With the profound changes in the global economic landscape, Malaysia, with its unique geographical advantages, solid economic foundation and perfect business environment, is becoming the preferred destination for more and more Chinese companies to expand overseas. However, to achieve the smooth launch and sustainable development of business in Malaysia, it is crucial to have a deep understanding and proper management of the local tax system. This article will comprehensively analyze the core elements of the Malaysian tax system from a practical perspective, combined with the latest policy changes in 2024, and provide clear tax guidance and practical suggestions for companies going overseas. In the complex cross-border business environment, only by accurately grasping the context of local tax policies can companies move forward steadily in the fiercely competitive Malaysian market and achieve sustainable growth on the basis of compliant operations.

Overview of Malaysia’s tax system

As one of the important economies in ASEAN, Malaysia has established a multi-level and systematic tax management system. According to the latest Ministry of Finance data in 2024, tax revenue accounts for 14.8% of Malaysia’s GDP, of which direct tax revenue accounts for 58.3% of total tax revenue and indirect tax revenue accounts for 41.7%, reflecting the country’s “direct tax as the mainstay and indirect tax as the supplement.” characteristics of the tax structure.

In terms of setting up tax administration agencies, Malaysia adopts a dual-track management model. As the core tax collection agency, the Inland Revenue Board of Malaysia (IRBM) is mainly responsible for the collection and management of direct taxes, including corporate income tax, personal income tax, petroleum income tax, etc. According to IRBM’s first quarter report of 2024, its collection efficiency increased by 15.2% compared with the same period in 2023, thanks to the recently launched digital collection and management system upgrade. Taxpayers can now handle more than 95% of tax-related business through the MyTax portal, and the average processing time has been shortened to 1/3 of the original.

The Royal Malaysian Customs Department (RMCD) is mainly responsible for the collection and management of indirect taxes, including sales and services tax (SST), import and export duties, etc. In 2024, RMCD launched a new version of cross-border e-commerce tax management measures, requiring overseas e-commerce platforms with an annual turnover of more than 500,000 ringgit to register for tax in Malaysia. This policy is expected to bring about 1.2 billion ringgit to Malaysia. Additional tax on JIT.

In terms of institutional collaboration, IRBM and RMCD have established a “Tax Information Sharing Platform” in early 2024 to achieve real-time exchange of taxpayer information. When companies handle related business, they only need to submit materials to one department to achieve cross-department information sharing, significantly improving work efficiency. For example, when an enterprise applies for export tax rebate, RMCD can directly access IRBM’s tax records, shortening the approval time from the original 15 working days to 5 working days.

Malaysia’s tax system can be divided into three administrative levels: federal, state and local levels. Federal taxation is the main source of taxation, including income tax, sales and service tax and other important taxes, accounting for approximately 85% of total taxation. According to the latest data in 2024, federal tax revenue reached 238.6 billion ringgit, a year-on-year increase of 8.3%.

State-level taxes mainly include land tax, mineral tax, etc. Each state can formulate specific collection standards based on local actual conditions. It is worth noting that in 2024, many state governments have adjusted tax policies related to the purchase of real estate by foreign-funded enterprises. Taking Selangor as an example, the stamp duty rate for foreign-funded enterprises purchasing commercial real estate has been raised from the original 4% to 5%. Enterprises need to fully consider this cost factor when making real estate investments.

Local taxes mainly include house tax, construction tax, etc., which are collected by local governments in accordance with the Local Government Law. In 2024, the Kuala Lumpur City Council launched a new smart tax collection and management system. Taxpayers can check the tax payable in real time through a mobile application and make online payments, which greatly improves collection efficiency.

For enterprises investing and operating in Malaysia, special attention needs to be paid to three aspects: first, they must accurately identify the various tax types involved in business activities and clarify the tax collection and management departments they should contact; second, make full use of the online service platforms of each department to improve taxation Third, pay close attention to changes in tax policies of governments at all levels, especially adjustments to preferential tax policies that are directly related to business operations.

It is worth mentioning that the Malaysian government is promoting the “Tax Modernization Plan (2024-2026)” and plans to fully implement an electronic invoice system in the next three years to simplify cross-department tax-related business processes, which is expected to save about 30% of taxes for enterprises. Compliance costs. It is recommended that enterprises carry out corresponding information system upgrades and personnel training in advance to adapt to the new tax management requirements.

Detailed explanation of corporate taxation

Malaysia’s corporate tax system has undergone a number of important updates in 2024, providing businesses with a more competitive tax environment. This chapter will comprehensively analyze the key tax points that enterprises need to master from aspects such as tax rate structure, preferential policies and practical operations.

2.1 Corporate income tax

In 2024, Malaysia will implement a stepped corporate income tax rate system. For small and medium-sized enterprises with a paid-in capital of less than 2.5 million ringgit, a preferential tax rate of 17% is applicable to the first 600,000 ringgit of taxable income, and the excess tax is taxed at 24%. A standard tax rate of 24% applies to large enterprises. It is worth noting that from July 1, 2024, a 33% excess profit tax will be levied on large enterprises with an annual turnover of more than 100 million ringgit. This is mainly targeted at enterprises that have achieved significant profit growth after the epidemic.

