In this article, we will take a closer look at the consequences individuals and businesses may face when failing to adhere to tax laws in the country. This sheds light on the potential tax offences and penalties in Malaysia, offering valuable insights to help taxpayers navigate the complexities of tax compliance in the country.
Corporate Tax Penalty in Malaysia
In Malaysia, corporate income tax (CIT) is levied on the profits of all companies operating within the country. Foreign companies are taxed on their worldwide income, while local companies are taxed only on income earned domestically. Companies must pay taxes based on their net profit, which is the revenue remaining after all expenses are deducted. Existing companies are required to pay their tax instalments monthly starting from the second month of their fiscal year, while new companies begin from the sixth month. Payments must be made to Lembaga Hasil Dalam Negeri (LHDN) by the 15th of each month.
Companies can appeal a late payment penalty within 30 days of receiving the statement of account by submitting a written appeal to the Collections Unit in the HASiL Office. However, the appeal process does not exempt them from paying the owed taxes.
Common Tax Penalties for Companies in Malaysia
Late Tax Payment
Failure to pay outstanding taxes on time incurs a 10% penalty on the existing tax payable, violating Section 107B(3) of the Income Tax Act 1967 (ITA 1967). Additionally, if the actual tax exceeds the revised estimate by 30%, a 10% penalty on the difference applies, as per Section 107B(4) of ITA 1967.
Additional penalties
Failure to comply with income tax obligations in Malaysia can result in severe penalties. Under Section 112(1), companies that fail to submit their Income Tax Return Form or notify the authorities of their tax obligations may face fines of up to RM20,000, imprisonment of up to six months, or both. Incorrect tax filings under Section 113(1)(a) can attract fines of up to RM10,000 and twice the underreported tax amount. Similarly, providing false information under Section 113(1)(b) carries the same penalty.
Intentional tax evasion or aiding others to under-declare income, as outlined in Section 114(1), is punishable by a fine of up to RM20,000, imprisonment of up to three years, or both, along with a penalty three times the outstanding tax. Obstructing LHDN officers (Section 116) or failing to maintain proper records (Section 119) can result in fines of up to RM10,000 or imprisonment of up to one year. Additionally, not updating a change of address within three months or failing to provide requested information to LHDN (Sections 120(1)) may lead to penalties of up to RM20,000, imprisonment of up to six months, or both.
Common Tax Offences and Penalties in Malaysia
Failing to File Taxes
If your annual income surpasses the taxable threshold, you are required to report your total earnings to the Inland Revenue Board of Malaysia (IRBM). Failure to comply can result in penalties ranging from RM200 to RM20,000, imprisonment for up to 6 months, or both. This applies to individuals with business or non-business income, as well as corporations. Adhering to tax filing deadlines is crucial to avoid these penalties.
For individuals with a business income, taxes paid after June 30th incur penalties. Those with non-business income face a 10% increment on taxes paid after April 30th, with an additional 5% if payment is not made within 60 days. Corporations must submit their tax returns within seven months of closing their accounts and pay the tax by the last day of the seventh month. A 10% penalty is imposed on any outstanding amount not paid by the due date.
Underreporting Income
Misrepresenting your income to reduce tax liability unlawfully can result in fines between RM1,000 and RM10,000, plus a penalty of 200% of the undercharged tax. This can happen inadvertently if you’re unaware that taxable income includes not only employment earnings but also rental income, dividends, and royalties.
Claiming Tax Reliefs Excessively
While utilizing tax reliefs can result in significant savings, it’s essential to declare them accurately and avoid overstating claims to minimize tax liabilities. Without proper documentation, such as vouchers or receipts, you risk penalties ranging from RM300 to RM10,000, imprisonment for up to one year, or both. Ensure you retain all supporting documents for at least seven years for verification purposes.
Lapse in Record-Keeping
Failure to maintain accurate and organized financial records for taxation can lead to significant issues, including difficulties during tax audits, potential penalties, and back taxes. This negligence or inability to document financial activities, income, expenses, and transactions properly can have serious consequences for both individuals and businesses.
Tax Evasion
Tax evasion is the illegal and intentional act of avoiding tax payments that an individual or business is legally required to make. This involves various deceptive and fraudulent activities to reduce tax liabilities or hide taxable income. Penalties for tax evasion can include criminal charges, hefty fines, and imprisonment.
Assisting in Tax Evasion
Assisting in tax evasion involves willfully helping another individual or entity evade tax obligations for personal gain or to aid them in avoiding their tax responsibilities. Penalties for such actions can include fines ranging from RM1,000 to RM20,000, imprisonment for up to 3 years, or both, along with a penalty of 300% of the tax undercharged.
