Corporate Income Tax in Malaysia

What is Corporate Income Tax

Corporate Income Tax (CIT) in Malaysia is a direct tax imposed on the net income or profit of corporations operating within the country's jurisdiction. The tax applies to both resident and non-resident companies, with the fundamental principle being that income generated within Malaysia's borders is subject to taxation regardless of the company's country of incorporation.

Quinn Lu

Senior Associate, International Business Advisory

What constitutes taxable corporate income

Under Malaysian tax law, taxable corporate income encompasses a comprehensive range of revenue sources:

Profits derived from business operations, including manufacturing, trading, and service provision
Dividends received from other companies, interest earned on deposits and loans, and rental income from properties
Gains from the disposal of capital assets, subject to specific conditions and exemptions
Income from intellectual property rights, patents, trademarks, and licensing arrangements
For resident companies, foreign income received in Malaysia is subject to tax, though certain exemptions may apply

The determination of taxable income follows the concept of "chargeable income," which is calculated by adjusting accounting profits through the addition of non-deductible expenses and the deduction of allowable expenses and capital allowances.

Legal framework

Malaysia's corporate taxation system is governed by a robust legal framework centered on the Income Tax Act 1967 (Act 53). This comprehensive legislation establishes the foundation for income tax imposition and administration throughout Malaysia, having been in force since September 28, 1967.

The Act encompasses 10 parts containing 156 sections and 9 schedules, covering various aspects of taxation from preliminary definitions to assessment procedures, appeals, collection, and penalties. Key components include:

Part II: Imposition and general characteristics of tax, including charge of income tax and rates.
Part III: Ascertainment of chargeable income through various chapters covering gross income, adjusted income, and statutory income.
Part IV: Persons chargeable to tax.
Part V: Return filing requirements.
Part VI: Assessment and appeals procedures.

The Inland Revenue Board of Malaysia (IRBM) serves as the primary tax administration authority, responsible for implementing tax policies, conducting assessments, and ensuring compliance. IRBM has also introduced the Tax Corporate Governance Framework (TCGF) to promote good governance practices and cooperative compliance among large corporations.

Deductible and non-deductible expenses

The Income Tax Act 1967 establishes clear criteria for expense deductibility, following the fundamental principle that expenses must be "wholly and exclusively incurred" in producing taxable income.

Category	Description / Examples
Allowable deductible expenses	Salaries, wages, bonuses, EPF, SOCSO, EIS, and HRDF contributions. Office rent, utilities, maintenance, and repair costs. Fees for accountants, auditors, lawyers, and company secretaries. Digital advertisements, promotional materials, and marketing campaigns. Transportation, accommodation, and meal expenses for business purposes. Interest on business loans and financing charges.
Specific Allowable Expenses under Section 34(6)	Equipment provision for disabled employees. Publications in the National Language. Donations to libraries and charitable organizations. Childcare center establishment and maintenance for employees. Cultural and artistic event sponsorship.
Non-deductible expenses	Pre-commencement expenses, asset acquisition costs, renovation expenses, and licensing fees. Domestic or private expenditures unrelated to business operations. Tax penalties, legal fines, and non-compliance charges. Entertainment expenses exceeding statutory limits (generally 50 % allowable for customer and supplier entertainment). Contributions to non-approved pension schemes or donations to non-registered charities. Payments to non-residents where required withholding tax was not deducted.

Who must pay corporate income tax

All companies conducting business activities in Malaysia are subject to corporate income tax obligations, regardless of their country of incorporation. This includes:

All companies incorporated under the Companies Act 2016.
International corporations with Malaysian-sourced income or permanent establishment in Malaysia.
Foreign company branches operating in Malaysia.
Business entities registered in Malaysia.
Organizations engaged in commercial activities.

Tax residency status

The determination of tax residency significantly impacts a company's tax obligations and rates. A company is considered a Malaysian tax resident if its management and control are exercised in Malaysia during the basis year for a year of assessment.

Category	Characteristics
Resident company	Management and control exercised in Malaysia. Subject to tax on worldwide income (income earned globally). Eligible for certain tax incentives and preferential rates. Required to comply with full Malaysian tax filing obligations.
Non-resident company	Management and control exercised outside Malaysia. Subject to tax only on Malaysian-sourced income. Typically, subject to withholding tax on specific income types. Limited access to tax incentives and treaty benefits.