There are significant differences in tax treatment between resident enterprises and non-resident enterprises. In addition to enjoying lower tax rates, resident enterprises can also apply for various preferential tax policies. Non-resident enterprises not only need to pay a uniform income tax of 24%, but also need to pay a withholding income tax of 10%-15% on their specific income from Malaysia (such as royalties, technical service fees, etc.). The key to determining the resident status of a company is the place of management and control. The company needs to ensure that board meetings are held in Malaysia and important business decisions are made there.

The calculation of taxable income follows the basic principle of “income minus expenses”. Starting from 2024, Malaysia will adopt new revenue recognition standards, requiring companies to recognize revenue in strict accordance with the Malaysian Financial Reporting Standards (MFRS). In terms of expense deductions, the basic requirement that they are used “entirely and exclusively” to operate the business must be met. A special reminder is that a 200% super deduction policy for R&D expenses will be added in 2024, but companies must obtain certification from the Science and Technology Development Bureau in advance.

2.2 Preferential tax policies

In order to promote the development of key industries, Malaysia has established a multi-level tax preferential system. Pioneer status is one of the most attractive preferential policies. Companies that obtain this status can enjoy 70% income tax reduction for 5 years. In 2024, the government will include 12 emerging industries such as artificial intelligence, high-end manufacturing, and biotechnology into the scope of pioneer qualifications. According to statistics, a total of 152 companies will obtain pioneer status in 2023, driving investment amounting to 28.3 billion ringgit.

Investment Tax Allowance (ITA) allows businesses to receive relief of up to 100% of qualifying capital expenditure for five years. The new regulations in 2024 will increase the ITA ratio for green technology investment to 100%, and can be combined with other preferential policies. Enterprises should note that applying for ITA must be done through the Malaysian Investment Development Authority (MIDA), and the average approval period is 3 months.

Reinvestment subsidies (RA) mainly support enterprises in technological upgrading and production expansion. Qualified enterprises can receive a 60% reduction in reinvestment expenditures. In 2024, a new “Special Subsidy for Digital Transformation” will be added, which will provide an additional 20% tax deduction for enterprises’ expenditures on purchasing digital equipment.

2.3 Loss carry forward and credit rules

Starting from 2024, the corporate loss carry forward period will be extended from 7 years to 10 years, which provides companies with longer tax planning space. It should be noted that if more than 50% of the company’s equity changes, the unrecovered losses will become invalid. It is recommended that enterprises make tax planning in advance when carrying out equity reorganization.

The group tax reduction policy allows 70% of losses to be transferred between enterprises within the same group, but the following conditions must be met: the shareholding ratio reaches more than 70%, both are resident enterprises, and the fiscal years are the same. New regulations will be added in 2024 that companies participating in loss transfer must operate for at least 12 months to prevent the emergence of shell companies specially established for tax purposes.

In terms of capital deductions, fixed assets purchased by enterprises can be depreciated at specified tax rates. The initial tax exemption for environmental protection equipment will be increased to 40% in 2024, and the annual tax exemption will be 20%. In addition, companies located in the eastern Sabah and Sarawak regions can enjoy accelerated depreciation policies, with an initial tax exemption of up to 60%.

In practical operations, enterprises should pay special attention to the following points:

• Prepayment of income tax must be completed before the 15th of each month, and the amount is determined based on 85% of the tax payable in the previous year .
• The deadline for annual tax returns is July 31 of the following year. Overdue tax returns will incur penalties of up to 50,000 ringgit .
• Application for preferential policies should be started 3-6 months in advance to ensure that all supporting documents are complete .
• It is recommended to hire a local tax consultant to assist with complex tax benefit applications and tax planning matters.

Personal income tax system

The Malaysian personal income tax system is characterized by progressive tax rates, combined with diversified tax exemption policies, forming a relatively complete personal tax system. The tax reform in 2024 will further optimize the tax rate structure and increase tax support for low- and middle-income groups.

3.1 Tax rate structure and resident status determination

In 2024, Malaysian personal income tax will adopt a 13-level progressive tax rate system with a tax rate range of 0-30%. Annual income below 5,000 ringgit is exempt from tax, and a starting tax rate of 1% is applicable to 5,001-20,000 ringgit, and then increases gradually. It is worth noting that in 2024, the threshold for the highest grade will be increased from 1 million ringgit to 1.5 million ringgit, and a top tax rate of 30% will be applied. This adjustment mainly takes into account inflation factors.

The “183-day rule” is used as the main criterion for resident status identification. Individuals who stay in Malaysia for more than 183 days are considered tax residents. In addition, if you stay in Malaysia for less than 183 days, but stay in Malaysia for more than 90 days in any three of the four consecutive years, you can also be recognized as a tax resident. Non-tax residents are subject to a uniform fixed tax rate of 30% and cannot enjoy personal exemptions.

According to data from the Department of Statistics Malaysia, about 85% of taxpayers will be subject to tax brackets below 25% in 2023, with the average actual tax rate being 12.3%. It is recommended that foreigners carefully consider residency status planning when planning to work in Malaysia, as it may bring about significant tax differences.

3.2 Definition of taxable income scope

Wage and salary income is the most important type of taxable income, including basic salary, bonuses, allowances, etc. Starting from 2024, there will be an important update to the taxation rules for telecommuting income: if foreigners work remotely for an overseas company in Malaysia, their income will still need to pay tax in Malaysia based on the source principle. The taxable time point for equity incentive income (such as options and stocks) is the exercise date, and the income is calculated based on the market value on that day.

