Kuala Lumpur GMT +8
EY
+60 (3) 7495-8000
Mail address: Fax: +60 (3) 2095-7043 (Tax) P.O. Box 11040 Email: ey.my@my.ey.com 50734 Kuala Lumpur
Malaysia
Street address: Level 23A, Menara Milenium
Jalan Damanlela
Pusat Bandar Damansara 50490 Kuala Lumpur Malaysia
Principal Tax Contacts
Yeo Eng Ping
+60 (3) 7495-8288
Mobile: +60 (12) 271-5215 Email: eng-ping.yeo@my.ey.com
Amarjeet Singh +60 (3) 7495-8383
Mobile: +60 (12) 214-7315 Email: amarjeet.singh@my.ey.com
Farah Rosley +60 (3) 7495-8254 Mobile: +60 (12) 311-3997 Email: farah.rosley@my.ey.com
International Tax and Transaction Services – International Corporate Tax Advisory
Amarjeet Singh +60 (3) 7495-8383 Mobile: +60 (12) 214-7315 Email: amarjeet.singh@my.ey.com
Anil Kumar Puri +60 (3) 7495-8413 Mobile: +60 (19) 237-2652 Email: anil-kumar.puri@my.ey.com
Chua Meng Hui +60 (3) 7495-8261 Mobile: +60 (12) 240-7715 Email: meng-hui.chua@my.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Yeo Eng Ping +60 (3) 7495-8288 Mobile: +60 (12) 271-5215 Email: eng-ping.yeo@my.ey.com
Sharon Yong +60 (3) 7495-8478
Mobile: +60 (12) 397-0177 Email: sharon.yong@my.ey.com
International Tax and Transaction Services – Operating Model Effectiveness
Anil Kumar Puri
+60 (3) 7495-8413
Mobile: +60 (19) 237-2652 Email: anil-kumar.puri@my.ey.com
Sockalingam Murugesan +60 (3) 7495-8224
Mobile: +60 (12) 316-0887 Email: sockalingam.murugesan@my.ey.com
Vinay Pahlaj Nichani +60 (3) 7495-8433 Mobile: +60 (19) 266-4988 Email: vinay.nichani@my.ey.com
International Tax and Transaction Services – Transfer Pricing
Sockalingam Murugesan
+60 (3) 7495-8224
Mobile: +60 (12) 316-0887 Email: sockalingam.murugesan@my.ey.com
Vinay Pahlaj Nichani +60 (3) 7495-8433
Mobile: +60 (19) 266-4988 Email: vinay.nichani@my.ey.com
Hisham Halim +60 (3) 7495-8536
Mobile: +60 (12) 518-1055 Email: hisham.halim@my.ey.com
Gary Ling +60 (3) 7495-8388
Mobile: +60 (12) 273-5330 Email: gary.ling@my.ey.com
Business Tax Services
Robert Yoon
+60 (3) 7495-8332
Mobile: +60 (19) 337-0991 Email: robert.yoon@my.ey.com
Wong Chow Yang +60 (3) 7495-8349
Mobile: +60 (12) 398-1565 Email: chow-yang.wong@my.ey.com
Bernard Yap
Financial Services
Koh Leh Kien
+60 (3) 7495-8291
Mobile: +60 (12) 236-9973 Email: bernard.yap@my.ey.com
+60 (3) 7495-8221
Mobile: +60 (16) 283-9883 Email: leh-kien.koh@my.ey.com
Gary Ling +60 (3) 7495-8388
Mobile: +60 (12) 273-5330 Email: gary.ling@my.ey.com
Global Compliance and Reporting
Farah Rosley
+60 (3) 7495-8254
Mobile: +60 (12) 311-3997 Email: farah.rosley@my.ey.com
Asaithamby Perumal +60 (3) 7495-8248
Mobile: +60 (12) 202-3592 Email: asaithamby.perumal@my.ey.com
Janice Wong, +60 (3) 7495-8223
Japanese Business Services Mobile: +60 (12) 208-2811 Email: janice.wong@my.ey.com
Julie Thong +60 (3) 7495-8415
Mobile: +60 (17) 886-6766 Email: julie.thong@my.ey.com
Julian Wong +60 (3) 7495-8347
Mobile: +60 (19) 268-8662 Email: julian.wong@my.ey.com
