Malaysia is one of the countries who implements territorial tax system – basically any income accrued in or derived within Malaysia is liable to tax. Here’s an overview of the type of tax liable by companies registered in Malaysia.

Types of Tax Liable by Companies Registered in Malaysia

Corporate Tax

A corporate tax is imposed by Inland Revenue Board Malaysia (LHDN) and is governed by the Income Tax Act 1967. This applies to all Malaysian registered Companies regardless the type of Company they are running. All incomes derived from Malaysia are deem taxable under the law.

Withholding Tax

This type of tax is only for Companies who have the obligation to pay non-resident (Company or Individual) for the services engaged where a certain percentage of payment is deducted and paid as their income tax to LHDN. Each payment type will have different tax rates.

Sales & Service Tax (SST)

This type of tax is basically a single-stage tax charged on taxable goods manufactured in or imported into Malaysia by a taxable person and is due when the goods are sold, disposed of, or first used with a total sale value of more than MYR 500,000 within 12 months.

Real Property Gains Tax (RPGT)

This is only applicable if the Company disposes of chargeable assets such as house, commercial buildings, farms, vacant land as well as shares in real property companies, gaining profit from the disposal. Tax rate differs according to holding period of chargeable assets.

Sole Proprietor and Partnership Tax

Normally, sole proprietor and partnership are commonly charged on a gradual scale applied to Malaysia income tax from 2% to 26%.

Investment Holding Company (IHC) Tax

Investment holding companies are able to enjoy tax rebate amounting MYR 20,000 for the next 3 years and tax rate applied is only 17% if they meet the terms and conditions.

The investment holding Company is not entitled to enjoy the 17% rate if:

  • No business source in investment holding Company (not listed in Bursa Malaysia)

  • Ceased business operation but receiving income from rental or interest gain

Income Tax Deductible Expenses

Corporate income tax deduction is allowed for expenses wholly and exclusively incurred in the production of income.

Expenses include:

  • Salary and wages

  • Business insurance

  • Advertisement and promotion expenses

  • Employee travelling expenses

  • Entertainment expenses

  • Repair and maintenance

  • Lease rental on plants and machinery

  • Recruitment expenses

  • Incorporation expenses

The non-deductible expenses are:

  • Fines and penalties

  • Registration of trademarks

  • Non-approved donations

  • Domestic, private or capital expenditure

  • Employee’s contribution to unapproved pensions, provident or saving schemes

  • Interest, royalty, contract payment, technical fees, rental of movable property, payment to a non-resident public entertainer or other payments made to non-residents which are subject to withholding tax, but the tax was not paid

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