In Malaysia, companies are subject to several types of taxes such as corporate income tax, sales & service tax (SST), payroll tax, and withholding tax. It is important to understand the taxes that are applicable to your business to ensure full compliance with the tax law and regulations required by Inland Revenue Board (LHDN). 1: Corporate income tax
Malaysia has one of the lowest corporate income tax rates of 24% (annually), attracting many businesses to set up a company in the country. Corporate taxes are assessed on a current year basis and are under the self-assessment system.Corporate income tax rates
Corporate income tax is computed on the net revenue of the company, and it varies based on the company’s paid-up capital. The tax rates effective YA2023 are as follows:| Type of Company | Tax Rate | |
|---|---|---|
| Resident Company [other than described below] | 24% | |
Resident Company:
| On first 150,000 chargeable income | 15% |
| On chargeable income from 150,001 to RM600,000 | 17% | |
| On chargeable income exceeding RM600,000 | 24% | |
| Paid-up capital of over RM2.5 million | 24% | |
| Non-Resident Company | 24% | |
Tax residency of a company and basis of taxation in Malaysia
Malaysia has a territorial tax system in which both resident and non-resident companies are taxed on income derived from Malaysia. According to the Income Tax Act 1967, a company is considered a tax resident in Malaysia if any time during the basis period of the assessment year, the management and control of its affairs or at least one meeting of the Board of Directors are exercised in Malaysia. Foreign-sourced income is currently exempted from taxation unless the company engages in business activities in the banking, insurance, air transport or shipping sectors.2: Sales & service tax (SST)
Malaysia replaced the Goods & Services Tax (GST) with the Sales & Service Tax (SST) in 2018. SST is a consumption tax that comprises sales tax and service tax. Sales tax: A single-stage tax imposed on products manufactured and produced locally and on taxable goods imported into Malaysia. The sales tax rate is levied on companies with taxable goods sales value exceeding RM500,000 in a 12-month period. The rates for sales tax are:- 5% – For goods including basic food, building materials, personal computers, mobile phones and watches; and
- 10% – For other goods that are not exempted.
- Any taxable services (including digital services) provided in Malaysia by a registered person in carrying on his business;
- Any imported taxable services acquired by any person who carries on business in Malaysia; and
- Any digital services provided by a foreign registered person to a Malaysian consumer.
3: Payroll tax
As part of the employer’s responsibility, a company is required to retain a percentage of the employees’ remuneration including salary, commission, bonus, incentives, etc. and pay as Monthly Tax Deduction (MTD) to LHDN on behalf of employees. This deduction, along with EPF, SOCSO, and EIS, will be stated in the employees’ payslip as PCB (Potongan Cukai Bulanan).Payroll tax rate
The PCB deduction is calculated based on the MTD schedule or through the Computerised Calculation Method on the e-CP39 portal. For resident employees, the amount of PCB required from each employee varies according to the work category they fall under and also the amount of remuneration they receive each month. For a non-resident employee in Malaysia, the net PCB should be 28% of his / her salary.4: Withholding tax
Withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to LHDN. It applies only to non-resident individuals or companies who have sourced income from Malaysia.Withholding tax rates
| Nature of income | Withholding tax rates | |
|---|---|---|
| Interest | 15% | |
| Royalty | 10% | |
| Special classes of income: Technical fees, payment for services, or payment for use of moveable property | 10% | |
| Interest paid by approved financial institutions | 5% | |
| Income of non-resident public entertainers | 15% | |