Corporate income tax rates in Malaysia can have a significant impact on a company’s bottom line. While it is essential to pay taxes to support public services and government initiatives, high tax rates can be a deterrent to businesses investing and operating here.
With a corporate tax rate of 17% or 24%, the question on the minds of many business owners is “How can I reduce company tax in Malaysia?”
In this corporate tax guide, we explore options from tax incentives to deductions and exemptions to help companies optimise their tax position and improve their profitability.
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Table of Contents
- Corporate tax rate in Malaysia
- Ensure you claim all business expenses
- Consider your directors’ salaries
- Tax incentives for Malaysia companies
- Tax Deductions from Expenses
What is the corporate tax rate in Malaysia
The corporate income tax rates in Malaysia are determined by the Inland Revenue Board (IRB) or Lembaga Hasil Dalam Negeri (LHDN) and are typically reviewed on an annual basis. Generally, the rate as as follows:
- Companies with paid-up capital not exceeding RM2.5 million: 17% on the first RM600,000 of chargeable income, and 24% on the subsequent balance.
- Companies with paid-up capital exceeding RM2.5 million: 24% on the entire chargeable income.
Chargeable income refers to a company’s taxable income after deducting allowable expenses and reliefs. The reduced tax rate of 17% for small and medium-sized companies with paid-up capital not exceeding RM2.5 million aims to provide a more competitive tax environment and encourage the growth of smaller businesses in Malaysia.
It is important to note that there may be additional tax incentives and exemptions available for companies operating in specific sectors or engaging in qualifying activities. Companies should consult with tax professionals to determine the most suitable tax strategies for their business and ensure compliance with Malaysian tax laws and regulations.
Ensure you claim all business expenses
This is a no-brainer, but you cannot afford to overlook it. You must ensure that no expenses are overlooked in your accounting records. Quite often, directors incur expenses on behalf of the company but fail to claim them back for accounting records at the end of your financial year.
To optimise your tax position as a business owner in Malaysia, it is crucial to ensure that you claim all eligible business expenses when filing your company tax returns in Malaysia. Business expenses refer to the costs incurred in the course of conducting business activities and may include expenses such as rent, utilities, office supplies, equipment, and travel expenses. These expenses can be deducted from your company’s gross income, reducing your overall taxable income and therefore lowering your corporate income tax liability.
However, it is important to note that only eligible business expenses can be claimed, and documentation and records of these expenses should be properly maintained for tax audit purposes.
By claiming all eligible business expenses, you can maximise your tax savings and improve your company’s financial performance.
Consider your directors’ salaries
Business owners should take the time to properly use their personal allowance. With proper planning, you can find a salary and dividend combination that results in a lower overall tax bill.
It is important to carefully consider the salaries paid to your directors, as these salaries can have significant tax implications for your company. Director salaries are considered an allowable expense for tax purposes, and therefore can be deducted from your company’s gross income to reduce your taxable income. However, excessive salaries may raise red flags for the Inland Revenue Board (IRB) and potentially lead to tax audits and investigations.
Take advantage of tax incentives for companies in Malaysia
Businesses can take advantage of a variety of tax incentives and tax exemption schemes. For example, if you want to reduce company tax payable in Malaysia, pioneer status firms can receive up to ten years of tax holidays. There is also an investment tax allowance ranging from 60% to 100%, as well as reinvestment allowances of up to 60% on your company’s capital investment.
These incentives are common in the healthcare, venture capital, energy, conservation, information technology, manufacturing, Islamic finance, biotechnology, hospitality, and environmental protection industries.
Types of Tax Deductions from Expenses
As stated above, you can deduct all business-related outgoings and expenses from your taxes. However, you may be unaware of what constitutes an expense. As a result, you may want to run the following list of allowable items. However, these allowable items may vary depending on your industry.
You can usually deduct the following items from your taxable income:
- Employment Costs
- Rental of Premises
- Business Insurance
- Lease Rental on Machinery and Plant
- Advertisement to Promote Sales
- Utilities, Phone, and Internet Charges
- License Renewal
- Travelling Allowance for Employees
- Petrol or Mileage for Employees
- Legal Fees for Debt Recovery
- Commission to Secure Sales
- Repainting of Company Premises
- Staff Training
How can WeCorporate help?
WeCorporate provides tax compliance and reporting, advisory, and transaction services to a wide range of clients in Malaysia. With our expertise in Malaysian corporate tax, we can help you increase your business profitability, ensure high accuracy, and stay compliant with Malaysian regulations.
Find out more about our tax services in Malaysia.
- Corporate tax is levied on Malaysian businesses with chargeable income under the Income Tax Act 1967. Taxable income includes profits, interests, dividends, royalties, premiums, rents, and other revenue.
- If you have recently registered your company, you must file an estimate of tax payable within three months of the start of operations, and then pay monthly instalments beginning in the sixth month of the relevant assessment year.This is due on the 15th of each month. After the fiscal year has ended, you must file your tax with Lembaga Hasil Dalam Negeri Malaysia (the Inland Revenue Board Of Malaysia) via the e-filing portal. This must be completed within seven months.
- Malaysian corporations and LLPs are generally required to pay a corporate tax rate of 24%. However, if they have less than MYR2.5 million in paid-up ordinary share capital and less than MYR50 million in gross income, they will be subject to a two-tier tax rate of 17% and 24%.
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