Understanding Malaysia Corporate Income Tax
Corporate Income Tax (CIT) in Malaysia is a direct tax imposed on all businesses, including resident and non-resident companies, operating within the country. Governed by the Income Tax Act 1967 and regulated by the Inland Revenue Board of Malaysia (IRBM), CIT applies to all income generated locally, such as profits, dividends, royalties, and premiums. The tax rates may vary depending on the company’s status, making it essential for newly established businesses to understand the relevant CIT obligations for successful compliance and growth.
Resident & Companies
In Malaysia, resident companies are generally taxed at a corporate income tax rate of 24%. However, companies with a paid-up capital of up to 2.5 million Malaysian ringgit (MYR) and gross business income not exceeding 50 million MYR benefit from a reduced tax rate. These companies, provided they are not directly or indirectly controlled by or have control over any company with more than 2.5 million MYR in paid-up capital, are taxed at 15% on their first 150,000 MYR of chargeable income. Income up to 600,000 MYR is subject to a reduced tax rate of 17%, while amounts exceeding the 600,000 MYR threshold are taxed at the standard corporate tax rate of 24%.
Non-Resident Companies
Non-resident companies are subject to a flat corporate income tax rate of 24%, aligning with the standard rate for most resident companies. This uniformity simplifies the tax structure for businesses operating in Malaysia, ensuring clarity in taxation for both resident and non-resident entities.
Criteria for Tax Residency and Taxation in Malaysia
In Malaysia, the taxation system is primarily based on a company’s residency status, with both resident and non-resident companies taxed on income generated within the country. A company is considered a tax resident if it meets any of the following criteria: the basis period for the year of assessment is conducted in Malaysia, the management and control of its affairs are exercised in Malaysia, or the meetings of its executives and board of directors are held in Malaysia.
However, certain international corporations, specifically those involved in air transportation, shipping, banking, and insurance, are excluded from this taxation system. This territorial approach ensures that only income derived from operations within Malaysia is subject to taxation, aligning with the country’s regulatory framework.
Year of Assessment and Return Filing Guidelines
The Year of Assessment in Malaysia
In Malaysia, the year of assessment runs from 1 January to 31 December. The basis period for a company is its financial year ending within the year of assessment. Malaysia operates on a current-year basis of assessment, meaning a company is taxed on income generated during its financial year that concludes in the calendar year corresponding to the specific assessment year. This system ensures that the taxation aligns with the company’s financial reporting period, providing clarity and consistency in tax obligations.
Submission Deadline for Corporate Income Tax Returns in Malaysia
In Malaysia, companies must submit their corporate income tax returns and pay any tax due within seven months of closing their accounts. They are also required to provide tax-payable estimates for the assessment year at least 30 days before the basis period begins. However, newly established companies with paid-up capital of RM 2.5 million or less are exempt from providing these estimates for the first two assessment years. Additionally, companies starting operations within a year of assessment are not required to submit tax estimates or make installment payments if their basis period is less than six months.
Deductible Expenses for Corporate Income Tax
Corporate income tax deductions are permitted for expenses that are wholly and exclusively incurred in the production of income. Deductible expenses include salary and wages, business insurance, advertisement and promotion costs, employee travel expenses, entertainment expenses, repair and maintenance, lease rentals on plants and machinery, recruitment expenses, and incorporation expenses.
However, certain expenses are non-deductible. These include fines and penalties, trademark registration costs, non-approved donations, domestic, private, or capital expenditures, employee contributions to unapproved pension, provident, or savings schemes, and payments to non-residents subject to unpaid withholding tax.
Looking Into Malaysia Corporate Income Tax Incentives
In Malaysia, tax incentives such as Pioneer Status (PS) and Investment Tax Allowance (ITA) are available for organizations in agriculture, manufacturing, hotel, and tourism sectors. PS offers a five-year corporate tax exemption on statutory income, while ITA provides a 60% allowance on qualifying capital expenditure over five years. Additional incentives include a Reinvestment Allowance (60% on QCE for fifteen years), benefits for approved service projects, and incentives for establishing a principal hub.
Key Responsibilities for Companies Filing Corporate Income Tax in Malaysia
Every business corporation in Malaysia, whether resident or non-resident, has three primary responsibilities when filing corporate tax. These responsibilities include:
Implementing a Standardized Filing System
The primary responsibility involves adhering to a standard filing method by estimating the tax payable, which can be done through either e-filing. For newly established companies in Malaysia, it is mandatory to file the estimated tax within three months of commencing operations. In contrast, existing companies are required to file their estimated tax 30 days or one month before the start of the new financial year. This ensures compliance with tax regulations and helps maintain accurate financial records.
Keeping up with Tax Payment Methods and Deadlines
The second responsibility involves observing the tax payment method and ensuring the estimated tax is paid before the deadline. The permissible payment method is through the CP207 form, with deadlines varying from one company to another. However, payments must be made on or before the 15th of each month. New companies are required to start payments from the 6th month of the basis year of assessment, while existing companies must begin from the 2nd month of the basis year of assessment. It is crucial to adhere to these deadlines to avoid any penalties or compliance issues.
Furnishing Form C
The final step requires both new and established companies to submit Form C through the e-facility platform. This ensures compliance with tax regulations and facilitates efficient processing of their tax-related matters.
Premia TNC’s Industry-Leading Taxation Services
At Premia TNC, we specialize in Malaysian taxation services, leveraging our extensive knowledge of the country’s economy and tax rates to resolve corporate income tax issues. Our comprehensive services include tax estimation (CPP204) filing, tax return filing, tax file registration, tax computation preparation (such as account analysis), and income tax schedule planning. Additionally, we offer personal income and sales and services tax assistance. We are the premier choice for newly established companies seeking expert corporate taxation services in Malaysia.
What is the corporate income tax rate for resident companies in Malaysia?
Resident companies are taxed at 24%. However, companies with paid-up capital of up to MYR 2.5 million and gross income not exceeding MYR 50 million benefit from a reduced tax rate with the first 150,000 MYR being taxed at 15%, income up to 600,000 MYR at 17%, and amounts above 600,000 MYR at 24%.
How are non-resident companies taxed in Malaysia?
Non-resident companies are subject to a flat corporate income tax rate of 24% on income derived within Malaysia, aligning with the standard rate for resident companies.
What is the filing deadline for corporate tax returns in Malaysia?
Companies must submit their tax returns and pay any due tax within seven months of their financial year-end. Tax estimates must be provided 30 days before the new assessment year begins, though newly established companies may be exempt from this for the first two years.
Are there any tax incentives available for companies in Malaysia?
Yes, tax incentives such as Pioneer Status (PS), Investment Tax Allowance (ITA), and Reinvestment Allowance (RA) offer significant tax reductions or exemptions for businesses in agriculture, manufacturing, and tourism sectors, among others.
