Foreign entrepreneurs who want to open a company in Malaysia are advised to invest in 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 regulations.
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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 with 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 income, 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 in Malaysia does not apply.
Foreign entrepreneurs should also know that Malaysia does not impose any tax on capital gains for most 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 tax in Malaysia
24% is the standard corporate tax rate in Malaysia, and it applies to resident companies operating in this country. The corporate tax in Malaysia can be reduced under certain conditions. For example, the corporate tax rate in Malaysia can be 17% for small and medium companies with no more than RM 2.5 million in paid-up capital. Here are the conditions under which corporate tax in Malaysia applies:
- For the first chargeable income of RM 150,000, the corporate income tax rate is 15%.
- The next RM 450,000 chargeable income is taxed at a 17% rate.
- Anything above RM 600,000 is subject to a 24% corporate income tax rate in Malaysia.
In Malaysia, there is also a petroleum income tax of 38% for operators active in this sector. There is also a lower rate, of 25%, paid by petroleum companies with activities in marginal fields in Malaysia. You can learn more about taxation in Malaysia from our specialists.
Income tax in Malaysia
The income tax in Malaysia applies to natural persons as follows:
- Not imposed for incomes below RM 5,000.
- 1% rate for incomes ranging from RM 5,001 and RM 20,000.
- 3% rate for incomes ranging from RM 20,001 and RM 35,000.
- 6% rate for incomes ranging from RM 35,001 and RM 50,000.
- 11% rate for incomes ranging from RM 50,001 and RM 70,000.
- 19% rate for incomes ranging from RM 70,001 and RM 100,000.
- 25% rate for incomes ranging from RM 100,001 and RM 400,000
- 28% rate for incomes ranging from RM 600,001 and RM 2 million.
- 30% rate for incomes above RM 2 million.
The income tax in Malaysia is reduced to 15% for so-called “knowledge workers” residing in the Iskandar Development Region and working in certain fields of activity and under specific employment contract conditions. You can learn more about the Malaysian tax from our local team of agents.
Goods and Services Tax in Malaysia
The Goods and Services Tax in Malaysia (GST) has been replaced with the Sales and Services Tax (SST), and it is set at a 6% rate. However, exemptions apply. Here is what this tax entails:
- There is no SST for exported products, basic food, books, international services, public transportation, private education services, residential property, or financial services.
- SST applies to taxable goods imported into Malaysia and manufactured here.
- Food & beverage services, logistics, and telecommunications services are subject to an 8% service tax starting in 2024.
- The sales tax registration is mandatory for sales exceeding RM 500,000 annually.
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 taxed here. Our company formation agents 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 derived 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.
For companies, it is possible to make advance corporate tax payments, which can be paid each month of the year. However, the legislation requires one to make an annual tax return, which can be submitted within a period of seven months from the end of the financial year. Companies should be aware that if the tax returns are not submitted in due time, penalties can apply. Nevertheless, business owners can collaborate with our accountants in Malaysia to know more about the taxation system in this country.
What are the tax obligations on employment in Malaysia?
Investors are also liable for the 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 to the Social Security Organization, at the rate of 1,75% of the employee’s salary.
Persons who are employed in Malaysia must pay taxes in accordance with 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 within a period of a maximum of two months from the date on which the employment contract entered into force.
We invite you to find out more about the Malaysian tax by discussing it with our local experts. You can be prepared when setting up a business in Malaysia if you decide to work with our specialists in the field. Plus, you may contact us online or by phone and see what taxation in Malaysia entails.