If your company earns income in Malaysia, corporate income tax (CIT) is one of the main compliance costs you need to plan for. The standard corporate tax rate in Malaysia is 24%. However, Malaysia calculates your tax liability based on chargeable income, not total revenue.
To determine this figure, the Inland Revenue Board of Malaysia (LHDN) adjusts the profit in your accounts under Malaysia’s Income Tax Act 1967. It takes into account deductible expenses and non-deductible costs, then applies capital allowances, eligible losses, and approved incentives that help reduce your chargeable income.
This guide explains how Malaysia’s corporate tax system works in practice. We will cover how to calculate chargeable income, claim allowable expenses, leverage key incentives, and manage your reporting deadlines throughout the year.
The Corporate Income Tax (CIT) Rate in Malaysia
Most Malaysian companies pay corporate income tax at a flat 24% rate on their chargeable income. You can access Malaysia’s reduced SME tax rates only if your company meets all of these conditions at the start of the basis period:
- Paid-up ordinary share capital: RM2.5 million or less
- Gross business income: RM50 million or less for the assessment year
- Foreign ownership restriction: Non-Malaysian citizens or foreign entities cannot hold more than 20% of your ordinary share capital, directly or indirectly
If your company qualifies, LHDN applies lower tax bands to your first RM600,000 of chargeable income:
| Chargeable income | Corporate tax rate |
|---|---|
| First RM150,000 | 15% |
| RM150,001 to RM600,000 | 17% |
| RM600,001 and above | 24% |
Corporate Tax for Resident and Non-Resident Companies
If your company does not qualify for SME rates, it generally pays the standard 24% corporate tax rate on its chargeable income. This applies to most foreign-owned Malaysian subsidiaries because foreign ownership above 20% excludes them from the SME regime.
In this case, your company’s tax residency and business setup then determine how Malaysia taxes its income:
- Resident companies (including foreign-owned subsidiaries): Under Section 8 of the Income Tax Act 1967, your company qualifies as a Malaysian tax resident if its board exercises strategic management and control in Malaysia. Resident entities pay 24% CIT on Malaysian-sourced income and gain full access to tax deductions, capital allowances, foreign income exemptions, and sector incentives covered below.
- Non-resident companies operating via a branch office: Pay 24% CIT only on profits directly tied to their Malaysian business presence.
- Non-resident companies without a local entity: Don’t file standard CIT returns. Instead, specific payments sent overseas trigger Malaysian withholding tax, which the local payer deducts before remitting funds:
- 15% on commercial interest
- 10% on royalties and software licenses
- 10% on technical, management, or advisory fees for services performed in Malaysia
- 10% on installation, operation, or servicing fees for machinery in Malaysia
- 10% on rental payments for movable property and equipment
Deductible and Non-Deductible Business Expenses
Under Section 33(1) of the Income Tax Act 1967, you can deduct operational costs that directly help run your operations and generate business income.
However, Section 39 restricts or disallows specific expenses even if paid from your corporate bank account. In this case, you add the amount back to your accounting profit before calculating your taxable income. We break these down in the following sections.
Expenses You Can Deduct
Day-to-day operational expenses qualify for full deduction when properly documented:
| Expense type | Examples |
|---|---|
| Employee costs | Salaries, bonuses, EPF, SOCSO, EIS contributions, staff training, and employee benefits |
| Premises and operations | Office rent, utilities, internet, software subscriptions, insurance, and office supplies |
| Professional services | Accounting, audit, legal, corporate secretarial, and consulting fees |
| Sales and marketing | Advertising, promotional materials, business events, and qualifying product-launch costs |
| Business travel | Travel, accommodation, and transport incurred for business purposes |
| Repairs and maintenance | Repairs to business premises, machinery, equipment, and vehicles |
| Financing costs | Interest on loans used for business purposes, subject to the applicable rules |
For example, your company pays RM30,000 in office rent and RM20,000 in staff salaries. Provided they relate to your business, and you can support them with proper records, these costs generally reduce the profit that is subject to CIT
Keep invoices, contracts, bank-payment evidence, and internal records that explain why the company incurred the expense. This is particularly important for high-value costs and payments made to related companies.
Expenses You Cannot Claim Directly
Costs that reduce your accounting profit but lack tax deductibility must be added back to your accounting profit:
| Expense | Common examples |
|---|---|
| Private or domestic expenses | A director’s personal travel, household bills, or private vehicle costs |
| Fines and penalties | Late-payment penalties, traffic fines, and regulatory fines |
| Accounting depreciation and amortization | Depreciation on machinery, computers, office furniture, and company vehicles |
| Unapproved donations | Donations to charities or organisations without LHDN approval |
| Private entertainment | Personal meals, leisure trips, or entertainment that does not relate to the business |
| Unsupported expenses | Costs without invoices, contracts, payment evidence, or a clear business purpose |
| Capital improvements | Upgrading machinery, replacing an asset with a higher-capacity model, extending a building, or installing a new system that improves operations |
Claiming Capital Allowances on Business Assets
Because LHDN disallows book depreciation as a tax deduction, Schedule 3 of the Income Tax Act 1967 provides statutory capital allowances instead. Capital allowances are LHDN's official tax write-off, which allows you to deduct qualifying long-term assets over prescribed years to lower your chargeable income.
