Corporate activities anywhere in the world demand certain percentage of corporate tax. It is the responsibility of corporate personnel to pay this tax regularly, to keep the business clean from any national debts.
Similarly, running a corporation in Malaysia also follows a standard corporate tax system. Each and every eligible business of Malaysia is bound to pay corporate tax at regular intervals. This is compulsory under the tax law of this nation. Corporate tax is a mandatory part of the bigger taxation process.
Malaysian Corporate tax system cannot be skipped or ignored as long as a legal corporation is under regular mobilization. This tax revenue ultimately adds up to the government’s national treasury, which in turn is spent for various national developments in Malaysia.
When we talk about taxation, most entrepreneurs around the world seem to show least interests in this particular subject. This is not because they are trying to ignore or skip their taxes, but they find this whole tax filing process excessively complicated.
The scenario is pretty much same in Malaysia as well. Keeping that in mind, we will discuss the same Malaysian corporate tax system but in less complex way. We will learn about corporate tax and little bit historical background of Malaysian corporate tax, along with corporate tax exemptions and finally various tax incentives available in this nation.
All about corporate tax Malaysia
The primary forms of taxation available in Malaysia are corporate tax, Income tax, SST or sales and services tax. Among this, income tax rate is the maximum which is 26%, followed by 24% corporate tax rate and finally only 6% rate for Sales and Service Tax.
The corporate tax isn’t less in Malaysia; however the rate is not the highest as well. Although this rate can go higher if withholding tax is also included in some special cases. We will get back to this particular exception later on. Typically, tax is imposed on corporations on the basis of incomes drawn from Malaysia.
The taxable earning in this scenario includes royalties, interests, real estate trades, profits from dividends etc. However, this law of deriving income from Malaysia does not implied on some exceptional sectors such as banking, air or shipping transport, insurance company and similar businesses.
Corporate tax often gets included with additional taxes known as withholding tax in Malaysia. This tax is applied on specific types of taxable earnings. Withholding tax typically comes in form of technical fees, interests, royalties and even rentals of movable properties such as a car. It must be noted that, withholding tax is not charged on dividends in Malaysia.
Historical timeline of Malaysian income tax
Income tax which includes corporate tax has a long history in Malaysia. There were many alterations and modifications over time in income tax sector in Malaysia. Over the years, the introduction of better and stronger Acts, this taxation system got more and more refined.
Here below we have a simplified timeline that illustrates how income tax evolved over a long period of time to the present state in Malaysia.
|1947||Malaysian income tax first introduced. First income tax ordinance have been implemented in the same year under Income Tax Ordinance 1947.|
|1956||Sabah’s income tax took the ordinance in this year.|
|1960||Sarawak introduced their Inland Revenue Ordinance 1960 in this year.|
|1967||1960 Inland Revenue of Sarawak was replaced by the income tax Act in this particular year.|
|1989||The income tax was at its highest pick despite of 5% reduction. The rate was 35% from the previously set 40% rate. After that the rate gradually reduced along with the year 1994, 95 and finally at 1998.|
|2001||The Malaysian tax assessment which operates through a self-assessment system was introduced to Malaysian companies in this year. It ultimately replaced the old existing system for tax calculations, submission and return method.|
|2003||To aid and support small to mid-size enterprises in Malaysia, tax rate margin were introduced.|
|2007||Gradual tax rate reduction again took place and this continued till 2009. Each year the rate of reduction was 1%.|
|2008||A Single-tier system has been introduced and implemented to prevent the chances of double taxation issues in this assessment year.|
|2009||The corporate tax rate went down to 25%. This was considered the lowest tax rate ever recorded in the history of Malaysia.|
|Present||Currently, the corporate tax rate stood still at 24% rate.|
Exemption of Corporate Income tax in Malaysia
As mentioned earlier the corporate conditions under which tax will be applied on the income. The income has to be generated from Malaysia. However, that makes foreign-sourced income exempted from corporate or another taxation process.
Then again, exceptions have been for some specific fields such as insurance, shipping and air transport businesses, banking. In this special case a 15% withholding tax has to be paid, but that is not added with any extra corporate tax.
Foreign investor doing business just need to keep their corporate income statements up to date for the state bank of Malaysia, or else they are mostly exempted from any sort of such income tax while doing business in Malaysia.
Available Tax Incentives in Malaysia
Tax incentives are available for various business structures in Malaysia. The aim of such incentive is to promote small to mid size businesses in this nation and also influence and encourage owners and entrepreneurs of small scale enterprises to prosper and spread their trade in Malaysia.
Corporate tax in Malaysia is much more relaxed for such particular cases. Typically tax incentives are given to limited scale manufacturing businesses and Small to Medium Enterprises (SMEs). It must be noted that corporate tax is not exempted for these groups of businesses but the certain reduction has been brought in their corporate taxation process.
Tax Incentives for SMEs n Malaysia
Small to mid size enterprises are getting an incentive in their corporate tax. The reduction in their 25% original corporate tax has been done on the basis of their yearly income limit. Companies whose income doesn’t exceed RM2.5 million per year are considered to be small to medium-sized enterprises in Malaysia.
Such enterprises are permitted to pay 20% corporate tax for first RM 500000 worth taxable income. For the rest of their yearly income the tax rate is 24%. A new enterprise at this scale is exempted to pay any taxes for the next five operative years.
Tax Incentives for limited-scale Manufacturing businesses in Malaysia
Limited-scale Manufacturing businesses in Malaysia tax incentives regardless the company has at least 60% Malaysian equity and RM500000 worth of fund belong to the shareholders. In general new businesses are already exempted of any sort of tax, which is 100% tax waiver for up to 5 consecutive years.
This is applicable in case of Small-scale manufacturing companies as well, Along with that manufacturing companies are subjected to various losses and initial manufacturing expenditures, which calls for further deduction of up to 60% taxes during company operation in initial years. These incentives and corporate taxation relaxations are enacted, governed and regulated under the Malaysian corporate tax system.
FAQ on Corporate Tax Malaysia
What is the tax system in Malaysia?
The tax rate varies territory-wise in Malaysia. However, income tax in Malaysia is counted according to the income generated for a company or business operated in Malaysia. Revenue from foreign sources is not counted for the taxation process in Malaysia. Foreign companies operating in Malaysia is taxed 24% flat rate. Although there are some withholding taxes in some cases, but there are several tax exemptions and incentives in special cases too.
What is the tax rate of non- resident companies in Malaysia?
Foreign companies operating in Malaysia enjoy 24% flat rate as corporate tax when doing business. Occasionally some of these corporations might have to add up extra withholding taxes during conducting operations here.
What is the difference between income tax and corporate tax?
The corporate tax refers to the tax that is filed under the Companies Act and is applicable to pay the amount on the basis of the company’s income. On the other hand, income tax implies on an individual for his/ her monthly income in Malaysia.
What are the steps of submitting company tax return in Malaysia?
Here are the steps of submitting company tax return in Malaysia:
- First, visit the e-Filing website
- Register or login to the e-Filing site
- Select the appropriate income tax form from the menu
- Fill all the boxes with your income tax details
- Fill up boxes for any tax exemptions or tax rebate options if applicable
- Check the total tax amount you are required to pay
- Confirm the declaration of acknowledgment
- Checkout with the secure payment option for completing the tax amount transfer process
How to determine the corporate tax rate in Malaysia?
The net corporate tax is calculated on the basis of net income of the company. This income is calculated after deducting various company expenditures. A resident company has a 24% corporate tax rate. However, if the paid up capital is 2.5 million and gross income is less than RM 50 million, than the tax rate is 17%.