The tax system of Malaysian is territorial. Residents and non-residents are taxed on their income originating in Malaysia, while foreign-sourced income is usually not taxed even in the case of local companies, firm or residents.
Tax Rate in Malaysia
| Corporate tax standard rate | 24 percent (a deduction from 1% to 4% is granted for the fiscal years 2017 and 2018 to companies that have seen their taxable income grow by 5% at least compared to the previous year |
| Corporate tax rate of small and medium-sized organization & residents | 18 percent on the first MYR 500,000 24 percent above MYR 500,000 |
| Corporate tax for companies originating in the Labuan Territory and carrying out a commercial activity in that territory. | 3 percent of the audited income |
Tax Rate for Foreign Companies
There is no difference between foreign and domestic companies. For the method of tax taxation, there is also no subsidiaries of foreign companies.
Capital Gains Taxation
Malaysia government do not tax the capital gains on the sale of investments other than those relating to buildings and land. RPGT (real property gains tax) is only applied to the selling of land in Malaysia. You need to pay 30% for real estate sales which are made within 3 years of the date of acquisition. For the disposals in the fourth and fifth years after the acquisition, the rate is 15% & 20%. And 5% respectively for sales in the sixth year after acquisition. Company or business organization not following this policy will lose their business license of Malaysia.
Main Allowable Deductions and Tax Credits
Benefits are allowed for cash grants to approved institutions (defined) made during the base period for one year of the valuation. The deduction is limited to 10% of the total income of that company for one year of the valuation. In the certain sector, the tax incentives are provided in the exchange of exemptions. Which includes hotels, manufacturing, energy conservation, environmental protection and tourism, in the form of tax exemption which is up to 10 years. Net operating losses can be carried forward for indefinitely (except in case of a significant change in the ownership structure of a dormant company). The transfer of losses is not allowed.
Other Corporate Taxes
Malaysian business license holder needs to contribute must contribute to the countries Social Security Organization (SOCSO). Business employers generally contribute 1.75 percent of salary for each employee who is registered with SOCSO. The employer needs to contribute 11% to 13% of the salary to the Employees’ Provident Fund (EPF). From 2018, employers and employees pay 0.2% of employees’ salary which is capped at 4 000 MYR each month.
Country Comparison for Corporate Taxation
| Malaysia | United States | Germany | |
| Total number of payment of Taxes each Year | 9.0 | 10.6 | 9.0 |
| Time Taken For Administrative Hours | 164 | 175 | 218.0 |
| Share of Taxes (Total % of Profit) |
40 | 44 | 48.9 |
Conclusion
If a person lives in Malaysia for more than 182 days in a calendar year, he/she is considered as a taxable person. As I mentioned above the total corporation tax in Malaysia is 24% however the general corporation are taxed on their income. Comparatively, Malaysia tax system is more beneficial for the business license holder.
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