For a smooth tax process in Malaysia, one needs to have a thorough understanding of the tax obligation process. If you are running your business as an independent legal firm with the aid of a registered company, you are offered with great benefits including financial security and access to funding. However, it also asks for law and regulatory compliance in Malaysia.
If you need help in registering a new business in Malaysia and don’t know how to register a company in Malaysia, you can check out our comprehensive guide on how to register a company in Malaysia.
One of such compliances withstood by entrepreneurs is by Lembaga Hasil Dalam Negeri Malaysia (LHDN) and Royal Malaysian Customs Department (RMCD). Hence, getting to know the tax requirements of each company can benefit you in the long run so that you can focus more on growing your business. Of late, the COVID-19 pandemic has led to a few revisions in meeting the deadlines.
I – Corporate Tax
The corporate tax compliance is governed by the Income Tax Act 1967 which pertains to all companies listed in Malaysia for chargeable income stemmed from Malaysia such as business profits, dividends, interests, rents, royalties, premiums, and other income. Although the corporate tax is exempted when income is derived from other countries except for businesses related to banking, insurance, and sea and air transport. Equivalent to personal income tax, certain tax exemptions are provided including tax incentives and foreign tax credit.
Tax rates of corporate tax (Year of Assessment 2020)
|Paid-up Capital of 2.5 Million Malaysian Rupees (or less)||Rate Applicable|
|On the initial RM 600,000 chargeable earnings||17%|
|On the next chargeable earnings||24%|
|Paid-up Capital of over 2.5 Million Malaysian Rupees||Rate Applicable|
When do you need to pay corporate tax?
If you are a newly registered company, you should file the estimation of tax payable within 3 months of operation followed by monthly instalments starting from the 6th month of the assessment year by the 15th of each month. However, if the tax estimation period falls within the Movement Control Order period, an extension of time is given until 31st May 2020. By the end of the assessment year, companies are required to submit their tax to the LHDN through an e-filing portal in 9 months instead of 7 months due to COVID-19 outbreak. If the fundamental tax liability is found more than the taxes paid on the estimation, the balance of tax payable has also to be submitted. On the contrary, you can also ask for a refund if the fundamental tax liability is on the lower side as that of the paid taxes.
Nevertheless, if you are a Sdn Bhd company holding a paid-up capital of 2.5 million or less, you are not required to file the estimation of tax payable for the first 2 assessment years. You only require to submit the tax within 9 months by the end of your second assessment year.
So no matter you are a newly registered company or a Sdn Bhd company in Malaysia, YH Tan & Associates can provide you the best corporate tax compliance services, corporate tax planning, and other solutions for corporate tax in Malaysia.
II – Withholding Tax
Tax withholding is only acceptable if your company is disbursing a non-resident individual or company (known as the payee) for its services whereby a particular amount of the payment is deducted and paid in the form of its income taxes to the LHDN. Every payment type is governed by specific tax rate as implied in Section 107A and Section 109 of the Income Tax Act 1967. You can apply for a refund of overpaid withholding taxes under the Double Taxation Agreements (DTA)
Tax rates of withholding tax
|Type of Payment||Rate Applicable|
|Contract payment for all services that are completed in Malaysia||10%, 3%|
|Interest paid by an approved financial institution||5%|
|Special sections of income, including tech fees, payment for services, or payment for using moveable properties||10%|
|Income coming from non-resident public entertainers||15%|
|Real Estate Investment Trust||10%, 25%|
|Family Fund / Dana Am / Takaful Family Fund||8%, 25%|
|Other types of payment||10%
When should withholding tax be paid?
You are requested to submit your withholding tax within a month from the date of payment to the non-resident payee. Nevertheless, if your payment falls under the Movement Control Order, it can be filed from 29th April to 31st May 2020 without penalties being imposed.
III – Payroll Tax
It is the responsibility of the Employer to secure a certain amount of the employees’ remuneration including salary, commission, bonus, incentives, etc. and pay as Monthly Tax Deduction (MTD) to LHDN on the behalf of taxable employees. The required deduction is noted in the employees’ payslip as PCB in conjunction with EPF, SOSCO, and EIS. In case, if the employee is paying Zakat, the payroll can be reduced under the Islamic law for charitable and religious purposes.
Tax rate of payroll tax
You can calculate PCB based on the MTD schedule or through a Computerised Calculation Method on the e-CP39 portal.
The amount of PCB paid depends on the employee including their category as well as the amount of received remuneration each month.