Business income includes income from individual businesses, professional services, etc. New regulations will be added in 2024. Small and micro operators with an annual turnover of less than 500,000 ringgit can choose to adopt the simplified collection method and calculate the tax payable at a tax rate of 4%, which greatly simplifies the collection and management procedures.

In terms of investment income, dividend income adopts a single-tier tax system, and individuals do not need to pay income tax on dividends received. However, it should be noted that starting from 2024, income from the transfer of real estate held by individuals for less than 3 years will be subject to real estate value-added tax at a rate of 30%. This is an important control measure for speculation.

3.3 Diversified tax exemption system

The basic exemption limit for individuals will increase to 9,000 ringgit from 2024, with an additional 9,000 ringgit exemption for spouses. Children’s education exemption can be up to 8,000 ringgit per person, and there is no limit on the number of children. It is worth noting that a new “digital equipment purchase exemption” will be added in 2024, up to 2,500 ringgit, to support residents to improve their digital skills.

In terms of health care expenses, individual medical insurance premiums can be deducted up to MYR 3,000, and parents’ medical expenses can be deducted up to MYR 5,000. In 2024, a “mental health consultation fee reduction” has been specially added, with a maximum of 1,000 ringgit, reflecting the government’s emphasis on people’s mental health.

Vocational skills improvement expenditures also enjoy preferential policies. Individuals who participate in certified vocational skills training can receive a course fee reduction of up to 7,000 ringgit. In 2024, a new “Special Exemption for Digital Skills Training” will be added, with a maximum amount of 5,000 ringgit, but it must be a training institution recognized by the government.

Practical suggestions: Employers must complete the withholding and payment (PCB) of employee salary income tax before the 15th of each month . The deadline for personal annual tax returns is April 30 of the following year . It is recommended to keep all relevant documents for 7 years to deal with possible tax audits . Use the e-Filing system of the Malaysian Revenue Department to file online and automatically calculate various deductions and exemptions . High-income earners may consider tax planning by deferring the receipt of year-end bonuses .

For foreigners working in Malaysia, it is recommended to accurately record the number of days they stay in Malaysia and plan their entry and exit times reasonably . Consider applying for “Excellent Talent” status to enjoy special tax benefits . Hire a professional tax advisor to handle complex cross-border tax issues . Make full use of bilateral tax treaties to avoid double taxation.

Sales and Service Tax (SST)

Malaysia has re-implemented the sales and service tax (SST) system since the abolition of the consumption tax (GST) in 2018. After many optimizations and adjustments, it has now formed a relatively mature collection and management system. According to the first quarter report of the Royal Malaysian Customs Department (RMCD) in 2024, SST revenue reached 5.2 billion ringgit, a year-on-year increase of 12.3%, showing good collection and management effects.

Sales tax mainly applies to products manufactured in Malaysia or imported goods, with a three-tier tax rate structure of 5%, 10% and special tax rates. Among them, basic necessities are subject to a preferential tax rate of 5%; general manufactured goods are subject to a standard tax rate of 10%; and special commodities such as alcohol and tobacco are subject to higher tax rates ranging from 15% to 28%. Starting from 2024, in order to promote the development of the environmental protection industry, the sales tax rate for new energy automobile parts will be reduced from 10% to 5%.

In terms of registration threshold, manufacturers with annual sales exceeding 500,000 ringgit must register for sales tax. However, it is worth noting that the new regulations in 2024 allow small manufacturers with annual sales between 300,000 and 500,000 ringgits to voluntarily register, which allows them to enjoy input tax deductions and other benefits. According to RMCD data, more than 32,000 companies have completed sales tax registration.

In terms of exemption policy, the scope of tax exemption for raw materials and machinery and equipment will be expanded in 2024. Manufacturers can apply for raw material exemptions and machinery equipment exemptions, but it should be noted that the application materials must be complete and the production process must meet substantive processing standards. For example, simple assembly or packaging is not considered a manufacturing process and does not qualify for the exemption.

The tax rebate mechanism is mainly targeted at export products and specific industries. Exporters can apply for a refund of sales tax paid, but the application must be submitted within 3 months after the goods are exported. In 2024, a “special tax rebate for green product exports” policy will be added. Products that meet environmental protection standards can enjoy a fast tax rebate channel, and the approval time is shortened from the original 30 days to 15 days.

In the field of service tax, Malaysia has established a comprehensive and up-to-date collection and administration system. Service tax covers many areas such as hotel accommodation, catering, professional services, insurance, telecommunications, etc. The standard tax rate is 6%. A fixed amount is applicable to specific services such as credit card annual fees. An important change in 2024 is to officially include emerging industries such as digital platform services and online education into the scope of taxation, which reflects the government’s emphasis on the collection and management of the digital economy. The new policy unifies modern service formats such as digital platform operations, cloud computing, online live broadcasts, and digital content subscriptions into the regulatory framework.

