As a country with a comprehensive tax system, Malaysia has various types of taxes that businesses operating within the country are required to comply with. One of the main components of the Malaysian taxation system is Malaysian Business Tax, which encompasses a range of taxes levied on companies, small businesses, and individuals engaged in commercial activities. This article will discuss the tax obligations that businesses in Malaysia must adhere to, with a focus on income tax, Goods and Services Tax (GST), and recent changes in the country’s tax system.
Introduction to Malaysian Business Tax
Tax is one of the main sources of national revenue used to finance various development programs and public services. In Malaysia, businesses, whether large corporations, small and medium-sized enterprises (SMEs), or individuals running a business, are required to pay taxes on the economic activities they conduct. These tax obligations not only involve the payment of taxes but also compliance with various regulations and procedures set by the country’s tax authorities.
To ensure that a business operates legally and complies with the tax regulations in place, business owners must understand the types of taxes levied on them, as well as the processes for paying and declaring these taxes.
Income Tax for Businesses in Malaysia
Income tax is one of the primary taxes levied on all individuals and entities that earn income in Malaysia. For businesses, income tax is imposed on the profits earned from business operations, and the tax rate depends on the type of entity and the amount of profit generated.
1. Corporate Income Tax
Companies operating in Malaysia, including private limited companies (Sdn Bhd), foreign companies, and other entities registered with the Companies Commission of Malaysia (SSM), are subject to Malaysian Business Tax in the form of corporate income tax. This tax is imposed on the profits generated by the company during the financial year.
Corporate Income Tax Rate:
- Companies registered in Malaysia are subject to a 24% tax rate on the profits earned. However, small companies with an annual income of less than RM500,000 can enjoy a lower tax rate of 17% for the first RM600,000 of profit.
- Foreign companies operating in Malaysia through branches or representative offices are also subject to income tax at the 24% rate.
2. Income Tax for Small and Medium Enterprises (SMEs)
Small and medium enterprises (SMEs) in Malaysia are granted several tax exemptions and incentives offered by the government. For example, SMEs with annual income below RM500,000 are subject to lower tax rates for the first portion of their income.
SME Income Tax:
- The first RM600,000 of profit will be taxed at 17%.
- Profits exceeding RM600,000 will be taxed at 24%.
Exemptions and Incentives:
The Malaysian government also offers various tax incentives and exemptions for SMEs, including incentives for research and development (R&D) and tax exemptions for companies investing in specific sectors.
3. Income Tax for Sole Proprietors
For individuals running a business or sole proprietorship, they are subject to personal income tax based on the profits they earn. The tax rates are progressive, meaning the higher the income, the higher the tax rate applied.
Personal Income Tax Rates (2025):
- Income up to RM5,000 – 0% tax rate
- Income from RM5,001 to RM20,000 – 1% tax rate
- Income from RM20,001 to RM35,000 – 3% tax rate
- Income from RM35,001 to RM50,000 – 8% tax rate
- Income from RM50,001 to RM70,000 – 14% tax rate
- Income from RM70,001 to RM100,000 – 21% tax rate
- Income from RM100,001 to RM250,000 – 24% tax rate
- Income exceeding RM250,000 – 28% tax rate
Goods and Services Tax (GST) in Malaysia
Goods and Services Tax (GST) is a tax levied on goods and services sold in Malaysia. GST was implemented in 2015 at a standard rate of 6% and was applied to nearly all goods and services sold by businesses. However, in 2018, GST was replaced by Sales and Service Tax (SST) after a new administration took over the country’s government.
GST and Transition to SST
- Goods and Services Tax (GST): GST is a value-added tax levied at every stage of production and distribution of goods and services. All businesses with annual revenue exceeding RM500,000 were required to register with the Customs Department and charge GST on their transactions.
- Sales and Service Tax (SST): On September 1, 2018, Malaysia abolished GST and replaced it with a simpler SST system. SST consists of two main components:
- Sales Tax: Imposed on goods sold by manufacturers or distributors, with a rate of 5% or 10% depending on the type of goods.
- Service Tax: Imposed on services provided by selected service providers, with a 6% tax rate.
Although GST has been abolished, Malaysian Business Tax still involves SST, which is levied on businesses engaged in the sale and provision of services.
Recent Changes in the Malaysian Tax System
The taxation system in Malaysia is continuously evolving and changing in line with the country’s economic needs and government policies. Here are some of the recent changes that impact businesses in Malaysia:
1. Tax Exemption for Small and Medium Enterprises (SMEs)
The Malaysian government continues to focus on supporting SMEs through tax exemptions and incentives. For instance, SMEs that meet certain criteria can enjoy tax exemptions for income up to a specified limit. This is aimed at stimulating growth and innovation in the SME sector.
2. Introduction of Digital Tax
In an effort to ensure the country’s tax system remains relevant in the face of global economic developments, Malaysia is also planning to introduce a Digital Tax. This tax will be levied on foreign companies that earn income through digital platforms operating in Malaysia, such as e-commerce and other digital services. The move aims to ensure that foreign digital companies contribute to the national economy through fair taxation.
3. Reduction in Corporate Tax Rates
The Malaysian government has also introduced measures to reduce corporate tax rates, especially for companies involved in research and development (R&D) and innovative businesses. These programs aim to attract more foreign investments and drive technological advancement in the business sector.
Conclusion
Malaysian Business Tax is an integral part of operating a business in the country. Business owners in Malaysia need to fully understand the tax obligations they face, including income tax, SST, and the latest regulations that affect their operations. These tax obligations are not only essential for complying with the country’s laws but also for ensuring that businesses can grow with the support of various tax incentives and exemptions provided by the Malaysian government. By understanding the tax system in place, business owners can avoid issues with the authorities and take advantage of available opportunities to strengthen their businesses.
