Taxation and Accounting

Summary of tax rates

Malaysia’s tax system encompasses a variety of taxes, each with distinct rates and applications. The key tax types in Malaysia include Corporate Income Tax (CIT), Personal Income Tax (PIT), Sales and Service Tax (SST), Withholding Tax (WHT), and Digital Services Tax (DST).

Contributing Advisor

Marco Förster

Director, Operations

Major laws governing taxation in Malaysia

Malaysia’s tax system operates under a comprehensive legal framework composed of several key statutes enforced by the Malaysian government. The primary legislation includes:

CIT

For resident and non-resident companies, corporate income tax (CIT) is imposed on income incurred in Malaysia.

The tax rates are of the following:

Sales and services tax

Malaysia reintroduced the Sales and Service Tax (SST) in September 2018, replacing the Goods and Services Tax (GST) to ease consumer tax burdens and simplify compliance. The Sales Tax applies once at the manufacturing or importation stage, with rates of 0 percent, 5 percent, or 10 percent depending on the type of goods—ranging from essential to luxury items—while the Service Tax applies at 6 percent or 8 percent depending on the service category.

Foreign companies must register for Sales Tax if their annual turnover exceeds RM 500,000 (US$ 118,000) and comply with the Royal Malaysian Customs Department’s MySST online filing requirements. Businesses must file bi-monthly SST returns, retain records for seven years, and ensure e-invoicing compliance by July 2025. Non-compliance may result in penalties or imprisonment, though a grace period until December 31, 2025 allows businesses time to adapt to the expanded SST framework.

Personal Income Tax

Malaysia’s personal income tax system operates on a territorial basis, taxing income earned within Malaysia while exempting most foreign-sourced income (until 2036). Tax residents are subject to progressive rates from 0 percent to 30 percent, with access to personal reliefs and rebates, while non-residents pay a flat 30 percent without reliefs.

Individuals must file tax if their employment income exceeds RM 34,000 or business income exceeds RM 37,333 annually, with e-filing via MyTax now mandatory. A new 2 percent dividend tax applies to individuals earning over RM 100,000 in dividends annually. Filing deadlines run from April to July 2025, depending on income type, and late submission attracts penalties up to 45 percent of unpaid tax.

Withholding Tax

In Malaysia, withholding tax (WHT) is a mechanism where the payer deducts a fixed percentage from specific payments—such as royalties, interest, or fees for technical services—made to non-residents, and in certain instances, residents, before remitting the amount directly to the Inland Revenue Board of Malaysia (IRBM). This “tax-at-source” system ensures that taxes are collected upfront, especially from foreign entities earning Malaysian-sourced income that may not submit local tax filings.

Tax incentives

Malaysia’s tax incentive framework is designed to attract investment in strategic sectors, technologies, and regions, aligning with national blueprints like NIMP 2030 and the Twelfth Malaysia Plan. Key incentives include:

• Pioneer Status (PS), granting up to 100 percent income tax exemption for 5–10 years; and,
• Investment Tax Allowance (ITA), offering 60–100 percent allowances on qualifying capital expenditure.

Additional schemes such as:

• Reinvestment Allowance (RA);
• Industrial Adjustment Allowance (IAA); and,
• Infrastructure Allowance (IA) support modernization, regional growth, and industrial transformation.

Sector-specific incentives target biotechnology (BioNexus), digital technology (Malaysia Digital/MSC), regional hubs (Principal Hub 3.0), and green initiatives (GITA/GITE), alongside benefits for manufacturing, logistics, tourism, halal, and aerospace industries. Applications are managed via MIDA’s InvestMalaysia portal, with the IRB and MOF overseeing compliance and policy direction. Supported by over 70 Double Taxation Agreements, Malaysia’s incentive ecosystem promotes sustainable, high-value, and innovation-driven investment while ensuring transparent, performance-based tax reliefs for both domestic and foreign companies.