The registration threshold for service tax adopts industry-differentiated standards. The catering industry needs to register if its annual turnover exceeds 1.5 million ringgit, while the threshold for professional services and digital services is 500,000 ringgit. This differentiated provision reflects consideration of the characteristics of different industries. Especially in terms of cross-border services, the new version of the “Guidelines for Taxation of Cross-Border Digital Services” to be implemented in 2024 clearly requires overseas service providers to register for service tax, and at the same time adopts a reverse collection mechanism in B2B transactions, which is received by services in Malaysia. Party shall bear tax liability.

The taxation and administration of the financial services industry will undergo important adjustments in 2024. While maintaining the tax neutrality of Islamic financial products, the new regulations optimize the tax calculation basis of asset management services and adjust them from a single management fee to comprehensive service income. Insurance intermediary services have also achieved uniform tax rates, with a standard tax rate of 6% applicable to all commission income. These adjustments have effectively improved the fairness and predictability of taxation in the financial services industry.

At the practical level, taxpayers need to strictly abide by the bimonthly declaration system and complete declaration and payment in a timely manner through the MySST portal. The management of tax invoices is also crucial. Invoices that comply with the prescribed format must be issued within 21 days after the transaction, and all transaction vouchers must be kept for 7 years. For export tax rebates, enterprises should establish a special tax rebate ledger to ensure that the application materials are complete and accurate.

For newly established enterprises, it is recommended to understand the tax rates and special regulations applicable to the industry in advance, establish a standardized accounting system, strengthen business training for relevant personnel, and maintain good communication with the tax department. In terms of compliance management, enterprises should regularly check whether they have reached the registration threshold, handle registration or cancellation in a timely manner, establish and improve an internal tax control system, and hire professional tax consultants to assist in handling complex tax-related matters when necessary.

Other important taxes

In Malaysia’s tax system, in addition to the main corporate income tax, personal income tax and sales and service tax, real estate profits tax, stamp duty and specific commodity consumption tax are also important taxes that cannot be ignored. These taxes will have significant policy adjustments in 2024.

Real Property Gains Tax (RPGT) is an important tool for regulating the real estate market in Malaysia. The tax reform in 2024 further refines the tax collection rules and adopts a more detailed classification of holding periods. According to the latest regulations, citizens who sell their first home and hold it for more than 5 years can be completely exempt from real estate gains tax; while for non-first home homes, if the holding period is less than 3 years, they need to pay a tax rate of 30%, 3- 20% for 5 years, and reduced to 15% for more than 5 years. The tax rate for non-citizens and companies is significantly higher, with a 35% tax rate for sales within 3 years. It is worth noting that a special provision for affordable housing has been added in 2024. Those who purchase government-certified affordable housing projects can enjoy an additional 5% tax discount when reselling.

When calculating real estate gains, in addition to the deductible acquisition costs and necessary improvement expenses, a number of new deductible items will be added in 2024, including real estate valuation fees, legal fees and other professional service expenses. According to statistics from the Real Estate Bureau, real estate profit tax revenue will reach 3.8 billion ringgit in 2023, a year-on-year increase of 15%, reflecting the continued increase in activity in the real estate market.

In terms of stamp duty, the policy adjustments in 2024 mainly target real estate transactions and commercial documents. Stamp tax on real estate transfers adopts a stepped tax rate, with the first 1 million ringgits being levied at 1%, the portion between 1 million and 2 million ringgits at 2%, and the portion exceeding 2 million ringgits at 3%. In order to support first-time home buyers, the government has launched the “First-time Home Buyers Stamp Duty Relief Scheme”, which provides complete exemption from stamp duty when purchasing a house below 500,000 ringgit. Commercial documents such as lease agreements, loan agreements, etc. are subject to fixed tax or ad valorem tax depending on the type of document.

Of particular concern is that in 2024, e-commerce agreements will be included in the scope of stamp tax collection for the first time, but at a preferential tax rate, which is only 50% of traditional paper agreements. In addition, for small and medium-sized enterprises, enterprises with annual turnover not exceeding 5 million ringgit can enjoy a 25% reduction in stamp duty on commercial financing documents. According to data from the Ministry of Finance, this new policy is expected to benefit more than 100,000 small and medium-sized enterprises.

Consumption tax mainly targets specific commodities, such as tobacco, alcohol, and automobile fuel. The important change in 2024 is the introduction of the “carbon footprint differential tax rate” system, which determines the specific tax rate based on the carbon emission level of the product. The excise tax rate on conventional petrol remains at 0.58 ringgit per liter, while that on biofuels is reduced to 0.3 ringgit. The tax rate on tobacco products will be increased by 10% to comply with the national tobacco control plan. Alcoholic products are subject to a compound tax calculation method of ad valorem and specific quantities, with the tax rate for imported spirits reaching a maximum of 200%.

In terms of the scope of taxation, some high-sugar beverages will be included in the special consumer goods category in 2024. Beverages with sugar content exceeding the prescribed standard will be subject to an additional consumption tax of 0.4 ringgit per liter. Since the implementation of this policy, about 30% of beverage manufacturers have adjusted their recipes to reduce sugar content. At the same time, in order to support the development of local industries, tax incentives of up to 30% are provided for specific commodities produced using local raw materials.

At the practical level, taxpayers need to pay special attention to the following points:

Regarding real estate transactions, it is recommended to conduct a detailed assessment of the tax burden before the transaction, and consider reducing the tax burden through appropriate holding period planning. At the same time, all proof of expenditures for improvements should be kept intact to maximize tax deductions. Starting from 2024, taxpayers can simulate and calculate the tax payable in advance through the RPGT online system to improve tax certainty.

