Malaysia

Tax residency – A company is tax resident in Malaysia if its management and control are conducted in Malaysia (at least one meeting of the board of directors is held in Malaysia during the year).

Basis – Malaysia taxes corporations on a territorial basis. Foreign-source income accrued by resident entities is not subject to taxation, except for companies carrying out business in the banking, insurance, air transport or shipping sectors.

Tax rate – Corporate income tax standard rate is 24%.

A reduced rate of 18% applies to SMEs on their first MYR 500,000 of taxable income. 

Capital gains – Capital gains are not subject to taxation, except for those arising from the disposal of real property or on the sale of shares in a company conducting real property business. In this case tax rate may be 30% if the property has been held less than 3 years prior the sale, 15% for properties held 4 and 5 years, and 5% for properties held six years or more prior the sale.

Dividends – Dividends received from a resident entity are tax-exempt. Dividends from foreign entities are offshore in nature and therefore not subject to taxation.

Interests – Interests are subject to corporate income tax. An exemption may be granted to interests derived from foreign-sources remitted to Malaysia.

Royalties – Royalties derived from Malaysia and foreign-source royalties remitted to Malaysia are subject to corporate income tax.

Foreign-source income – Foreign-source income is exempt from taxation, whether remitted or not unless the income is derived from companies carrying out business in the banking, insurance, air transport or shipping sectors.

Withholding taxes – Dividends paid to non-residents are not subject to withholding tax. Companies paying interests and royalties abroad must withhold 15% and 10% tax, respectively, unless taxes are reduced or exempted due to a tax treaty.

Losses – Losses arising from taxable income may be carried forward indefinitely. Carryback of losses is not allowed.

Inventory - Inventory valuations are generally stated at the historical cost or net realizable value, whichever is lower. Cost may be valued using one of any methods as long as the same is used for each year.

Anti-avoidance rules – Transfer pricing rules require related-party transactions to be done at arm’s length. Transactions may be required to be documented and advance pricing agreements are available.

Thin capitalization and controlled foreign company rules do not apply.

Labor taxes – Employers and employees are required to make contributions to the Social Security Organization (SOCSO) at 1.75% on employees’ monthly wage, respectively. Employers and employees also contribute to the Employee Provident Fund at 12-13% and 11%, respectively.

Tax credits and incentives – Malaysia has a wide variety of incentives covering the major industry sectors such as manufacturing, IT services, biotechnology, Islamic finance, energy conservation, environmental protection, regional operating headquarters, venture capital companies, business trusts, as well as for companies incorporated in special economic regions, among others.

Incentives may be in the form of tax holidays up to 10 years, tax allowances, accelerated capital allowances or reinvestment allowances.

Compliance – On average, a company in Malaysia may require 9 payments and 164 hours per year to prepare, file and pay corporate income tax, value-added tax, and labor taxes, including payroll taxes and social contributions.

Personal income tax – An individual is tax resident in Malaysia if he or she stays more than 182 days per year in the country.

Both tax residents and non-residents are taxed on income derived from Malaysia. Foreign-source income is usually not subject to taxation.

Personal income tax is levied at progressive rates from 0% to 28% on income exceeding MYR 1,000,000. Non-residents are taxed at a 28% flat rate. Dividends from Malaysian sources are treated as ordinary income, while interests are tax exempt. Both interests and dividends from foreign sources are tax exempt, whether remitted or not.

Capital gains derived from the sale of securities are tax-exempt, those derived from the sale of real properties are subject to the Real Property Gains Tax at rates of 30% for properties held up to 3 years, 20% on the fourth year, 15% on the fifth year and 5% after 5 years.

Other taxes – There is a local property tax, which is 6% in the value of the annual rent according to the assessment of the local authorities. There is a stamp duty levied on the transfer of real property assets at a 3%, and at 0.3% on share transactions.

There are no inheritance and wealth taxes.

Goods and Services tax is levied on certain goods and services at a 6% rate.