Small Business Tax in Malaysia

What corporate income tax rates apply to Malaysian small businesses?

Malaysia levies corporate income tax (CIT) under the Income Tax Act 1967, administered by Lembaga Hasil Dalam Negeri (LHDN). From Year of Assessment (YA) 2024, qualifying resident SMEs benefit from a three-tier preferential rate structure: 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000 (up to RM600,000 total), and 24% on the excess above RM600,000 [1]. All other resident companies pay a flat 24% on their entire chargeable income [1].

To qualify for the SME rates, a company must be resident and incorporated in Malaysia, have paid-up ordinary share capital not exceeding RM2.5 million at the start of the basis period, report gross business income of no more than RM50 million for that YA, and not be connected to a related company whose paid-up capital exceeds RM2.5 million [1][2]. A restriction introduced for YA2024 means that if more than 20% of the company's paid-up capital is held by non-Malaysian citizens or companies incorporated outside Malaysia, the SME rates do not apply and the flat 24% rate is charged [2]. Consult a qualified tax professional to determine whether your shareholding structure preserves SME eligibility.

How are sole proprietors and partnerships taxed?

Businesses registered as sole proprietorships or partnerships with the Companies Commission of Malaysia (SSM) are not subject to corporate income tax. Instead, the owner or partners declare their share of business profits as personal income and pay individual income tax at progressive rates ranging from 0% to 30% [3]. The chargeable income bands for resident individuals from YA2023 onwards are set out in the table below.

Sole proprietors and partners file Form B through LHDN's MyTax e-filing portal. The deadline for YA2024 returns is 30 June 2025 for manual submission (15 July 2025 via e-filing). From YA2024 onwards, manual paper submission of Form B is no longer accepted; all filings must go through the e-Filing system [4]. Non-residents pay a flat 30% on Malaysian-source income. Consult a qualified tax professional on which business structure best fits your situation.

Source: LHDN Tax Rate for Individuals, YA2023-2025 [3]

What is Sales and Service Tax (SST) and does it apply to small businesses?

Malaysia replaced its Goods and Services Tax (GST) with the Sales and Service Tax (SST) on 1 September 2018. SST is not a value-added tax -- there is no input credit mechanism. It operates as a single-stage tax collected either by the manufacturer/importer (sales tax) or by the service provider (service tax).

Sales tax applies to taxable manufactured or imported goods at rates of 5% or 10% depending on the category; some goods such as petroleum products carry specific rates [5]. Essential goods are exempt. Service tax applies to prescribed taxable services. Effective 1 March 2024, the standard service tax rate increased from 6% to 8% for most categories including financial services, telecommunications, and leisure [5]. Food and beverage, telecommunications, parking, and logistics services remain at 6% [5].

Effective 1 July 2025, the Ministry of Finance expanded the service tax scope to include leasing and rental, construction, financial services, private healthcare, private education, and beauty services [5][6]. A grace period with no penalties ran until 31 December 2025 for businesses newly required to register under the expanded scope.

The registration threshold for service tax is RM500,000 in taxable services over any 12-month period (raised to RM1 million for certain categories such as rental/leasing and financial services from July 2025) [6]. Sales tax registration applies when annual sales of taxable manufactured or imported goods exceed RM500,000. Businesses below those thresholds are not required to register but may apply for voluntary registration.

How does the CP500 instalment scheme work for self-employed businesses?

Individuals with business income -- sole proprietors, partners, freelancers, landlords -- do not have monthly salary deductions (PCB). Instead, LHDN issues Form CP500 (Notis Bayaran Ansuran) each February based on the prior year's declared income. The estimated annual tax liability is split into six equal instalments due in March, May, July, September, November, and January of the following year, each payable within 30 days of the due date [7]. A 10% penalty applies to late payments [7].

If a taxpayer expects current-year income to differ materially from the prior year, a revision can be filed using Form CP502 before 30 June of the current assessment year [7]. Where the revised amount turns out to be more than 30% below the actual tax payable, LHDN may impose a further 10% penalty for underpayment. CP500 payments are fully credited against the final tax liability established when the annual return is filed. Companies (Sdn Bhd) use the separate CP204 monthly instalment scheme instead. A qualified tax professional can assist with calculating and revising CP500 amounts to minimise penalty exposure.

What is the MyInvois e-invoicing mandate and when does it affect small businesses?

LHDN is rolling out a mandatory e-invoicing regime through the MyInvois platform. All B2B, B2C, and B2G invoices must be validated by LHDN before issuance to customers. The mandate has been phased by annual turnover [8]:

• Phase 1 (1 August 2024): businesses with turnover above RM100 million
• Phase 2 (1 January 2025): turnover above RM25 million
• Phase 3 (1 July 2025): turnover above RM5 million
• Phase 4 (1 January 2026): turnover between RM1 million and RM5 million (relaxation period to 31 December 2026)

Businesses with annual turnover below RM1 million are permanently exempt following a Cabinet decision on 6 December 2025 [8]. Businesses within scope must submit 55 mandatory data fields per invoice; validated invoices receive a unique IRBM identifier. Integration options include direct API connection, manual entry via the MyInvois portal, or PEPPOL-network connection.

For jurisdiction context see the Malaysia country overview. To compare practitioners who assist with Malaysian corporate compliance and SST registration, browse the TaxPros Rated Malaysia directory. All tax compliance decisions should be reviewed with a qualified tax professional familiar with Malaysian law.