- Initial Allowance (IA): A one-off percentage you claim in the first year the asset is used.
- Annual Allowance (AA): A yearly percentage you continue to claim until you have fully claimed the qualifying cost.
Below are the most common LHDN rates among businesses:
- General Plant & Machinery: 20% IA, 14% AA.
- Office Equipment, Furniture & Fixtures: 20% IA, 10% AA.
- Commercial & Heavy Vehicles: 20% IA, 20% AA.
- Passenger Vehicles: Capped qualifying cost limits apply.
- ICT Equipment & Software: 20% IA, 40% AA (Written off over 2 years under Accelerated Capital Allowance /ACA)
For instance, your company buys general machinery for RM100,000 for your operations. You can generally claim a 20% initial allowance and a 14% annual allowance in the first year.
| First-year claim | Calculation | Amount |
|---|---|---|
| Initial allowance | RM100,000 × 20% | RM20,000 |
| Annual allowance | RM100,000 × 14% | RM14,000 |
| Total first-year capital allowance | RM34,000 |
You continue claiming the RM14,000 Annual Allowance each year until you’ve written off the remaining RM66,000.
Assets costing RM2,000 or less each qualify as Small Value Assets. You can claim the full cost in the year of purchase instead of spreading it over several years. Non-SMEs are generally subject to an annual RM20,000 cap on these small-value asset claims.
How to Calculate Your Chargeable Income
Once you have identified your taxable income, reviewed your expenses, and worked out your capital allowances, you can calculate the profit that is subject to corporate income tax.
Start by calculating your adjusted income. Add back expenses that are not deductible for tax purposes, then deduct any non-taxable income:
Adjusted income= Accounting profit + Non-deductible expenses - Non-taxable income
Next, deduct capital allowances and eligible business losses brought forward:
Chargeable income= Adjusted income − Capital allowances − Eligible losses and reliefs
For example, let’s assume your company records RM800,000 in profit before tax. This figure already includes RM50,000 in accounting depreciation and RM10,000 in fines. Since neither is deductible for tax, you add them back.
Your company also claims RM100,000 in capital allowances on qualifying business assets. The calculation works as follows:
- Start with accounting profit before tax of RM800,000.
- Add back RM50,000 in accounting depreciation.
- Add back RM10,000 in fines.
- This gives you an adjusted income of RM860,000.
- Deduct RM100,000 in capital allowances.
- Your chargeable income is RM760,000.
- At the standard 24% rate, your corporate income tax is RM182,400.
This is why the 24% rate is only the starting point. Your final tax bill depends on the adjustments between the profit in your accounts and the chargeable income you report to LHDN.
Key Corporate Tax Incentives in Malaysia
Malaysia offers tax incentives for approved investments in manufacturing, technology, green projects, research and development, and other promoted activities. Depending on the incentive, your company can receive an income-tax exemption, a lower tax rate, or an allowance that offsets taxable income.
1. Core Project Incentives
Malaysia offers two flagship tax incentives to attract foreign investment into high-value manufacturing, technology, and specialized service sectors. Administered by the Malaysian Investment Development Authority (MIDA), you can only choose one of the following routes for the same approved project.
| Tax incentive | How it works | Often suits |
|---|---|---|
| Pioneer Status (PS) | Exempts 70% to 100% of statutory income for an approved period, commonly 5 to 10 years. | Businesses expected to generate taxable profit early, with relatively lower capital expenditure. |
| Investment Tax Allowance (ITA) | Gives an allowance of 60% to 100% of qualifying capital expenditure, which may offset 70% to 100% of statutory income. | Projects that require significant investment in factories, machinery, automation, or production assets. |
| Reinvestment Allowance (RA) | Provides 60% allowance on qualifying capital expenditure for eligible manufacturing and agricultural companies that reinvest in expansion, automation, modernisation, or diversification. | Established companies that have operated for at least 36 months and are reinvesting in an existing qualifying business |
PS reduces the statutory income that is taxed. By contrast, the ITA rewards qualifying investment in assets. This makes the ITA more relevant where your company needs to spend heavily before it starts generating meaningful profits.
