Malaysia Corporate Tax Guide 2026

Standard Corporate Tax Rate — 24%

The standard corporate tax rate in Malaysia is 24% on chargeable income for resident and non-resident companies. Income is taxed on a territorial basis — only income derived from Malaysia or remitted to Malaysia (until 2022: foreign income remitted was exempt; as of 2022, foreign-source income remitted by resident companies is subject to tax at 24%, though transitional rules and exemptions may apply). The tax year follows the company's financial year-end. Companies must submit their tax return (Borang C) within 7 months of the financial year-end. Estimated tax payable is filed at the beginning of the year with monthly installments.

Key compliance obligations include: monthly CP204 (estimated tax payable) installments, annual tax return (Borang C) within 7 months of year-end, and maintaining proper transfer pricing documentation for related-party transactions exceeding MYR 15 million.

SME Preferential Rates — 15% / 17%

Small and medium enterprises (SMEs) qualify for reduced corporate tax rates on the first MYR 600,000 of chargeable income:

• 15% on the first MYR 150,000 of chargeable income
• 17% on the next MYR 600,000 of chargeable income (MYR 150,001 to MYR 600,000)
• 24% on chargeable income exceeding MYR 600,000

Qualifying conditions: The company must be a resident company incorporated in Malaysia with paid-up capital (ordinary shares) of ≤ MYR 2.5 million at the beginning of the basis period. The company must not be controlled, directly or indirectly, by a company that has paid-up capital > MYR 2.5 million. This threshold applies to the group. SMEs in the same group must share the MYR 600,000 band.

Labuan Entities — 3% Flat Rate

Labuan International Business and Financial Centres (IBFC) entities enjoy a preferential tax rate of 3% on net audited profits from Labuan trading activities. Alternatively, entities may elect to pay a fixed amount of MYR 20,000 per year (in lieu of filing a tax return). Labuan non-trading activities (holding of investments, provision of headquarter services) are tax-exempt. The 3% rate applies to Labuan business activity carried on in, from, or through Labuan. Labuan entities must hold a valid Labuan licence and comply with Labuan Financial Services Authority (Labuan FSA) requirements.

Tax Incentives — MIDA

The Malaysian Investment Development Authority (MIDA) administers generous tax incentives for promoted activities and products. The two main forms are:

Pioneer Status (PS): Exemption from 70% of statutory income for 5–10 years (extendable). For some high-tech or strategic industries, 100% exemption may be granted. The tax exemption applies to the proportion of income derived from the promoted activity. Pioneer companies pay tax only on the non-exempt portion of income at 24% (or SME rate if applicable).

Investment Tax Allowance (ITA): An allowance of 60% (or up to 100% for strategic projects) on qualifying capital expenditure (factory, plant, machinery) incurred within 5 years. The allowance is set off against 70% of statutory income (or 100% for strategic projects). Any unabsorbed allowance can be carried forward. Companies must choose between Pioneer Status and ITA — they cannot apply both for the same promoted activity.

Additional incentives: Accelerated Capital Allowance (ACA) for automation equipment, Double Deduction for export promotion expenses, Reinvestment Allowance (RA) of 60% on capital expenditure for existing companies expanding capacity (set off against 70% of statutory income), and special incentives for the digital economy, R&D, and green technology.

Capital Allowances and Deductions

Companies may claim capital allowances (CA) on qualifying plant, machinery, and industrial buildings:

• Initial allowance: 20% on qualifying expenditure (one-time in the year of acquisition)
• Annual allowance: 14% (plant & machinery) or 3-10% (industrial buildings) per year on a straight-line or reducing balance basis
• Reinvestment Allowance: 60% on capital expenditure for qualifying projects (set off against 70% of statutory income)
• Accelerated Capital Allowance: 40% initial + 20% annual for automation and ICT equipment

General business expenses are deductible if wholly and exclusively incurred in the production of income. Entertainment expenses are restricted to 50% deductibility. Interest expense is generally deductible if the borrowing is used for business purposes, subject to thin capitalisation rules (debt-to-equity ratio not exceeding 3:1 for related-party loans).

Transfer Pricing and Compliance

Malaysia follows the OECD Transfer Pricing Guidelines. Companies transacting with related parties (including foreign affiliates) must maintain contemporaneous transfer pricing documentation. The threshold for documentation: controlled transactions exceeding MYR 15 million annually. Advance Pricing Arrangements (APAs) are available. Penalties for non-compliance with transfer pricing rules: 35% surcharge on the adjusted amount. Country-by-Country Reporting (CbCR) applies for MNE groups with consolidated revenue ≥ EUR 750 million.

FAQs

What is the difference between Pioneer Status and Investment Tax Allowance?

Pioneer Status exempts a percentage of statutory income from tax (typically 70% for 5–10 years). ITA provides a capital expenditure allowance (usually 60%) that is set off against statutory income. Companies cannot claim both for the same activity but may choose whichever is more beneficial.

Does my SME qualify for the 15%/17% rates?

If your company is a Malaysian tax resident with paid-up capital ≤ MYR 2.5 million and is not controlled by a company with paid-up capital > MYR 2.5 million, you qualify for the SME rates on the first MYR 600,000 of chargeable income.

Are foreign-sourced dividends taxable?

Under the single-tier system, dividends paid by Malaysian companies are tax-free. Foreign-source income remitted to Malaysia by resident companies was exempt pre-2022 but is now subject to tax at the applicable corporate rate (with certain transitional exemptions and foreign tax credits available).

What is the penalty for late tax filing?

Late filing of corporate tax returns (Borang C) incurs a penalty of up to 35% of the tax payable for the first offence, and up to 45% for subsequent offences. Late payment of estimated tax installments incurs a 10% penalty plus interest at 2% above the base lending rate.

Disclaimer

This guide provides general information about Malaysian corporate tax for the 2026 tax year. Tax laws, rates, and incentive schemes may change. Always consult with a qualified tax advisor or MIDA/LHDN directly for advice specific to your situation. InvestmentKit does not provide tax advice.