Overview of Tax Offences and Penalties in Malaysia
| Classification of Offences | Provisions Under ITA 1967 | Penalty Imposed |
| Failing, without a valid and justifiable reason, to provide an Income Tax Return Form. | 112 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Failing, without a valid and justifiable reason, to provide notice of tax liability. | 112 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Submitting an inaccurate tax return by either omitting or understating any income. | 113 (1) (a) | Fines ranging from RM1,000 to RM10,000 and 200% of tax undercharged. |
| Providing incorrect information in matters that influence the tax liability of a taxpayer or any other individual. | 113 (1) (b) | Fines ranging from RM1,000 to RM10,000 and 200% of tax undercharged. |
| Deliberately and with the intention of avoiding or aiding another individual in avoiding tax obligations. | 114 (1) | Fines ranging from RM1,000 to RM20,000, imprisonment for a term not exceeding 3 years, or both, and 300% of tax undercharged. |
| Helping or counseling others to underreport their income without exercising due diligence or reasonable care. | 114 (1A) | Fines ranging from RM2,000 to RM20,000, imprisonment for a term not exceeding 3 years, or both. |
| Making an effort to depart the country without settling tax liabilities. | 115 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Interfering with the duties of any authorized officer of the Inland Revenue Board of Malaysia (IRBM). | 116 | Fines ranging from RM1,000 to RM10,000, imprisonment for a term not exceeding 1 year, or both. |
| Failing, without a valid justification, to adhere to an order mandating the maintenance of accurate records and documentation. | 119A | Fines ranging from RM300 to RM10,000, imprisonment for a term not exceeding 1 year, or both. |
| Failing, without a justifiable reason, to adhere to a notice requesting specific information as mandated by the Inland Revenue Board of Malaysia (IRBM). | 120 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
| Failing, without a valid justification, to provide notice of changes in address within a three-month timeframe. | 120 (1) | Fines ranging from RM200 to RM2,000, imprisonment for a term not exceeding 6 months, or both. |
Strategies to Prevent Tax Offences and Penalties in Malaysia
Donations
To maximize your tax benefits, consider making a generous donation to a recognized charity, and be sure you obtain an official receipt. When preparing your tax return, accurately report the total amount of your charitable donations in the designated section. This amount will be deducted from your taxable income, allowing you to claim a percentage of the donation as a tax benefit.
Tax Deductions
Tax deductions reduce your taxable income, resulting in a lower tax bill. By utilizing all available deductions, you can save money. It’s important to maintain accurate tax records in case of an LHDN audit.
Tax Incentives
The Malaysian government offers tax incentives under the Income Tax Act 1967 and the Promotion of Investment Act 1986, including reinvestment allowance, investment tax allowance, and pioneer status, to significantly reduce a company’s tax burden.
Consultation
Engaging a tax agent or accountant, such as those at Premia TNC, can save you valuable time and potentially enhance your tax refund or minimize your tax liability. These professionals stay abreast of the latest tax regulations and can identify deductions and offsets that you might otherwise overlook.
Premia TNC’s Assistance
Premia TNC provides comprehensive services to help you navigate and understand tax offences and penalties in Malaysia. Our expert guidance ensures you remain compliant and well-informed about your tax obligations, avoiding any potential pitfalls. Stay ahead with Premia TNC’s reliable and professional tax solutions.
FAQs
Q1: When does a Malaysian company need to complete its first tax filing?
A: When a company starts its operations, it should register for a tax file. Within three months of commencement, it must estimate its tax payable and begin tax instalment payments from the sixth month. Additionally, companies must submit their income tax return within seven months of closing their accounts.
Q2: What is the existing corporate tax rate in Malaysia?
A: With a paid-up capital of RM2.5 million or less and a gross income from business of not more than RM50 million, it does not control, directly or indirectly, another company that has paid-up capital of more than RM2.5 million, and it is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM2.5 million, which is eligible for preferential tax rates: 15% on the first MYR 150,000, 17% on the next MYR 450,000, and 24% thereafter. Non-resident companies have a flat 24% tax rate, regardless of capital.
Q3: Who should register for an individual income tax number?
Individuals required to file taxes include those who are single with annual employment income exceeding RM34,001 after EPF deductions, married individuals with unemployed spouses earning over RM46,001 annually, business owners regardless of profit or loss, new employees subject to Monthly Tax Deduction (STD), those with taxable income, and individuals involved in real estate transactions.