New manufacturing projects follow a different path from 1 March 2026 onward. MIDA's New Incentive Framework replaces the traditional Pioneer Status route for new applications. You'll choose between a special tax rate of 0% to 10% for up to 10 years, or an ITA of up to 100% of qualifying capex offset against 70% to 100% of statutory income for up to 10 years. Existing PS and ITA approvals continue on their original terms.
2. Budget 2026 Corporate Incentives
Budget 2026 introduced, extended, or proposed several targeted tax measures. These are narrower than Pioneer Status or the ITA, but can reduce your tax exposure when your activities fall within the qualifying conditions.
| Incentive | Main tax benefit | Key scope or period |
|---|---|---|
| Accelerated capital allowance for plant, machinery, and ICT | 20% initial allowance and 40% annual allowance, allowing a full claim over 2 years | Qualifying expenditure from 11 October 2025 to 31 December 2026 on specified locally acquired machinery, ICT equipment, computer software, and qualifying related software-development costs |
| Accelerated capital allowance for speed limitation devices | 20% initial allowance and 80% annual allowance | Qualifying speed limitation devices for eligible heavy vehicles, capped at RM4,000 per unit |
| AI training for MSMEs | Further 50% tax deduction, claimable once every 2 years | Qualifying AI training recognized under the MyMahir and NAICI framework, subject to the application period |
| Bursa Malaysia listing costs | Tax deduction of up to RM1.5 million | Extended to YA 2030, with the measure expanded to relevant MSMEs in the energy and utilities sector |
| Commercial-to-residential conversion | Special deduction of up to 10% of qualifying capital expenditure, capped at RM10 million | Converting eligible commercial buildings into residential units |
| Training for care workers | Double deduction | Sponsoring approved training for care workers serving older persons or children with special needs |
| Tourism renovation and refurbishment | Deduction of up to RM500,000 | Qualifying tourism renovation and refurbishment expenditure incurred during the specified period |
3. Digital, Green, and R&D Incentives
Malaysia also provides incentives for companies that undertake specific digital, sustainability, and research activities.
| Incentive | Eligibility Criteria | What It Offers |
|---|---|---|
| Malaysia Digital (MD) Status- New Investment | - Minimum RM50,000 paid-up capital- Holds MD Status- Proposing to undertake the qualifying activity in Malaysia- Not yet issued a sales invoice for that activity | - Reduced Tax Rate of 0% on qualifying IP income plus 5% or 10% on non-IP income for 10 years, or - ITA of 60% or 100% on qualifying capex offset against up to 100% of statutory income for 5 years |
| Malaysia Digital (MD) Status- Expansion | - Minimum RM250,000 paid-up capital, in operation for at least 36 months, an existing MD or MSC Malaysia Status company | - Reduced Tax Rate of 15% on qualifying IP and non-IP income for 5 years, or - ITA of 30% or 60% on qualifying capex offset against up to 100% of statutory income for 5 years |
| Green Investment Tax Allowance (GITA) | - Purchasing new MOF-approved green assets such as solar PV systems or energy efficiency equipment listed in the MyHIJAU Directory- Used for own business consumption | 60% to 100% allowance on qualifying green technology capital expenditure |
| Green Income Tax Exemption (GITE) | Malaysian-incorporated green technology service provider listed on the MyHIJAU Directory | Up to 70% exemption on statutory income, for up to 10 years |
| R&D double deduction | - Malaysian resident company carrying out qualifying R&D in Malaysia- Non-local R&D expenses stay under 30% of total R&D spend and capital expenditure is excluded | Double deduction on qualifying research and development expenditure |
4. Special Economic Zones and Regional Tax Regimes
If you operate from a designated economic zone and meet the relevant sector, investment, and substance requirements, you can access significant incentives and exemptions. Here are some notable locations:
- Johor-Singapore Special Economic Zone (JS-SEZ): Consider this zone if you need Singapore connectivity while benefiting from Johor’s manufacturing base and lower operating costs. It targets advanced manufacturing, electronics, medical devices, digital services, logistics, and green technology. Qualifying projects access a 5% CIT rate for up to 15 years or an Investment Tax Allowance, depending on the approved activity and investment terms.
- Labuan offshore companies: Run under a separate tax framework for qualifying international business activities. A company carrying on qualifying trading activities generally pays 3% tax on audited net profits. Qualifying non-trading activities, including certain investment-holding structures, may be taxed at 0%. This generally suits international trading, leasing, fund management, captive insurance, and holding activities that meet Labuan’s substance requirements.
- Other Economic Corridors: Areas such as Iskandar Malaysia and the East Coast Economic Region may offer incentives for selected projects. Depending on your activity, you may access income-tax exemptions, investment allowances, or import-duty and sales-tax relief on qualifying equipment.
