— Overview

Overview of Malaysia’s Tax System

01

Tax Authorities

LHDN · RMCD

Direct taxes (corporate income tax, personal income tax, withholding tax, real property gains tax, stamp duty and so on) are administered by the Inland Revenue Board of Malaysia (LHDN). Sales tax and service tax (SST) are administered by the Royal Malaysian Customs Department (RMCD).

02

Basis of Taxation

Source-based

Income tax is mainly based on source: income accruing in or derived from Malaysia is taxable. Foreign-sourced income received in Malaysia by a resident company may also be taxable; certain exemptions currently apply under specified conditions, so each case must be assessed on its facts.

03

Tax Residency

182-day rule

An individual who stays in Malaysia for 182 days or more in a tax year is generally a tax resident; otherwise the individual is a non-tax resident. The two are taxed at different rates.

— Corporate Income Tax

Tax Rates for Companies

Company Income Tax is imposed on income accruing in or derived from Malaysia, whether the company is resident or non-resident. Foreign-sourced income received in Malaysia by a resident company is also taxable (certain exemptions currently apply under specified conditions and should be assessed case by case). The current Company Income Tax rates for the 2025 year of assessment are as follows:

YEAR OF ASSESSMENT 2025 · COMPANY INCOME TAX RATES

Resident company: qualifying SME

Tiered rates; all conditions below must be met

First RM150,00015%
Next RM450,00017%
Above RM600,00024%

Resident company: not a qualifying SME

Standard rate

All chargeable income24%

Non-resident company / foreign-controlled company

Standard rate

All chargeable income24%

Conditions for the SME Rate (All Must Be Met)

 
Paid-up capital of RM2.5 million or less, and gross business income of no more than RM50 million;
 
Does not directly or indirectly control another company with paid-up capital above RM2.5 million;
 
Is not directly or indirectly controlled by another company with paid-up capital above RM2.5 million;
 
And no more than 20% of its paid-up capital is held, directly or indirectly, by foreign companies or non-Malaysian citizens.

Note for Chinese-owned companies: a Sdn. Bhd. held by a Chinese parent company will generally not meet the “no more than 20% foreign ownership” condition above, and is therefore generally taxed at the standard 24% rate. Keep this in mind when forecasting profits.

In addition, a company must submit its estimate of tax payable (Form CP204) to LHDN at least 30 days before the start of the basis period, and pay in monthly instalments during the basis period, which avoids the cash-flow pressure of a lump-sum payment at year end.

— Withholding Tax & DTA

Withholding Tax and Double Taxation Agreements (DTA)

When a Malaysian company makes certain payments to a non-resident, the payer must first deduct tax at a prescribed rate and remit it to LHDN within one month of the payment date. Common categories include:

PAYMENT TYPE
WITHHOLDING TAX RATE
Contract payments to non-residents
10% (an additional 3% applies in respect of the personal income tax of the contractor’s employees)
Interest
15%
Royalties
10%
Technical service fees, rental of movable property, installation and related service fees
10%
Payments to non-resident public entertainers
15%

These rules apply when an overseas company charges its Malaysian subsidiary interest, royalties or technical service fees. Malaysia has signed DTAs with many countries, including China, which may offer rates lower than the domestic rate. However, the payer must obtain a “certificate of tax residence” issued by the tax authority of the recipient’s country of residence; otherwise the statutory domestic rate applies. For the rate that applies in a given case, please refer to the latest DTA rates published by LHDN.

— Sales & Service Tax

Sales and Service Tax (SST)

SST consists of two separate taxes, both charged on a single-stage basis. The tax cannot be credited back along the supply chain, so businesses involved in multi-layer processing or outsourced services should pay particular attention to the cumulative effect on their tax costs.

Sales Tax

Sales tax operates at two levels: local manufacturers and imports.

Sales Tax on Manufacturers

Local manufacturing level

A single-stage tax, charged once at the manufacturer level and not passed along the supply chain.
Manufacturers with annual taxable turnover of RM500,000 or more must register for sales tax with the Royal Malaysian Customs Department (RMCD) and charge sales tax at the applicable rate on the taxable goods they manufacture and sell.
Sales between local manufacturers may qualify for sales tax exemption (subject to conditions).

Sales Tax on Imports

Import level

Sales tax payable when imported goods enter the Malaysian customs area.
A manufacturer that imports raw materials or components to produce taxable finished goods may apply for exemption on those imports under a sales tax exemption order, to avoid double taxation of materials and finished goods.
A non-manufacturing importer (such as a trader) that imports taxable goods for sale in Malaysia must self-assess and pay import sales tax; no exemption mechanism is available.

Sales tax currently has three main rates, with the specific rate determined by the goods’ customs tariff classification (HS Code):

0%

Zero Rate (Exempt)

Essential goods and exports

Applies to daily necessities and specified items, including rice, chicken, cooking oil, sugar, flour, vegetables, medicines, books and exported goods.