The concept of "management and control" encompasses where key business decisions are made, board meetings are conducted, and strategic policies are formulated. This determination is crucial as it affects not only tax rates but also access to double taxation agreement benefits and various incentive programs.

Tax rates

Malaysia employs a tiered corporate tax structure designed to support different business sizes while maintaining competitive rates for international investment.

Company type	Chargeable income	Chargeable income (US$ equivalent)	Applicable tax rate	Notes
Resident Company	First RM150,000	≈ US$ 31,900	15 %	For SMEs that meet the following conditions: Paid-up capital ≤ RM2.5 million (≈ US$ 532,000) Gross income from business ≤ RM50 million (≈ US$ 10.64 million) No more than 50 % of paid-up capital held by a related company with > RM2.5 million capital
Resident Company	Next RM450,000 (RM150,001 – RM600,000)	≈ US$ 95,700 (range)	17 %	Progressive rate applied to SMEs within qualifying thresholds
Resident Company	Above RM600,000	> US$ 127,700	24 %	Standard corporate tax rate for large resident companies
Non-Resident Company	All chargeable income (regardless of source)	—	24 %	Non-residents are taxed only on Malaysia-sourced income; no SME preferential rate applies
Additional notes: Both resident and non-resident companies may be subject to withholding tax on specific payments (e.g., royalties, technical fees, interest). Resident companies may enjoy tax incentives such as Pioneer Status or Investment Tax Allowance (ITA). Effective tax exposure may vary depending on Double Taxation Agreements (DTAs) and sector-based exemptions.

Small and Medium Enterprise (SME) benefits

The reduced tax rates for the first RM 600,000 (US$ 142,000) of chargeable income apply only to companies meeting specific criteria:

Paid-up capital of RM 2.5 million (US$ 592,000) or less.
Gross business income not exceeding RM 50 million (US$ 11.8 million) annually.
Malaysian ownership exceeding 80 percent (foreign ownership limited to 20%)

Withholding tax rates

Malaysia imposes withholding tax on various payments to non-residents:

Payment Type	Standard Rate	Treaty Rates
Interest	15 %	0 %-15 % (varies by treaty)
Royalties	10 %	0 %-10 % (varies by treaty)
Technical Fees	10 %	5 %-10 % (varies by treaty)
Rental of Movable Property	10 %	5 %-10 % (varies by treaty)
Contract Payments	13 % (10 % + 3 % employee tax)	May be reduced under treaties
Dividends	0 %	Generally, 0 % under treaties

Malaysia offers an extensive range of tax incentives designed to attract foreign investment and promote economic development in strategic sectors. Pioneer Status provides significant tax relief for companies engaged in promoted activities or producing promoted products:

Incentive type	Tax exemption / relief	Relief period	Extension eligibility	Carryforward provisions	Eligibility and remarks
Standard Pioneer Status (PS)	70 % tax exemption on statutory income Company taxed on remaining 30 %	5 years	Yes, possible extension for another 5 years (subject to approval by MIDA)	Unabsorbed losses can be carried forward for 7 consecutive years after the pioneer period Capital allowances may be carried forward indefinitely until fully utilized	For promoted activities or products under the Promotion of Investments Act 1986 Typically applicable to manufacturing, agriculture, tourism, and selected service sectors
Enhanced Pioneer Status (EPS)	85 % tax exemption on statutory income	5 years	No extension available	Same carryforward provisions apply, subject to project approval conditions	Reserved for strategic, high-impact, or high-technology investments More stringent qualifying criteria and approval by MIDA or relevant ministry

Investment Tax Allowance (ITA)

As an alternative to Pioneer Status, ITA provides capital expenditure-based incentives:

ITA Benefits:

Allowance of 60 percent on qualifying capital expenditure
Available for 5 years from first qualifying expenditure
Offset against 70 percent of statutory income annually
Remaining 30 percent of statutory income taxed at prevailing rates
Unutilized allowances carried forward until fully absorbed