Emerhub can verify your eligibility for Malaysia’s tax incentives and apply for them on your behalf. Book a free consultation via the form below, and we’ll connect you with our local advisors.
Corporate Tax Filing and Deadlines in Malaysia
Malaysia uses a self-assessment system. This means your company needs to estimate its tax, pay it in instalments, file its annual tax return, and maintain records that support the figures reported to LHDN.
| Requirement | What you need to do | General deadline |
|---|---|---|
| CP204 | Submit your estimated tax payable for the year | Existing companies: 30 days before the basis period begins |
| CP204 instalments | Pay the tax estimate in monthly instalments | By the 15th of each month, starting from the second month of the basis period |
| Form C | File your annual corporate income tax return | Within seven months after the end of your accounting period |
| e-Invoice | Issue and validate e-Invoices through MyInvois if you fall within the rollout scope | Depends on annual turnover or revenue |
| MITRS | Submit required records and documents electronically where section 82B applies | Within 30 days after the return deadline |
If your financial year ends 31 December, you'd file your Form C by 31 July the following year, seven months later. Newly established companies with paid-up capital of RM2.5 million or less skip the CP204 requirement for their first two to three years of assessment, subject to conditions.
Penalties for late or incorrect filing
The Income Tax Act 1967 sets separate penalties for each type of filing failure, and LHDN applies them independently. You risk the following if a deadline slips:
- Late Form C (Section 112(1)): Fine of RM200 to RM20,000, imprisonment of up to six months, or both.
- Special penalty in lieu of prosecution (Section 112(3)): Capped by law at three times the tax payable, though LHDN's guidelines typically start around 45% for a first offence.
- Unpaid tax (Section 103): 10% surcharge on the outstanding balance.
- CP204 underestimation (Section 107C): 10% penalty on the shortfall if your actual tax exceeds your estimate by more than 30%.
LHDN generally allocates 5 years after the relevant year of assessment to raise an assessment. However, this limit does not apply where it finds fraud, wilful default, or negligence. In those cases, LHDN can reassess your company further back and charge the additional tax and applicable penalties.
Manage Your Corporate Tax in Malaysia with Emerhub
Emerhub’s tax and accounting team in Malaysia can file your Form C and CP204 estimates directly with LHDN, and track your withholding tax obligations on every payment your company makes. As your compliance partner, we can manage your MyInvois integration, keeping your filings aligned with LHDN's requirements as they evolve.
Our local consultants can also help you build a more efficient tax position in Malaysia. We can flag and apply for the incentives and exemptions your company qualifies for. If you operate in regulated sectors or within special economic zones, we can also guide you through the licensing and incentive rules that apply.
Get in touch with our local team to discuss how we can support your corporate compliance in Malaysia. Schedule a free consultation via the form below.
Frequently asked questions
Can a foreign-owned company qualify for the SME preferential tax rate?
A foreign-owned company generally cannot qualify for the SME preferential tax rate in Malaysia if foreign shareholding exceeds 20%. Under rules effective from the Year of Assessment (YA) 2024, any company with more than 20% of its paid-up ordinary share capital owned directly or indirectly by non-Malaysian citizens or foreign entities is excluded from SME tax rates and must pay the flat standard rate of 24%.
What qualifies as non-taxable income in Malaysia?
Malaysia taxes corporate income on a territorial basis, which means only income derived from within the country is subject to corporate income tax. Under the Income Tax Act 1967, major non-taxable categories include capital receipts such as equity injections or capital contributions from a foreign parent entity, which are capital in nature rather than taxable business revenue. Other non-taxable items include single-tier local dividends, qualifying foreign-sourced dividends remitted into Malaysia through 2030, and general capital gains. However, real property and unlisted shares are taxed separately under specialized capital tax frameworks.
Is income earned overseas and brought into Malaysia taxable?
Income earned overseas then brought into Malaysia is generally taxable since Malaysia removed its blanket exemption on foreign-sourced income in 2022. Exemptions still apply to qualifying foreign dividends and capital gains under specific conditions, extended through 31 December 2030 for companies under Budget 2026.
Do I need to withhold tax when paying my overseas head office for services?
Whether you need to withhold tax when paying your overseas head office depends on how the payment is classified. Royalties, technical fees, and certain contract payments to non-residents typically trigger withholding tax obligations, so it's worth reviewing each payment type against LHDN's withholding tax rules before you remit funds.
Are dividends paid to shareholders taxed again in Malaysia?
Malaysia's single-tier system means your company doesn't pay tax again on dividends it's already been taxed on, and you don't withhold tax when sending dividends to shareholders either. If you're an individual shareholder drawing more than RM100,000 in dividends a year, though, you'll pay a 2% tax on the amount above that threshold. Corporate shareholders are unaffected.