessable and chargeable to tax under the Income Tax Act 1967 (also includes permanent establishment (PEs));
- turnover value exceeding RM100 million; and
- the value of the proposed covered transaction is
· for sales, if it exceeds 50% of turnover;
· for purchases, if it exceeds 50% of total purchases; or
· for other transactions, if the total value exceeds RM25 million.
The ESR applies on interest expense (of more than RM500,000 in a basis period) in connection with or on any financial assistance granted in controlled transactions (as defined), whether directly or indirectly, to a person. The ESR guideline narrows the application of the prescribed rules to cross-border controlled transactions.
The prescribed rules specify that the maximum amount of interest deduction allowed is 20% of the Tax-EBITDA (Earnings Before Income Tax, Depreciation and Amortisation) from each of the sources of income consisting of a business. The interest expenses in excess of the maximum deduction allowed may be carried forward indefinitely to be deducted against future income. However in the case of a company, the carry forward of the above-mentioned interest expenses would not be allowed if there is a substantial change in the company's shareholders in the following year.
This publication is a quick reference guide outlining Malaysian tax information which is based on taxation laws and current practices. This booklet also incorporates in coloured italics the 2022 Malaysian Budget proposals based on the Budget 2022 announcement on 29 October 2021 and the Finance Bill 2021. These proposals will not become law until their enactment and may be amended in the course of their passage through Parliament.
This booklet is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax in specific circumstances. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by PricewaterhouseCoopers. Readers should not act on the basis of this publication without seeking professional advice.
Published by
PricewaterhouseCoopers Taxation Services Sdn Bhd (464731-M)
Level 10, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral,
P.O. Box 10192, 50706 Kuala Lumpur, Malaysia
Tel: 03-21731188 Fax: 03-21731288