Paying Taxes in Malaysia

Updated on Tuesday 29th September 2020

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Foreign entrepreneurs who want to open a company in Malaysia are advised to invest on this market, because the conditions available for foreigners have been improved by the local authorities. However, when choosing a foreign location for a business, the investors should also study the taxation system that will apply to their company. Our team of specialists in company incorporation in Malaysia can offer assistance when complying with the local tax authorities
 

Taxation system applicable to companies in Malaysia  


All companies with operations in Malaysia are required to register for tax purposes. A company is considered a tax resident in Malaysia if the management and control of the company are performed here. Foreign investors interested in company formation in Malaysia will be taxed only in respect to the income produced on the territory of the country.

It must be noted that the term taxable income in Malaysia also refers to other types of incomes, such as the ones obtained from rent, royalties, dividends or interest. In the case of dividends that are paid by a Malaysian to a foreigner, the withholding tax does not apply. 

Foreign entrepreneurs should also know that Malaysia does not impose any tax on the capital gains for most of the business activities carried out here, but the tax is applicable in the case of real estate transactions; our team of agents in company incorporation in Malaysia can offer more details.  
 

Corporate taxes in Malaysia  


As a general rule, companies registered in Malaysia are taxed at a rate of 24% on the corporate income, but the local authorities impose a 17% corporate tax rate as well, under special conditions. It is important to know that the corporate tax rates were lowered at the beginning of 2016. The corporate income tax in Malaysia is charged as follows:
 
  • any resident company is charged with the 24% rate for the fiscal year of 2019-2020, as a general rule;
  • however, special conditions apply for companies with a paid-up capital of MYR 2.5 million and a gross income of maximum MYR 50 million or for companies that control other companies with a capital of MYR 2.5 million or for legal entities that are controlled by companies with a paid-up capital of MYR 2.5 million;
  • in the situation mentioned above, the corporate income tax is charged at a rate of 17% for the first MYR 600,000, calculated as chargeable income, while an income above MYR 600,000 will be taxed at 24%;
  • those who want to open a company in Malaysia should know that the company will be liable to a corporate income tax of 24% as long as the company is considered a non-resident entity;
  • another type of corporate tax is the petroleum income tax, which is charged at the rate of 38%; 
  • there is a lower tax of only 25% charged as a petroleum income tax, imposed for specific types of activities. 
 

What are the withholding tax rates in Malaysia?
 

There are several types of withholding tax rates in Malaysia, which vary based on the type of income that must be charged here. Our consultants in company formation in Malaysia can present the full list of incomes that can be charged with the withholding taxes and you can find below a short presentation on the basic rates and types of incomes, as follows:
 
  • a rate of 3% is charged for the taxation of various contract payments regarding services completed in Malaysia;
  • a rate of 5% is charged for the taxation of interest that is paid by financial institutions;
  • a withholding tax of 8% is charged for family funds operating in Malaysia;
  • a tax rate of 10% is charged for income deriving from royalties, technical fees, real estate investment trusts and others;
  • income from interest or the one obtained by foreign public entertainers is charged with 15%;
  • a tax of 25% is applied to real estate investment trusts. 
 

What are the obligations for paying taxes in Malaysia?


The obligations concerning the procedures for paying taxes in Malaysia will vary based on the type of entity that must make the respective tax payments (natural persons or legal entities). Our team of consultants in company incorporation in Malaysia can provide you with extensive information on this subject and can assist investors, local and foreign, in dealing with the tax and accounting regulations available here. 

According to the Malaysian legislation, the fiscal year, in which the income generated by an entity is measured, generally coincides with the calendar year.  The accounting system available here is based on a self-assessment regime, in which the taxable entities are required to submit tax returns

For companies, it is possible to make advance corporate tax payments, which can be paid each month of the year. However, the legislation requires to make an annual tax return, which can be submitted in a period of seven months since the end of the financial year. Companies should be aware that if the tax returns are not submitted in due time, penalties can apply. 
 

What are the tax obligations on employment in Malaysia?


Investors are also liable to payroll tax, a tax imposed on the company for the activity of the employees. The tax is withheld by the company and redistributed to the Malaysian tax authorities. A company also has to pay social contributions at the Social Security Organization, at the rate of 1,75%, from the employee’s salary. 

Persons who are employed in Malaysia must pay taxes in accordance to their income level and this is necessary for both Malaysian tax residents and non-residents. According to the Inland Revenue Board of Malaysia, a foreign person working in this country needs to be registered for taxation in a period of maximum two months since the date at which the employment contact entered into force.  

The foreign person will be liable for taxation in Malaysia only for the income obtained here, while in the case of tax residents, the legislation stipulates that the calculation of the taxes has to be done taking into consideration the global income obtained by such persons. 

Foreign investors who want to open a company in Malaysia and hire local or foreign workforce must know that the payment of the taxes associated with employment has to be done no later than 15th of each month (taxes applicable for the salaries paid to the employees for the previous month). 

Companies are also required to pay taxes in Malaysia when various documents are involved, such as legal, commercial or financial papers. In this case, they will be liable to the payment of the stamp duty, which can be charged at a fixed rate, regardless of the nature of the document or its financial value, and another one which is calculated based on the value stipulated in the contract. It must be noted that one can benefit from an exemption on the payment of this tax in certain situations, which can be detailed by our specialists in company formation in Malaysia.  


In the situation in which a shareholder is interested in selling his or her shares, the transfer will be taxed at a 0,3% rate applied on the value of the transfer. Businessmen interested in receiving more details on the corporate taxes available in this country can address to our consultants in company incorporation in Malaysia.