In terms of stamp tax declaration, electronic operations have been fully implemented, and online valuation, payment and stamping can be realized through the STAMPS system. For transactions that meet the conditions for exemption and reduction, it is recommended to prepare relevant supporting documents in advance and submit an application within the specified period. A special reminder is that late payment of stamp duty will result in the highest penalty, so the time limit requirements should be strictly adhered to.

In the field of consumption tax, importers need to pay special attention to the HS code classification of goods. Different codes may be applicable to different tax rates. Local manufacturers should keep abreast of the new tax preferential policies and, if necessary, consider adjusting product formulas to enjoy preferential tax rates. It is recommended that enterprises regularly review consumption tax compliance to ensure correct fulfillment of tax obligations.

Cross-border tax processing

With the deepening development of international trade and investment, Malaysia’s cross-border tax system continues to improve. In 2024, the Malaysian Inland Revenue Board (IRB) released a new version of the “Cross-border Tax Management Guidelines” to further standardize the withholding income tax collection and transfer pricing regulatory requirements. According to IRB statistics, cross-border tax revenue will reach 12.5 billion ringgit in 2023, a year-on-year increase of 18%, showing the continued activity of cross-border economic activities.

In the area of ​​withholding income tax, Malaysia adopts differentiated tax rates on various types of income paid to non-residents. The withholding tax rate for royalties is 10%, interest income is 15%, technical service fees are 10%, and management service fees are subject to a 10% tax rate. An important change in 2024 is to include digital service payments within the scope of withholding tax, and a uniform withholding tax rate of 8% will be applied to payments to overseas digital service providers. This policy is expected to significantly improve tax fairness in the digital economy.

In actual practice, the payer needs to fulfill its withholding obligations before payment. Starting from 2024, withholding tax declaration will be fully electronic, and declaration and payment will be completed within 15 days after payment through the e-Filing system. It is worth noting that late payment will not only incur penalties of up to 10%, but may also affect the company’s tax compliance rating. To facilitate taxpayers, IRB has launched a withholding tax calculator applet to support the quick and accurate determination of tax payable.

Malaysia has signed tax treaties with more than 70 countries, and companies can enjoy preferential tax rates through applicable treaties. For example, according to the China-Malaysia tax treaty, the withholding tax rate on royalties can be reduced to 7%, which is 3 percentage points lower than the general tax rate. However, in 2024, the IRB will strengthen the substantive review of enjoying agreement benefits and require companies to provide more detailed documentation proving beneficial owners. It is recommended that enterprises fully evaluate whether they meet the substantive requirements before applying a tax treaty, and apply to the IRB for an advance ruling if necessary.

Transfer pricing management is another focus area for cross-border taxation. In 2024, Malaysia adopted the latest OECD transfer pricing guidelines and formulated more stringent regulatory requirements based on local actual conditions. The identification standards for related-party transactions have been further clarified, and those directly or indirectly holding more than 25% of the shares are considered related parties, which is significantly lower than the previous 50% threshold. At the same time, the scope of identification of related-party transactions is expanded to complex commercial arrangements such as intangible asset development and financing arrangements.

Contemporaneous data requirements have also been strengthened. Enterprises with annual related-party transaction amounts exceeding 15 million ringgit must prepare master files and local documents, and multinational enterprise groups with more than 300 million ringgit must also prepare country-by-country reports. New requirements in 2024 include value chain analysis, description of income distribution from intangible assets, etc. In order to reduce the burden on enterprises, the IRB allows small and medium-sized enterprises that meet the simplified standards to use the simplified version of the contemporaneous data template.

The advance pricing arrangement (APA) system has been further improved. The review period for unilateral APAs is shortened to 12 months, while bilateral and multilateral APAs require 24 months. In 2024, a “fast track” mechanism will be introduced for the first time, providing a 6-month fast review service for simple and low-risk transactions. According to statistics, IRB accepted a total of 85 APA applications in 2023, an increase of 40% from the previous year, reflecting the strong demand of enterprises for deterministic tax arrangements.

Regarding corporate compliance practices, the following measures are recommended:

First, establish a sound withholding tax management system. Designate a dedicated person to track the nature and time of various payments to ensure timely fulfillment of withholding and payment obligations. Establish a file of beneficial owners, regularly update tax residency certificates, and be prepared to enjoy treaty benefits. Use electronic tools to improve declaration efficiency and avoid overdue risks.

Secondly, strengthen transfer pricing risk management and control. Regularly evaluate the rationality of related party transaction pricing policies to ensure compliance with the principle of independent transactions. Prepare contemporaneous data in advance, paying special attention to recording the impact of the epidemic on comparability analysis. Consider locking in pricing methods for important transactions through APA to increase tax certainty.

Finally, pay attention to tax compliance team building. Continue to pay attention to policy changes and participate in training activities organized by IRB. Engage professional advisors to provide support when necessary, especially when dealing with complex cross-border transactions. Maintain good communication with tax authorities and seek more compliance guidance.