When do you need to pay payroll tax?
PCB is required to be paid by the 15th of each month to the LHDN, on behalf of the remuneration issued for the previous month. In view of the current COVID-19 outbreak, the MTD remittance for salaries of March and April is extended to 31st May 2020.
IV – Stamp Duty
If your company is making use of any instruments that involve legal, commercial, or financial documents, you are required to submit stamp duty. For instance, taxable instruments include a partnership agreement or mortgage agreement. Also, stamp duties are of two types, the one with a fixed rate despite the amount written in the instrument and another one which depends on the nature of the instrument along with the stipulated value. If in case, you are exempted from stamp duty, you might need to apply for stamp duty relief under special cases.
A 100% stamp duty exemption for loan restructuring and rescheduling is given from 1st March 2020 to 31st December 2020.
Tax rate of stamp duty
The information related to taxable instruments and exemptions is given in the Stamp Act 1949. Instruments that are included in the Stamp Duty are given in the First Schedule along with its rates. On the other hand, persons required to pay Stamp Duty are jotted down in the Third Schedule.
When do you need to pay stamp duty?
In order to pay, your instrument of use should be stamped within 30 days of execution of the instrument. You can pay by either of the ways:
- Digital Franking System
- Compound duty
- Revenue stamp (this can be obtained from post offices)
- Stamp certificate
- Direct payment to the stamp duty counter
The stamp duty payments regulated under the Movement Control Order are extended to 31st May 2020.
V- Sales and Service Tax (SST)
Sales tax is a type of single tax that is decreed on taxable goods manufactured in or imported into Malaysia by any taxable person or when the goods are sold or disposed of with a total sale value of more than RM500,000 in 12 months. Although, a few exemptions are put forward by the government for specific goods manufactured or imported. These will be effective from 23rd March 2020 till further notice.
- Face mask
- Medical equipment such as a thermal scanner and infrared thermometer
- Laboratory equipment like Inverted Microscope Automated Extractor Machine
- Personal Protective Equipment (PPE) such as face & eye protection, gloves and protective garments for surgical/medical use
- Some disposal goods like respiratory tubing. plastic test tube, and paper bed sheets
Here, the sales tax is not to be confused with the service charge. Service charge is a taxable service in Malaysia which includes accommodation, gaming, telecommunication services, etc. provided by a taxable person with a total value of over RM500,000 within the span of 12 months. However, for the F&B industry, the total threshold value is more than RM1,500,000 in 12 months. Credit cards are excluded from these rules as they have zero thresholds with a different rate.
The SST is governed by different laws. A due registration of your company is required to pay for SST.
Tax rates of SST
|Sales Tax||5% / 10% / on specified rate|
* SST does not apply to Special Area.
When should the tax be paid?
Except for the 1st tax period after your registration with RMCD, you are required to pay SST bi-monthly. A service tax exemption for hotel and accommodation operators is allowed from 1st March to 31st August 2020.
VI – Real Property Gains Tax (RPGT)
If your company is involved in the disposal of chargeable assets including houses, buildings, farms, and vacant lands, or shares in real property companies, you are required to pay real property gains tax. You can calculate the chargeable gain by subtracting disposal price from acquisition price. However, the tax rates differ based on the holding period of chargeable assets under the Real Property Gains Tax 1976.
Tax Rates of RPGT
|Disposal Time Period (Following the Acquisition Year)||Rate Applicable|
|Within the span of 3 years||30%|
|The 4th year||20%|
|The 5th year||15%|
|The 6th year and beyond||10%|
When do you need to pay RPGT?
Within 60 days from the date of disposal, you and your acquirer are required to submit the tax. A part of the acquirer purchase consideration is deducted from the RPGT payable. Post your tax filing, an assessment notice is issued for taxable cases, non-taxable cases, along with a certificate of non-chargeability. Upon issuance of assessment, you are required to pay the RPGT within 30 days. Currently, the submission and payment of RPGT for 18th March to 31st May 2020 is extended to 31st May 2020.
Apart from the above taxes, customs duty, excise duty, property taxes (cukai Tanah and cukai pintu) and other taxes might be applicable to your company depending on the industry and nature of business. Besides, please bear in mind that Labuan has a varied tax regulation than other States in Malaysia. The fulfillment of tax obligations shouldn’t come in your way to develop your business. Therefore, a thorough understanding of taxes in the initial stage is vital to comply with tax law and regulation smoothly.