Tax in Malaysia

Who is the tax authority in Malaysia?

The Inland Revenue Board of Malaysia (LHDN — Lembaga Hasil Dalam Negeri Malaysia) is the principal direct-tax authority. LHDN was established under the Inland Revenue Board of Malaysia Act 1995 and operates under the Ministry of Finance.

LHDN administers four main statutes: the Income Tax Act 1967, the Petroleum (Income Tax) Act 1967, the Real Property Gains Tax Act 1976, and the Stamp Act 1949. The Royal Malaysian Customs Department (Jabatan Kastam DiRaja Malaysia) administers Sales Tax under the Sales Tax Act 2018 and Service Tax under the Service Tax Act 2018.

Disputes are reviewed by the Special Commissioners of Income Tax and the Tax Appeal Tribunal. The Malaysian Institute of Accountants (MIA) regulates credentialed accountants; the Chartered Tax Institute of Malaysia (CTIM) administers the Chartered Tax Practitioner credential.

What is the Malaysian tax year and when are returns due?

The Malaysian Year of Assessment for individuals is the calendar year (1 January to 31 December). Form BE — for resident individuals without business income — is due 30 April. Form B — for resident individuals with business income — is due 30 June. Form M covers non-resident individuals.

Online filing carries a standard 15-day extension. Tax agents receive longer extensions through the agent-extension framework administered by LHDN. Companies file Form C within seven months of their fiscal year-end.

Salaried employees participate in the Monthly Tax Deduction framework (Potongan Cukai Bulanan — PCB), where the employer withholds estimated tax each month. Self-employed and business filers make Estimated Tax (Anggaran Cukai) instalments under section 107C ITA. SST returns are filed bi-monthly, with payment due by the last day of the following month.

How is Malaysian tax residency determined?

Section 7 of the Income Tax Act 1967 sets four separate residency tests. Any single test triggers full-year residency for that Year of Assessment.

The four tests are: physically present in Malaysia for at least 182 days in the Year of Assessment; physically present for fewer than 182 days but linked to a basis-year period of at least 182 days that spans a preceding or following year (the linking-period test); physically present for at least 90 days in the Year of Assessment AND resident in Malaysia in any three of the four immediately preceding Years of Assessment or in the immediately following Year of Assessment; or resident in Malaysia in all three immediately preceding Years of Assessment and also in the immediately following Year of Assessment.

Residents are taxed on Malaysian-source income. Foreign-source income received in Malaysia by individuals is currently exempt through 31 December 2026 under the Income Tax (Exemption) Order 2022 and subsequent extensions, with specific carve-outs for partnerships and certain investment income. Non-residents are taxed on Malaysian-source income only, generally at flat rates that vary by income type.

Malaysia also operates the Malaysia My Second Home (MM2H) programme for qualifying long-stay foreign visitors, and the Returning Expert Programme (REP) for qualifying Malaysian professionals returning from abroad — both carry separate residency and tax implications.

What are the personal income tax rates?

Resident individuals are taxed on a ten-bracket progressive scale. The brackets for YA 2025 are:

The personal allowance is MYR 9,000 for the filer plus additional relief for a dependent spouse, dependent children, parents' medical expenses, lifestyle expenses, EPF (Employees Provident Fund) contributions, life insurance, and Private Retirement Scheme contributions. Non-residents are taxed at a flat 30 percent on Malaysian-source employment income.

How does Malaysian corporate tax work?

The standard corporate income tax (CIT) rate for resident companies is 24 percent on chargeable income above MYR 600,000. Small-and-medium enterprises (paid-up capital of MYR 2.5 million or below, gross income from business sources of MYR 50 million or below) are taxed at graduated rates: 15 percent on the first MYR 150,000, 17 percent on the next MYR 450,000, and 24 percent above MYR 600,000.

Petroleum companies operate under the Petroleum (Income Tax) Act 1967 with sector-specific rates. The Controlled Foreign Company (CFC) regime was introduced by Finance Act 2023 and applies from YA 2025. Investment incentives include Pioneer Status, Investment Tax Allowance, MIDA-administered grants, and the Special Reinvestment Allowance.

How does indirect tax work in Malaysia?

Malaysia replaced the Goods and Services Tax (in force 2015–2018) with the dual Sales Tax and Service Tax (SST) regime from 1 September 2018. The two taxes operate independently — a business may be registered for one but not the other.

Excise duties apply on alcohol, tobacco, fuel, motor vehicles, sugary drinks, and selected other categories. Customs duties cover imports and are administered by the Royal Malaysian Customs Department.

How are cryptoassets taxed in Malaysia?

LHDN issued the Guidelines on Tax Treatment of Digital Currency Transactions in 2022. The guidelines apply a badges-of-trade analysis to distinguish active traders from capital investors.

From YA 2024, the new Capital Gains Tax under section 4(aa) ITA on unlisted-share disposals may affect certain crypto-issuing-entity equity disposals. The Securities Commission Malaysia regulates digital-asset exchanges and Initial Exchange Offerings under the Capital Markets and Services Act 2007 amendments. Employment compensation received in crypto is taxable as employment income at fair market value on receipt, with PCB implications for the employer.

What is the new capital gains tax on unlisted shares?

From YA 2024, gains on the disposal of unlisted shares of Malaysian and foreign-incorporated companies are subject to Capital Gains Tax under the new section 4(aa) of the Income Tax Act 1967. The rate is 10 percent.

Two methods apply: the gross-disposal-price method (10 percent on gross proceeds) or, by election, 10 percent on chargeable gain (net of allowable cost). This is separate from the existing Real Property Gains Tax under the RPGT Act 1976, which continues to apply only to real property and shares in real-property companies.

Listed-share gains remain outside the income-tax base for most individual holders. The practical interaction between section 4(aa) CGT and the existing RPGT framework for mixed-asset disposals is an area where practitioners are still building interpretive guidance.

What is the Malaysian treaty network?

Malaysia maintains approximately 80 comprehensive Double Taxation Avoidance Agreements — one of the largest DTA networks in ASEAN. Most treaties follow the OECD Model Convention with Malaysian-specific reservations on the credit-versus-exemption method (Malaysia generally applies the credit method) and on source taxation of technical services.

Malaysia signed and ratified the OECD Multilateral Instrument. The MLI's modifications, including the Principal Purpose Test (PPT), apply to many of Malaysia's covered DTAs for periods from 2022 onward. Transfer-pricing rules under section 140A ITA mirror OECD principles, with safe-harbours and an Advance Pricing Arrangement programme administered by LHDN's Multinational Tax Department.

Where does Malaysia sit in the ASEAN-Pacific cohort?

Malaysia anchors the SST-regime cohort in the ASEAN-Pacific tax landscape. Five cohort types describe the region:

Common pitfalls and things to watch

Several recurring issues affect individuals and businesses operating in Malaysia:

When is a Malaysian tax professional worth consulting?

Some situations can be managed through LHDN's MyTax portal and standard PCB tables. Others involve genuine complexity:

Specific circumstances where practitioner input is commonly sought include: holding unlisted shares being disposed of under the section 4(aa) CGT regime; operating a business in a petroleum-related sector under the PITA; relocating to or from Malaysia mid-year and navigating the four residency tests; managing a corporate group subject to Pillar Two or the new CFC rules; establishing operations in the Labuan IBFC or under Pioneer Status; receiving a LHDN notice of assessment, audit selection letter, or instalment-revision request; and dealing with any cross-border structure covered by a DTA or the MLI's PPT provisions.

This page is general information. It is not personal guidance for any specific situation. Tax rules change. Always check current figures on the LHDN website or with a credentialed CTIM practitioner before filing.