For newly established multinational enterprises, it is recommended to fully assess tax costs and design a reasonable transaction structure and pricing policy before entering the Malaysian market. You may consider applying for an advance ruling from the tax authorities to clarify the tax treatment of important matters. At the same time, attention should be paid to localized operations to avoid being identified as an artificial tax avoidance arrangement.

Tax Compliance and Risk Management

Tax compliance management has become an important part of business operations. According to data released by the Malaysian Inland Revenue Board (IRB) in 2024, tax compliance ratings directly affect corporate financing, bidding and other business activities. In 2023, the IRB conducted more than 15,000 tax audits and recovered 8.5 billion ringgit in taxes, demonstrating strict tax enforcement.

Tax filing is the foundation of tax compliance. In terms of corporate income tax, large companies with an annual turnover of more than 5 million ringgit must submit returns within 7 months after the end of the fiscal year, and other companies within 8 months after the end of the fiscal year. Sales and service tax adopts a bi-monthly filing system and must be completed before the last day after the end of the tax period. The personal income tax filing deadline is April 30 (employment income) or June 30 (business income) of the following year. Starting from 2024, the fine for late declaration will be increased to 200 ringgit per day, with a maximum of 50,000 ringgit.

Electronic filing has become the main filing method. IRB’s e-Filing system supports online filing of all major taxes, and the MySST system is dedicated to sales and service tax filings. After the system upgrade in 2024, a new real-time risk warning function will be added, which can automatically identify abnormal items in the declaration data. For example, when expense deductions exceed the industry average, the system will immediately remind you to review. According to statistics, about 85% of declaration errors can be corrected in time through system warnings.

Enterprises should focus on the following common reporting errors: inaccurate timing of revenue recognition, improper grasp of expense deduction standards, incorrect calculation of withholding income tax, unreasonable pricing of intra-group transactions, etc. It is recommended that before submitting a declaration, you should review it against the “Tax Return Self-Checklist” issued by the IRB and consult a tax expert if necessary.

In terms of tax audit, the IRB uses big data analysis to determine audit targets. The main triggering factors include: industry profit margins are significantly low, the proportion of related-party transactions is too high, frequent cash transactions, improper enjoyment of tax benefits, etc. In 2024, we will focus on areas such as digital economy taxation, cross-border transaction pricing, and compliance with tax preferential enjoyment. According to the IRB, about 60% of audit cases stem from anomalies discovered by data analysis.

In order to deal with possible tax audits, companies need to be fully prepared. First, establish a complete accounting system to ensure that transaction records are true and complete. Secondly, supporting documents, including contracts, invoices, payment vouchers, etc., should be properly kept and the retention period should be no less than 7 years. Third, conduct regular tax self-examinations to discover and correct problems in a timely manner. New regulations in 2024 require that companies with an annual turnover of more than 25 million ringgit must conduct a third-party tax health inspection every year.

Typical cases show that tax risks are often concentrated in the following areas: first, revenue recognition, such as determining the tax time for advance receipts; second, expense deductions, such as business entertainment expenses, management fees, etc., proving the rationality; third, related transactions, such as The payment standards for service fees within the group; the fourth is tax incentives, such as the standards for determining the super deduction of R&D expenses.

Risk prevention requires the establishment of a sound internal control system. First, clarify job responsibilities and establish an approval process for tax-related matters. Secondly, professional talents are deployed to ensure that the team grasps policy changes in a timely manner. Third, implement an early warning mechanism to conduct prior assessment of major tax-related matters. In 2024, the IRB launched a “Tax Compliance Rating System” based on which companies can design differentiated control measures.

Document management is a key link in risk prevention. It is recommended to adopt an electronic filing system and file by year and tax category. Special files should be established for important documents such as tax preferential qualification certificates, overseas tax credit certificates, etc. From 2024, electronic invoices will become a legal requirement, and companies must ensure that electronic files meet technical standards such as tamper-proofing and traceability.

Professional support is essential for risk management. It is recommended to establish a long-term cooperative relationship with a senior tax consultant and obtain policy interpretations and practical advice on a regular basis. For complex business, you may consider applying for an advance ruling from the IRB. In 2024, IRB established a dedicated large enterprise service department to provide exclusive services to key enterprises.

Different risk management strategies can be adopted for enterprises of different sizes:

Large enterprises should focus on establishing a comprehensive tax risk management system, including establishing a dedicated tax department, conducting regular risk assessments, and proactively communicating with tax authorities. At the same time, you can consider introducing tax management software to improve compliance efficiency.

Medium-sized enterprises can adopt a “key management and control + external support” model to implement key management of high-risk areas, and at the same time make up for their lack of professional capabilities by hiring tax consultants. It is recommended to conduct a tax self-examination at least once every quarter.

Small businesses should ensure that basic tasks are in place, such as filing tax returns on time and keeping complete documents. You can consider purchasing basic tax software to reduce compliance costs. If necessary, seek free tax advice from the government.

In practice, enterprises should pay special attention to the following matters: regularly update the tax risk list and pay attention to the risk points brought by new businesses and new policies; establish a tax policy library to ensure strict implementation at the operational level; organize employee training to improve tax compliance awareness; maintain Communicate well with tax authorities and strive for more guidance and support.