Specialized tax regimes

Incentive category	Type / activity	Tax rate / benefit	Key conditions / requirements	Additional notes (US$ context and remarks)
Labuan International Business and Financial Centre (IBFC)	Trading Activities	3 % tax on net profits	Must meet substance requirements (minimum local employees and annual operating expenditure in Labuan) Applies to trading entities such as financing, leasing, insurance, management, or shipping	Encourages cross-border business and financial services RM1 million ≈ US$ 213,000 for expenditure threshold (approximation)
	Non-Trading Activities (Investment Holding)	0 % tax rate	Applies to pure investment holding companies not engaged in trading Must maintain minimum presence in Labuan	No tax payable if criteria are met; ideal for passive income structures
	Non-Compliance Penalty	24 % corporate tax	Imposed if substance requirements are not met	Aligns Labuan regime with global anti–base erosion standards (BEPS)
Digital Economy Incentives	Malaysia Digital (MD) Status	Various tax benefits	Recognized by MDEC Focused on digital tech and innovation-driven companies	Successor to MSC Malaysia; offers flexible incentive framework under Malaysia Digital initiative
	MSC Malaysia Status	Tax exemption up to 100 % for 5–10 years	Must provide qualifying ICT or digital services from Malaysia Approval required from MDEC	Companies may enjoy income tax holidays and investment allowances
	Fintech and Digital Services	Special incentives / reduced tax	Includes fintech, AI, blockchain, and cloud service providers	Part of national digital transformation strategy
Green Technology Incentives	Green Investment Tax Allowance (GITA)	Investment tax allowance up to 100 %	For companies investing in green tech projects (renewable energy, waste management, etc.)	Can offset up to 70 % of statutory income for up to 5 years
	Green Income Tax Exemption (GITE)	Up to 100 % income tax exemption	For companies providing green tech services or solutions	Encourages ESG-aligned investments
	Accelerated Capital Allowances (ACA)	Full write-off of qualifying assets	For energy-efficient machinery and equipment	Helps reduce taxable income faster through sustainability investments

Malaysia provides special incentives for investments in specific economic zones and less-developed states, contingent upon achieving economic spillovers and job creation targets. Stringent inspection

Compliance and filing requirements

Annual tax return filing

Form C (Corporate Tax Return) must be filed within 7 months from the financial year-end:

Requirements:

Audited financial statements (mandatory for companies with revenue >RM1 million or assets >RM500,000).
Tax computation showing chargeable income calculation.
Supporting schedules for deductions and allowances.
Transfer pricing documentation (where applicable).
Electronic filing through MyTax e-Filing portal (mandatory).

Form CP204 (Estimated Tax Payable) must be submitted:

Filed 30 days before the financial year commencement.
Monthly installment payments based on estimated tax liability.
Penalties apply for under-estimation exceeding acceptable thresholds.

Payment deadlines

Tax payment must be completed within 8 months from the financial year-end, with severe penalties for late payment:

Late filing: Fines ranging from RM200 to RM20,000 plus potential imprisonment.
Late payment: 10 percent penalty on unpaid tax, and additional 5 percent after 60 days.
Under-declaration: Up to 45 percent penalty on additional tax, 300 percent for intentional evasion.

Audit and documentation requirements

Companies must maintain proper accounting records in Malay or English, denominated in Malaysian Ringgit, following Malaysian Private Entity Reporting Standards (MPERS) or Malaysian Financial Reporting Standards (MFRS). Records must be retained for 7 years under Section 245 of the Companies Act 2016.

Double Taxation Agreement benefits

Malaysia's extensive network of over 70 Double Taxation Agreements enables companies to avoid double taxation and claim treaty benefits. To access these benefits, companies must:

Obtain the Certificate of Residence (COR) through the e-Residence system.
Meet treaty-specific residency requirements.
Comply with the limitation of benefits provisions where applicable.
Maintain proper documentation for treaty claim substantiation.

Tax corporate governance framework

Large corporations (turnover RM100 million and above) are encouraged to participate in IRBM's Tax Corporate Governance Framework program, which provides:

Cooperative compliance relationships with tax authorities.
Reduced audit frequency for compliant taxpayers.
Real-time guidance on complex tax issues.
Streamlined dispute resolution processes.