5%

Reduced Rate

Specified goods

Applies to certain specified goods, such as some building materials, some non-basic foods and some industrial or petroleum-related products.

10%

Standard Rate

Most taxable goods

Applies to most taxable goods, especially non-essential consumer goods (such as some electronics, household appliances, clothing and furniture).

Recent policy changes:
From 1 January 2026, sales tax on key raw materials and agricultural inputs (including animal feed, fertiliser and pesticides) used by registered manufacturers is zero-rated, to ease cost pressure on the food production supply chain.
From July 2025, a 5% sales tax applies to certain non-essential imported goods (such as specific fruit and premium seafood).

Service Tax

Service tax operates at two levels: local service providers and imports.

Service Tax on Local Providers

Local service provider level

A single-stage consumption tax, charged to the service recipient by registered service providers who supply taxable services in Malaysia.
Service providers with annual taxable turnover of RM500,000 or more must register for service tax with the Royal Malaysian Customs Department (RMCD) and charge service tax at the applicable rate on the taxable services they provide.

Service Tax on Imported Services

Import level

Taxable services provided by overseas service providers.
For taxable services purchased from overseas (such as overseas software subscriptions, cloud computing, cross-border consulting and digital platform services), the Malaysian purchaser must self-assess, report and pay service tax on the imported taxable services, at the same rates as local service tax.

Service tax currently has two main rates:

6%

Reduced Rate

Selected services

Food and beverage services, telecommunications, parking and logistics services, and similar sectors.

8%

Standard Rate

Most taxable services

Covers hotel accommodation, insurance, entertainment, professional consulting, information technology and management services, and similar sectors.

Recent policy changes:
From 1 July 2025, the scope of service tax was further expanded to cover five new categories: rental and leasing services, construction services, financial services, private healthcare for foreigners and private education for international students.
From 1 January 2026, the service tax rate on rental and leasing services was reduced from 8% to 6%.
In construction, for contracts signed before 1 July 2025 with non-adjustable terms, the service tax exemption period has been extended to 30 June 2027; construction of religious buildings (mosques, temples, churches and so on) is permanently exempt from service tax.

— Personal Income Tax

Personal Income Tax

Malaysian Residents and Tax Residents

Malaysian residents and tax residents are taxed at progressive rates ranging from 0% to 30%. Employers must deduct employees’ personal income tax each month (MTD/PCB) and remit it by the 15th of the following month. The rates for the 2025 and 2026 years of assessment are shown below:

BAND
CHARGEABLE INCOME (RM)
CALCULATION
RATE
TAX (RM)
A
0 – 5,000
First 5,000
0%
0
B
5,001 – 20,000
First 5,000
Next 15,000
0%
1%
0
150
C
20,001 – 35,000
First 20,000
Next 15,000
1%
3%
150
450
D
35,001 – 50,000
First 35,000
Next 15,000
3%
6%
600
900
E
50,001 – 70,000
First 50,000
Next 20,000
6%
11%
1,500
2,200
F
70,001 – 100,000
First 70,000
Next 30,000
11%
19%
3,700
5,700
G
100,001 – 400,000
First 100,000
Next 300,000
19%
25%
9,400
75,000
H
400,001 – 600,000
First 400,000
Next 200,000
25%
26%
84,400
52,000
I
600,001 – 2,000,000
First 600,000
Next 1,400,000
26%
28%
136,400
392,000
J
Above 2,000,000
First 2,000,000
Every additional RM1
28%
30%
528,400
—

How to read the table: the “First…” line shows the cumulative tax up to the start of that band, and the “Next…” line shows the tax on the portion of income falling within the band at its rate. The two added together give the total tax payable on income in that band.

Non-Residents and Non-Tax Residents

Regardless of citizenship or nationality, an individual who stays in Malaysia for fewer than 182 days in a tax year is a non-resident (that is, a non-tax resident). A non-resident individual’s income arising in or received from Malaysia is taxed at different rates:

INCOME TYPE
RATE
Business, trade or profession, employment, dividends and rent
30% (effective from the 2020 year of assessment)
Public entertainers and interest
15%
Royalties
10%
Services relating to the use of property purchased from a non-resident, or to installing or operating any plant or machinery
10%
Payments for technical advice, assistance or services relating to the technical management or administration of a scientific, industrial or commercial undertaking, venture, project or scheme
10%
Other payments for the rental or use of any movable property
10%

Situations Where No Tax Is Payable

 
Employment in Malaysia for fewer than 60 days;
 
Employment on a Malaysian ship;
 
A pension received at age 55 or above in respect of employment exercised in Malaysia;
 
Interest income from banks;
 
Exempt dividends.

