Types of Taxes in Malaysia for Companies
Malaysia is one of the countries who implements territorial tax system - basically any income accrued in or derived within Malaysia is liable to tax. Here’s an overview of the type of tax liable by companies registered in Malaysia.
Types of Tax Liable by Companies Registered in Malaysia
A corporate tax is imposed by Inland Revenue Board Malaysia (LHDN) and is governed by the Income Tax Act 1967. This applies to all Malaysian registered Companies regardless the type of Company they are running. All incomes derived from Malaysia are deem taxable under the law.
This type of tax is only for Companies who have the obligation to pay non-resident (Company or Individual) for the services engaged where a certain percentage of payment is deducted and paid as their income tax to LHDN. Each payment type will have different tax rates.
Sales & Service Tax (SST)
This type of tax is basically a single-stage tax charged on taxable goods manufactured in or imported into Malaysia by a taxable person and is due when the goods are sold, disposed of, or first used with a total sale value of more than MYR 500,000 within 12 months.
Real Property Gains Tax (RPGT)
This is only applicable if the Company disposes of chargeable assets such as house, commercial buildings, farms, vacant land as well as shares in real property companies, gaining profit from the disposal. Tax rate differs according to holding period of chargeable assets.
Sole Proprietor and Partnership Tax
Normally, sole proprietor and partnership are commonly charged on a gradual scale applied to Malaysia income tax from 2% to 26%.
Investment Holding Company (IHC) Tax
Investment holding companies are able to enjoy tax rebate amounting MYR 20,000 for the next 3 years and tax rate applied is only 17% if they meet the terms and conditions.
The investment holding Company is not entitled to enjoy the 17% rate if:
No business source in investment holding Company (not listed in Bursa Malaysia)
Ceased business operation but receiving income from rental or interest gain
Income Tax Deductible Expenses
Corporate income tax deduction is allowed for expenses wholly and exclusively incurred in the production of income.
Salary and wages
Advertisement and promotion expenses
Employee travelling expenses
Repair and maintenance
Lease rental on plants and machinery
The non-deductible expenses are:
Fines and penalties
Registration of trademarks
Domestic, private or capital expenditure
Employee’s contribution to unapproved pensions, provident or saving schemes
Interest, royalty, contract payment, technical fees, rental of movable property, payment to a non-resident public entertainer or other payments made to non-residents which are subject to withholding tax, but the tax was not paid
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