Profit repatriation

Profit repatriation typically occurs through dividends, management or service fees, royalties, interest payments, and capital reduction or share buybacks, each carrying distinct withholding tax implications. Under Malaysia’s single-tier tax system, dividends paid to foreign corporate shareholders are exempt from further withholding tax, while other payments—such as interest (15 percent), royalties (10 percent), and management fees (10 percent)—may qualify for reduced rates under Double Taxation Agreements (DTAs). From January 2025, individual shareholders receiving over RM 100,000 (US$ 24,000) in annual dividends are subject to a new 2 percent dividend tax.

Cross-borders considerations

Transfer pricing and FX control

In Malaysia, managing cross-border transactions involves complying with transfer pricing (TP) regulations and foreign exchange (FX) controls, both of which are key to ensuring transparency and alignment with international standards. For 2025, Malaysia’s tax authorities—the Inland Revenue Board (LHDN), Bank Negara Malaysia (BNM), and the Ministry of Finance (MOF)—are strengthening enforcement, promoting digital compliance through e-invoicing, and liberalizing FX policies to attract investment. The TP framework, based on the arm’s length principle and aligned with OECD guidelines, ensures that profits are taxed where value is created, while ongoing FX reforms provide greater flexibility for cross-border financing and reinvestment, supporting Malaysia’s goal of being a competitive and transparent business hub.

Customs duties and import-export taxes

Malaysia’s customs and import-export tax framework, governed primarily by the Customs Act 1967, the Sales Tax Act 2018, and the Excise Act 1976, is administered by the Royal Malaysian Customs Department (RMCD) to regulate tariffs, duties, and trade compliance.

Customs duties apply mainly to imported goods based on their CIF value, while export duties target specific commodities such as palm oil, timber, and minerals to manage resource exports. Sales and Service Tax (SST) applies to domestically supplied goods and services, and excise duty targets items like alcohol, tobacco, and vehicles.

Excise duty

Excise duty in Malaysia is an indirect tax imposed on selected goods such as motor vehicles, alcohol, tobacco, vaping liquids, sugar-sweetened beverages, and gaming materials, whether locally produced or imported for domestic use. Governed by the Excise Act 1976 and administered by the Royal Malaysian Customs Department (RMCD), it functions both as a revenue-generating measure and a policy instrument to regulate consumption and support national health and industrial objectives. Duties are charged either ad valorem (percentage-based) or specific (per unit), with the highest rates applied to vehicles (60–105 percent), alcohol, and tobacco, while vaping liquids (RM0.40/ml) and sugary drinks have been recently added to the scope.

Audit and compliance

Statutory audits are legally required under the Companies Act 2016 to ensure that a company’s financial statements present a true and fair view, comply with MFRS or MPERS, and maintain investor and regulatory confidence. Most companies must appoint a licensed independent auditor, prepare audited financial statements within six months of year-end, and submit them to the Companies Commission of Malaysia (SSM). Audit and tax compliance are jointly enforced by SSM and the Inland Revenue Board (LHDN), with non-compliance—such as failure to lodge financial statements, appoint auditors, or disclose beneficial ownership—attracting severe fines, imprisonment, or director disqualification.

Recent updates include expanded audit exemption thresholds (effective 2025–2027) for SMEs, enhanced beneficial ownership reporting via e-BOS, and full digitalization through MBRS 2.0. While public and foreign companies remain fully audit-mandated, qualifying small or dormant private companies may opt for exemption if they meet financial and staffing criteria.

Accounting standards

Accounting compliance in Malaysia forms the backbone of corporate credibility, transparency, and sustainable growth, as companies adhering to proper standards gain better access to financing and investor confidence while avoiding penalties under the Companies Act 2016, which holds directors personally liable for failures.

Oversight of the accounting landscape is shared among key regulators—the Malaysian Institute of Accountants (MIA), which enforces ethical and professional standards; the Malaysian Accounting Standards Board (MASB), which issues national standards aligned with IFRS through frameworks such as MFRS, MPERS, MPSAS, and i-MPERS; and the Companies Commission of Malaysia (SSM), which enforces compliance via digital platforms like the MBRS system.

The Financial Reporting Act 1997 underpins MASB’s authority, recently expanded to cover sustainability reporting, reflecting the growing emphasis on ESG disclosures.