Corporate tax is charged to the resident company or Sdn Bhd receiving income within Malaysia and outside Malaysia for a firm holding insurance, air transportation, sea, and banking related businesses.
The company tax system of Malaysia is considered a major contributor to the economic development of the country. Hence, corporate tax revenue is one of the most primary sources of income in Malaysia. The corporate tax falls under the ambit of the Income Tax Act 1967.
In this blog post, we are going to explain what is corporate tax Malaysia, who pays corporate tax, and when to pay corporate tax, as well as corporate tax computation Malaysia and other important considerations.
What is Actually Corporate Tax Malaysia?
Corporate tax Malaysia applies to all those companies that are registered in Malaysia. It is applicable on chargeable income that a company derives from its business while operating in Malaysia. The tax assessment system in Malaysia operates via a self-assessment system (SAS). Corporate tax computation Malaysia is also a part of SAS. This mechanism replaced the manual calculation, submission, and remission of tax returns and tax payments.
What is the Corporate Tax Rate in Malaysia?
The corporate tax Malaysia 2020 applies to the residence companies operating in Malaysia. These companies are taxed at a rate of 24% (Annually). This rate is relatively lower than what we have seen in the previous year. Small and medium enterprises (SMEs) pay slightly different company tax as compared to other resident companies. The SMEs are referred to as those companies, which possess RM2.5 million or less in shape of a paid-up capital.
The evaluation is done at the beginning of the basis period of a year of assessment (YA). If the first chargeable income of an SME is RM500,000, such a company is charged at a rate of 18%. In case the income exceeds beyond this limit of chargeable income, it is charged at a rate of 24% tax. Similarly, non-resident companies are also taxed at a rate of 24%.
How much Corporate Tax do I need to Pay?
Generally, allowable expenses are deducted to assess taxable profits. These expenses are incurred while operating the company’s routine procedures. The taxable profits are calculated through the necessary adjustments that are mentioned in the Income Tax Act 1967 (ITA).
These adjustments involve deductible or non-taxable income as well as exempt income. Furthermore, it also includes the reinvestment/capital allowances, carried forward/ current year losses. These disallowable expenses or any balancing charges are also considered when evaluating taxable profit via corporation tax computation Malaysia.
How to Calculate Corporate Tax Malaysia
Company tax is computed on the net revenue of a company or SME. Net revenue is the total amount left with the company after making vital deductions of different kinds of expenses. But in Malaysia, it’s a bit different.
Following table will give you an idea about corporate tax computation in Malaysia.
|Paid-up capital up to RM 2.5 million or less||Rate|
|On the first RM 600,000 chargeable income||17%|
|On the chargeable income exceeding RM 600,000||24%|
|Paid-up capital over RM 2.5 million||Rate|
Who Pays Corporate Taxes?
Corporate tax Malaysia is liable to be paid by the resident company (Sendirian Berhad and Berhad or Sdn Bhd). Want to know more about SDN BHD company, you can check out this guide on Sdn Bhd and how to register Sdn Bhd Company in Malaysia.
Such companies must be receiving gains or profits while running their businesses in Malaysia. These include:
- Public and Private limited companies
- Business trust
- Limited liability partnership
- A branch of a foreign corporation
All of these business entities/corporations are taxed depending on the income they derive through their business activities in Malaysia. Foreign-source income is exempted from corporation tax. However, business sectors such as air transport, banking, insurance, and shipping don’t fall under this particular exemption.
Taxable income for company tax comprises all types of earnings that are usually derived from different business ventures operating in Malaysia. These earnings include profits/gains from business, rents, royalties, premiums, or any other types of earning.
Nevertheless, dividends are not taxable, as all corporations follow the Single-Tier System (STS). Similarly, the capital gain isn’t taxable; however, there are a few exemptions to this rule. These include those capital gains that are obtained through the disposal of a property owned by a corporation.
Responsibilities of Company while Filing Corporate Tax Malaysia
Corporate businesses must follow the following procedure when filing their corporate tax.
- The company must file the estimated tax payable either through e-Filing (e-CP204) or by submitting it to the LHDNM Processing Centre.
- The timeline for a new company for filing the estimated tax is the 3 months after commencing its operation.
- On the other hand, already existing companies must file the estimated tax payable 30 days before the starting of a new year.
2. When it comes to paying the estimated tax, every corporate company should pay such tax through CP207 on or before the 10th of every month.
- A new company must pay this tax from the 6th month of the basis period
- An existing company must pay this tax from the 2nd month of the basis period
- Next, it’s time to furnish Form C either by using the e-Filing (e-C) facility or via LHDNM Processing Centre
When to Pay Corporate Tax?
Companies that are recently registered must file an estimation of payable tax within the 3 months. Furthermore, such a company should start paying monthly installments (by the 15th of each month) from the 6th month of the assessment year.
Once the assessment year ends, every company must file its tax through the e-filling portal. In case the payable tax is greater than what the company has paid under a previously estimated amount, the remaining balance must be paid. On the contrary, you can apply for a refund if the actual tax is lower than the estimated amount paid by your company.
The criterion for Sdn Bhd companies with a paid-up capital of 2.5 million or less is different. In this situation, these companies are not bound to submit the estimated payable tax for the first 2 assessment years.
Is Corporate Tax an Expense?
A corporation is liable to pay taxes on taxable profits. These profits are not considered as a business expense. Hence, it’s clear that we can’t treat corporate tax as an expense. Company taxable profits normally fall into two basic categories.
First category-Retained earnings: These are the profits that a company uses to pay for expenses or to grow itself.
Second category: These are the profit dividends, which are not considered while calculating the corporate tax Malaysia.
Some of the most prominent deductible corporate expenses include:
- Start-up costs
- Operating expenses
- Advertising expenses
- Salaries and bonuses
- Expenses for the employee medical insurance and retirement plans
That’s all about corporate tax Malaysia. We tried to cover all the important and up-to-date aspects including corporate tax Malaysia 2020. Do you need further assistance for your corporate tax 2020 and beyond?
YH Tan & Associates, top audit firm of Malaysia, can help you out while providing you a range of corporate tax compliance services from corporate tax planning to filing of the Form CP204.
If needed, we can also submit the revision of the estimate of tax payable via Form CP204A. So contact us and get benefited from our taxation services in Malaysia.