Understanding Company Tax Rates in Malaysia
Starting a business in Malaysia requires a clear understanding of company income tax regulations as governed by the Inland Revenue Board of Malaysia (LHDN). A solid grasp of these tax obligations can help minimise compliance issues and support your business’s long-term growth.
Overview of Corporate Income Tax
Malaysia’s corporate tax regime is governed under the Income Tax Act 1967. All companies registered in Malaysia are subject to tax on chargeable income derived from Malaysia in accordance with this Act.
Definition of SME for Tax Purposes
For tax purposes, a company is classified as a Small and Medium Enterprise (SME) if it meets the following criteria:
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Paid-up capital of not more than RM2.5 million at the beginning of the basis period.
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Gross income from a business source of not more than RM50 million.
New SME Tax Condition on Foreign Shareholding (Effective YA 2024)
Beginning Year of Assessment (YA) 2024, an additional condition has been introduced for SME companies to qualify for the preferential tax rates:
If 20% or more of the company’s paid-up capital is owned directly or indirectly by a foreign company or non-Malaysian citizen, the SME will not be eligible for the lower tax rates of 15% and 17%.
Tax Implications of Foreign Shareholding ≥ 20%
Companies that fall under this category—i.e. with foreign ownership of 20% or more—will be subject to the standard corporate tax rate of 24%, regardless of size or income.
| Company Type | Chargeable Income | Tax Rate |
|---|---|---|
| SMEs (Paid-up capital ≤ RM2.5 million and gross business income ≤ RM50 million) | First RM150,000 | 15% |
| RM150,001 – RM600,000 | 17% | |
| Above RM600,000 | 24% | |
| Companies (Paid-up capital > RM2.5 million) | All chargeable income | 24% |
| Non-resident companies/branches | All chargeable income | 24% |
Note 1: The SME tax rates only apply if all qualifying conditions, including local ownership requirements, are met.
Note 2:The company neither controls nor is directly or indirectly controlled (by more than 50% shareholding) by a related company with a paid-up ordinary share capital exceeding RM2.5 million at the beginning of the basis period for a year of assessment.
Note 3: SME tax rate is not applicable to investment holding company without business source of income (known as Section 4a income pursuant to Income tax Act in Malaysia)
https://phl.hasil.gov.my/pdf/pdfam/PN_4_2020.pdf
Who Should You Turn To?
Maximising tax savings is essential for every business. With the right guidance from a trusted and knowledgeable tax consultant, you can effectively minimise risks and avoid unnecessary penalties that could negatively impact your company.
If you have any tax-related questions or concerns, feel free to reach out to us.
Our team of experienced tax professionals is ready to assist you with personalised advice and practical solutions.