Global Minimum Tax

What has changed with Malaysia’s GMT

Malaysia implemented the OECD/G20 “Pillar Two” Global Minimum Tax (GMT or GloBE framework) for financial years beginning on or after 1 January 2025.

Contributing Advisor

Marco Förster

Director, Operations

For multinational groups and tax-sensitive domestic operations, this is not a marginal compliance change — it alters the economics of incentive-driven projects, the design of regional structures, and the control environment required of tax and finance functions.

Malaysia’s GMT is the domestic enactment of the OECD’s GloBE architecture (Pillar Two). Its aim is to reduce profit shifting and ensure that large MNEs pay at least 15 percent on profits where they operate. For corporates, the key implications are:

• Additional top-up tax where jurisdictional ETR < 15 percent,
• Stronger transfer-pricing and documentation obligations, and
• Potential reappraisal of tax-incentivised investments (for instance, entities with Pioneer Status, MSC or Labuan arrangements).

Quick reference table — GMT at a glance

Pillar Two Scope: Who is affected in Malaysia?

The key scope thresholds follow the OECD model:

• Group revenue threshold: multinational enterprise (MNE) groups with consolidated annual revenue ≥ EUR 750 million in at least two of the previous four financial years are in scope of the GloBE rules.
• Entities affected: entities within in-scope groups that derive profit in Malaysia (including those benefiting from tax incentives) will be included in the jurisdictional ETR calculation and thus potentially subject to DTT or create MTT exposure at the group level.

Practical consequence: companies that have historically relied on tax incentives (Pioneer status, MSC, investment allowances, Labuan/FIZ arrangements) must now test whether the effective tax outcome after GloBE adjustments still exceeds 15 percent; if it does not, a top-up will arise.

How the ETR / top-up mechanics operate

The GloBE methodology is detailed and prescriptive; a high-level, practical view for decision-makers follows:

• Start with accounting profit by jurisdiction. Convert local financial accounting (FANIL) into the GloBE base using prescribed adjustments (for example, adjustments for certain permanent differences and the treatment of deferred tax).
• Calculate ‘covered taxes’ — taxes that are recognised under the GloBE rules (current and some deferred taxes) are aggregated and compared to the adjusted profit base to produce a jurisdictional ETR.
• Compare to 15 percent floor. Where the jurisdictional ETR is below 15 percent, the shortfall is the potential top-up tax base. Collection depends on whether DTT or MTT applies and on international coordination.
• Apply exclusions and substance-based income exclusion (SBIE). The rules permit limited exclusions for income with demonstrable substantive activities (subject to conditions), which can reduce top-up exposure where operational substance exists.

These steps require reconciled accounting, robust tax adjustments, and an audit trail. In practice, companies must be able to explain and substantiate every adjustment if audited.

Illustration — simplified jurisdictional ETR example

(illustrative numbers only; aims to show proportions)

This simple worked example demonstrates how modest differences in accounting or tax treatment can generate a measurable top-up. Decision-makers should direct finance teams to run analogous jurisdictional pilots using actual data to identify the highest exposures.

Impact on Malaysia’s tax-incentive landscape

Malaysia’s headline corporate tax rate (24 %) remains above the 15 percent floor, but many tax incentives — which lower the effective macro tax paid by specific projects or entities — can push GloBE ETRs below 15 percent. Governments typically respond to GMT in two ways:

• Retain incentives but accept top-ups (where the incentive remains attractive economically even after top-up).
• Recalibrate incentive design (for instance, by tying incentives to demonstrable substance and longer-term investment outcomes, or by providing credits or exemptions compatible with GloBE).

Malaysia’s guidance and commentary by major professional firms have flagged that incentive recipients should expect re-appraisals of effective benefit and that businesses should model whether incentives still justify capital allocation once top-up exposure is factored in.

Action plan by department

Finance and treasury

Prepare forward-looking cash-flow scenarios that include likely top-up payments and potential timing differences. Top-up taxes will affect near-term cash outflows and may require changes to liquidity planning and covenant stress testing.

Tax and transfer pricing

Upgrade transfer-pricing documentation and align policies to demonstrate commercial substance. Accurate intercompany pricing and contemporaneous documentation reduce the likelihood of adjustments that widen GloBE tax bases.

Legal and structuring

Reassess whether special-purpose vehicles, IP holding structures, or financing entities located in low-tax zones remain efficient after GloBE adjustments. Structural changes have one-off costs and regulatory considerations.

Investment and operations

New investment approvals should include a GloBE ETR estimate. Some projects may require renegotiated concession terms or a rebalanced total return analysis that includes top-up tax exposure.

Mergers and acquisitions

Due diligence must quantify GMT exposure and factor into valuation, indemnities, and purchase price adjustments. Historic low-tax structures may carry contingent liabilities for past periods if governments seek to reapply tax rules retrospectively (depending on domestic law).

Compliance mechanics and administrative obligations

Malaysia’s guidance sets out substantive administrative obligations. Practically, in-scope groups must:

• Maintain detailed jurisdictional ETR calculations and supporting schedules;
• File globe information returns (the specific form and timing follow the Inland Revenue Board’s requirements); and
• Submit top-up tax returns where the DTT applies or where the domestic rules require collection.

The Inland Revenue Board’s guidance and practitioner notes clarify filing dates, reliefs for early implementation problems, and audit expectations; companies should treat filings as an integrated part of quarterly and annual tax close rather than a one-off exercise.

ASEAN context : Competitive and location strategy

ASEAN peers have generally aligned implementation timing around 2024–2025, but with differences in administrative emphasis:

• Singapore: strong administrative guidance with DTT and MTT/IIR mechanisms implemented for FYs starting on or after 1 Jan 2025, emphasising clear e-filing and taxpayer support.
• Indonesia, Thailand, Vietnam: each has pursued local adaptations (digital filing platforms, domestic top-up constructs, or consultations on Qualified Domestic Minimum Top-up Tax (QDMTT) frameworks). The consequence for multinational location strategy is that incremental tax differentials will shrink; non-tax factors (skills, logistics, incentives tied to substance) will rise in relative importance.

For boards considering regional hubs, the new environment argues for prioritising operational substance, workforce capabilities, and supply-chain resilience—not purely headline tax rates.

Strategic response options (trade-offs and decision points)

Companies generally have three strategic options; the choice will depend on exposure, cost to change, and time horizon.

A disciplined decision requires quantitative NPV comparison of the options using realistic assumptions for top-up rates, timing, and execution cost.