Tax Policy Outlook for 2024-2025

Malaysian tax policy is in an important period of transformation. According to the “Tax Reform Roadmap” released by the Ministry of Finance in 2024, the next two years will focus on promoting reforms in the three major areas of digital economy taxation, green tax system construction and international tax coordination. The World Bank predicts that these reform measures will increase Malaysia’s tax revenue to GDP from 14.1% currently to about 16% in 2025.

Digital economy taxation has become the focus of policy reform. Starting from the second quarter of 2024, Malaysia will implement a more comprehensive digital services tax system. Overseas digital service providers with an annual turnover of more than 500,000 ringgit will be levied a unified digital service tax of 8%. It is expected that this policy will cover approximately 3,000 overseas digital platforms, with annual revenue growth reaching 1.5 billion ringgit. In 2025, it is planned to introduce the concept of “important economic presence” and further improve the taxation mechanism for the value of intangible assets and data.

Environmental tax reform is gradually advancing. A carbon tax system will be piloted in the second half of 2024. The initial tax rate is 35 ringgit per ton of carbon emissions, covering companies with annual emissions exceeding 25,000 tons. At the same time, the scope of investment credits for environmental protection equipment will be expanded, and the tax credit ratio for green investments such as photovoltaic power generation and energy-saving renovation will be increased to 60% of the investment amount. A plastic packaging tax is planned to be introduced in 2025, with an expected tax rate of 2 ringgit per kilogram.

In terms of international tax coordination, Malaysia actively responds to the OECD/G20 Base Erosion and Profit Shifting (BEPS) 2.0 plan. The global minimum tax rate of 15% will be implemented from October 2024, which is expected to affect approximately 200 multinational enterprise groups. In 2025, we will focus on promoting the negotiation of multilateral agreements on taxation of the digital economy and strive to reach a taxation and management coordination mechanism with major trading partners.

In the face of these policy changes, companies need to formulate forward-looking response strategies. The first is tax planning. It is recommended that enterprises focus on the following areas:

The first is tax optimization in digital transformation. Consideration can be given to structuring digital services to reasonably distinguish taxable and non-taxable items. At the same time, we will make full use of preferential policies such as super deductions for R&D expenses to reduce the cost of digital transformation. The new special subsidy for digital transformation in 2024 can offset up to 30% of related expenses.

The second is the opportunities brought by environmental tax policies. It is recommended that enterprises carry out carbon emission accounting as soon as possible and assess the impact of carbon tax. Emissions can be reduced through technological transformation and the use of clean energy. At the same time, we are actively applying for green technology investment incentives, and the new tax exemption policy for green bond interest income in 2024 is also worthy of attention.

The third is the response to changes in the international tax environment. Multinational enterprise groups need to re-evaluate the distribution of global tax burdens and adjust their operating structures if necessary. It is recommended to use the transition period before the end of 2024 to complete the necessary architectural optimization. At the same time, transfer pricing management will be strengthened to ensure that substantive requirements are met.

Improvement of compliance management also requires new ideas. In 2024, IRB will launch an “intelligent tax management platform”, and companies can take this opportunity to upgrade their compliance systems. The following measures are recommended:

First, strengthen digital management capabilities. Use smart tax software to automate processes such as invoice management and tax declarations. The new version of the e-Filing system in 2024 supports real-time risk warning, helping to detect compliance issues in advance.

Secondly, improve environmental information disclosure. Establish a carbon emission monitoring system to accurately calculate emissions in each link. At the same time, special accounting of environment-related expenditures should be carried out to provide support for enjoying tax incentives.

Third, strengthen international tax management. Set up a dedicated international tax team to closely track policy changes. Participate in cross-border tax training organized by IRB to enhance the team’s professional capabilities.

Seizing policy opportunities requires systematic thinking. There will be multiple important policy windows in 2024-2025:

In terms of the digital economy, a digital service provider certification program will be launched in the third quarter of 2024, and those who are certified can enjoy simple collection treatment. It is recommended that qualified enterprises prepare application materials as early as possible.

In the field of environmental protection, projects that complete energy-saving renovations before the end of 2024 can enjoy double deductions. A green technology development fund will be established in early 2025 to provide low-interest loan support.

In terms of international taxation, the cross-border tax service center established in 2024 will provide one-stop consultation for enterprises. Policy guidance and advance ruling services can be obtained through this platform.

Specific to different types of enterprises, it is recommended to adopt differentiated strategies:

Large enterprises should take a long-term view and deeply integrate tax planning with business strategies. Consider setting up a dedicated tax policy research team to lay out key areas in advance. At the same time, we actively participate in policy consultation to strive for a favorable environment for corporate development.

Mid-sized companies need to find a balance between risks and opportunities. It is recommended to give priority to policy changes directly related to the main business and moderately participate in emerging fields. Policy information can be obtained through industry associations to reduce information acquisition costs.

Small businesses should base themselves on basic compliance and ensure that they meet the basic requirements of the new policy. You can make full use of the inclusive policy support provided by the government, such as subsidies for digital transformation of small and micro enterprises.

The next two years are a critical period for the modernization of Malaysia’s tax system. Enterprises need to establish a dynamic monitoring mechanism to promptly grasp the opportunities and challenges brought about by policy changes. It is recommended to regularly evaluate the impact of tax policies on operations, adjust development strategies in a timely manner, and achieve sustainable development under the new tax environment.