Impact on Chinese-owned companies: this bears directly on the tax arrangements for seconding employees and hiring foreign staff. Whether a person becomes a Malaysian tax resident depends on the number of days spent in Malaysia, so it is advisable to plan employees’ time in Malaysia in advance.

— Asset & Transaction Taxes

Taxes on Assets and Transactions

Capital Gains Tax (CGT)

Introduced in 2024, CGT applies mainly to gains arising from the disposal of unlisted shares by companies, limited liability partnerships (LLPs), trust bodies and co-operatives. It is generally charged at 10% of the net gain on disposal; for shares acquired before 2024, the taxpayer may alternatively elect to pay 2% of the gross disposal price. Disposals of ordinary unlisted shares by individual shareholders are currently outside its scope. Approved intra-group restructurings, restructurings undertaken for a listing and the like may qualify for exemption if the conditions are met.

What this means for overseas investors: if you later transfer the shares of a Malaysian company or restructure its shareholding, the impact of CGT should be assessed in advance.

Real Property Gains Tax (RPGT)

Gains arising from the disposal of land and buildings in Malaysia, or of shares in a real property company, are subject to RPGT. The rate decreases with the holding period. In the table below, “Companies” includes foreign-owned companies, and “Citizens / PRs” means Malaysian citizens and permanent residents:

HOLDING PERIOD
COMPANIES
CITIZENS / PRs
Within 3 years
30%
30%
4th year
20%
20%
5th year
15%
15%
6th year onwards
10%
0%

A foreign-owned company remains at 10% from the 6th year onwards, regardless of how long the property is held. The rates for foreign individuals are prescribed separately; please consult a tax adviser.

Stamp Duty

Under the Stamp Act 1949, stamp duty is administered by LHDN. It is charged on legal instruments themselves rather than on transactions: any instrument executed in Malaysia, or relating to property or matters in Malaysia, must be stamped within the prescribed period to be legally effective and admissible as evidence in court. Stamp duty falls into two types:

Ad Valorem

Ad Valorem Stamp Duty

Based on value

For example, property transfers, share transfers, leases / tenancies, loan agreements and capital market instruments.

Fixed

Fixed Stamp Duty

Fixed amount

For example, legal documents and duplicate or copy documents, at a fixed amount.

— Global Minimum Tax

Global Minimum Tax (GMT)

With effect from 1 January 2025, Malaysia has implemented the OECD Pillar Two “Global Anti-Base Erosion Rules”, incorporated into domestic law through the new Part XI of the Income Tax Act 1967 and applied through two mechanisms: the Domestic Top-up Tax (DTT) and the Multinational Top-up Tax (MTT).

 
Scope: multinational enterprise groups with annual consolidated revenue of EUR 750 million or more in at least 2 of the previous 4 years;
 
Core rule: where the group’s effective tax rate in Malaysia is below 15%, a top-up tax is payable;
 
Impact on tax incentives: large multinationals whose effective tax rate falls below 15% because of Malaysian tax incentives may have to pay top-up tax, so the real benefit of the incentives should be reassessed.

For most small and medium-sized Chinese-owned companies, these rules do not currently apply, but clients with larger groups should assess them in advance.

— Key Tax Points for Chinese Investors

Key Tax Points for Chinese-Owned Companies

 
Expected tax rate: a foreign-controlled Sdn. Bhd. is generally taxed at the 24% corporate income tax rate and does not qualify for the SME concessionary rates;
 
Related-party transactions: intra-group service fees, royalties and interest payments should be considered for both withholding tax and transfer pricing;
 
SST registration: once turnover reaches the RM500,000 threshold, register with the RMCD promptly;
 
Tax residency: the number of days seconded employees spend in Malaysia affects the personal income tax rates that apply;
 
Tax incentives: certain industries (such as manufacturing and MD Status companies) may qualify for specific tax incentives; please see our industry pages for details.

— How We Help

How We Can Assist

Yingke Malaysia can help clients understand the main taxes and registration obligations involved in operating in Malaysia, provide compliance reminders and the like, introduce clients to licensed tax advisers (KLOZER), and assist in preparing the information required for tax registration. Specific tax planning, filings and tax advice are provided by qualified tax professionals.

※This page is for general reference only and does not constitute legal, tax, accounting or investment advice. Malaysian tax rates, types of tax, exemptions, filing deadlines and policies may change from time to time with the Budget, Finance Acts and announcements by the authorities; please refer to the latest provisions issued by the Inland Revenue Board of Malaysia (LHDN), the Royal Malaysian Customs Department (RMCD), the Ministry of Finance and the relevant legislation. Tax treatment depends on the specific circumstances of each business and individual; before making any business or investment decision, please consult a qualified tax adviser or accountant. Yingke Malaysia accepts no responsibility for decisions made in reliance on this page or for any loss arising from it.