Frequently Asked Questions

Enterprises will encounter various tax issues at different stages of development. This chapter summarizes the key and difficult issues in the latest practice. According to data released by the IRB in 2024, more than 40% of tax consultations focus on the three links of business establishment, daily operations and handling of special situations. These high-frequency questions are now systematically answered.

Tax treatment during the business establishment stage is the most concerning issue for entrepreneurs. First, the company must apply for a tax registration number (TIN) from the IRB within 30 days after registration. The 2024 New Deal stipulates that it can be processed online through the MyTax portal, and it usually takes 2-3 working days to complete. The amount of registered capital will affect the amount of prepaid income tax in the first year, and it is recommended to determine it reasonably based on the actual business plan.

Special reminder: If the annual turnover is expected to exceed 500,000 ringgit, you need to apply for sales and service tax (SST) registration at the same time. Starting from 2024, SST registration will adopt the “immediate approval” model, but the tax bureau will retain a 30-day review period. If false registration is found, a fine of up to 100,000 ringgit can be imposed.

The preferential tax policies in the early stages of starting a business deserve attention. The new “Start-up Support Scheme” in 2024 provides a taxable income reduction of up to 200,000 ringgit in the first year. Technology start-ups can also apply for a five-year “pioneer qualification” and enjoy a 70% income tax reduction. However, it should be noted that these preferential policies require the company to actually operate and cannot be just a “shell company”.

In the course of business operations, companies most often encounter various tax liability issues. The first is prepayment of income tax. A new graded prepayment system will be adopted from 2024: companies with an annual turnover of less than 10 million ringgit can choose to prepay bimonthly, while other companies will maintain monthly prepayment. The prepayment base can be adjusted downward based on actual operating conditions, but if the adjustment exceeds 30%, detailed explanations must be provided.

Employer obligations are another important aspect. Starting from 2024, employees with a monthly salary of more than 5,000 ringgit must have personal income tax withheld by their employer. The new version of the PCB calculator has integrated the latest tax rate table. It is recommended to use this tool every month to verify the withholding amount before salary payment. Employers are also required to declare Employee Provident Fund (EPF) and Social Security (SOCSO) on a monthly basis, and a 2% late payment fee will be charged for late payment.

Invoice management also requires special attention. The electronic invoice system will be mandatory in 2024, and companies with an annual turnover of more than 5 million ringgit must use an IRB-certified electronic invoice system. The system needs to be tamper-proof and traceable, and it is recommended to choose products from suppliers certified by IRB. Non-compliant invoices may result in the denial of input tax credits.

Special situations are often the trickiest to deal with. Corporate reorganization is a typical case. The new regulations in 2024 clarify the criteria for identifying tax-neutral reorganization: the transfer of equity or assets must have commercial substance, and the transfer price should be fair. It is recommended to obtain an advance ruling from the tax bureau before restructuring to avoid subsequent disputes.

The tax treatment of loss-making enterprises also needs attention. Starting from 2024, the loss carryover period will be extended to 10 years, but the maximum amount that can be deducted each year shall not exceed 70% of the taxable income for that year. Special reminder: If losses occur for three consecutive years, the tax bureau may initiate a special review. It is recommended to prepare relevant explanatory materials in a timely manner.

The tax treatment of cross-border business is particularly complex. In 2024, a new “substantial place of business” test will be added. If an overseas related party is actually managed and controlled in Malaysia, it may be recognized as a Malaysian tax resident. It is recommended that multinational enterprise groups sort out their management structures to avoid unexpected tax risks.

Common special situations also include:

Tax audit response: Tax audits in 2024 will focus on cash-intensive industries and online businesses. Once an audit notice is received, a special working group should be established immediately to prepare complete accounting information for the past three years. You can apply for an extension, but it must not exceed 30 days.

Tax dispute handling: A tax dispute rapid resolution center will be established in 2024, and simplified procedures will apply to cases where the amount in dispute is less than 1 million ringgit. It is recommended to file an objection within 21 days after receiving the tax assessment notice and prepare sufficient supporting documents.

Company deregistration and liquidation: special attention needs to be paid to tax settlement before liquidation. The new regulations in 2024 require that before liquidation, a tax audit for at least the past three years must be completed and a tax payment certificate must be obtained. It is recommended to set aside 3-6 months to deal with related matters.

For enterprises of different sizes, different response strategies are recommended:

Large enterprises should establish a professional tax management team and conduct regular policy update training. You can consider purchasing tax risk insurance to reduce the impact of uncertainty. At the same time, establish good communication channels with the tax bureau to solve problems in a timely manner.

Medium-sized enterprises are recommended to have full-time tax personnel and hire external consultants to provide support. You can improve internal team capabilities by participating in training organized by IRB. For complex issues, it is recommended to seek professional advice in a timely manner.

Small businesses can consider outsourcing their tax work, but choose a reputable service provider. It is recommended to retain standardized accounting documents and regularly check tax compliance. Take advantage of the free consultation services provided by the IRB.

Finally, we remind you that tax treatment should follow the principle of “substance over form”. Any tax arrangement should have reasonable business purposes. Arrangements that are purely for tax saving purposes may face the risk of being denied. It is recommended that enterprises fully assess the tax implications before making important decisions and seek professional advice when necessary.