Liew Ai Leng +60 (3) 7495-8308 Mobile: +60 (16) 248-6663 Email: ai-leng.liew@my.ey.com
People Advisory Services
Tan Lay Keng,
+60 (3) 7495-8283 China Outbound
Mobile: +60 (12) 652-4322 Investment Network Email: lay-keng.tan@my.ey.com
Indirect Tax
Yeoh Cheng Guan
+60 (3) 7495-8408
Mobile: +60 (14) 938-8603 Email: cheng-guan.yeoh@my.ey.com
Johor Bahru GMT +8
EY
+60 (7) 288-3111 B-15, Medini 9 Fax: +60 (7) 288-3112 Persiaran Medini Sentral 1 Bandar Medini Iskandar Johor Darul Ta’zim 79250 Johor Malaysia
Business Tax Advisory
Robert Yoon
+60 (3) 7495-8332
Mobile: +60 (19) 337-0991 Email: robert.yoon@my.ey.com
Kota Kinabalu/Labuan GMT +8
EY
+60 (88) 532-000 Suite 1-10-W1
Fax: +60 (88) 238-905 10th Floor, CPS Tower Centre Point Sabah No. 1, Jalan Centre Point 88000 Kota Kinabalu, Sabah Malaysia
Business Tax Advisory
Chua Meng Hui
+60 (3) 7495-8261 Mobile: +60 (12) 240-7715 Email: meng-hui.chua@my.ey.com
Kuching GMT +8
EY +60 (82) 752-668 Mail address: Fax: +60 (4) 688-1808, +60 (4) 262-1812 P.O. Box 64 Email: ey.my@my.ey.com 93700 Kuching Malaysia
Street address: 3rd Floor Wisma Bukit Mata Kuching Jalan Tunku Abdul Rahman 93100 Kuching, Sarawak Malaysia
Business Tax Advisory
Linda Kuang
+60 (82) 752-660
Mobile: +60 (12) 895-4993 Email: linda.kuang@my.ey.com
Penang GMT +8
EY +60 (4) 688-1888 Mail address: Fax: +60 (4) 262-1812 P.O. Box 148 Email: ey.my@my.ey.com 10710 Penang Malaysia
Street address: Block J, Level 13A Wisma AIA, Jalan Seri Tanjung Pinang Tanjung Tokong 10470 Penang Malaysia
Business Tax Advisory
A. At a glance
Corporate Income Tax Rate (%) 24 (a)
Real Property Gains Tax Rate (%) 30 (b)
Branch Tax Rate (%) 24 (a)
Withholding Tax (%)
Dividends 0
Interest 15 (c)(d)
Royalties from Patents, Know-how, etc. 10 (c)
Distributions by Real Estate Investment
Trusts and Property Trust Funds 10/24 (e)
Payments to Nonresident Contractors 13 (f)
Payments for Services and Use of Movable Property 10 (g)
Other Income 10 (h)
Branch Remittance Tax 0
Net Operating Losses (Years)
Carryback 0 Carryforward 10 (i)
(a) The main rate of corporate tax is 24%. From the 2020 year of assessment, the rates for resident companies incorporated in Malaysia that have paid-up capi tal with respect to ordinary shares of MYR2,500,000 or less at the beginning of the tax-basis period, that have gross income from a source or sources con sisting of a business of not more than RM50 million for the relevant year of assessment and that satisfy other specified conditions (small and medium enterprises [SMEs]) are 17% on the first MYR600,000 of chargeable income and 24% on the remaining chargeable income. For the 2022 year of assess ment only, a one-off higher corporate income tax rate of 33% is imposed on chargeable income above RM100 million. Chargeable income of up to RM100 million continues to be taxed at the prevailing corporate tax rate of 24%. The above rates do not apply to companies carrying on upstream oil and gas activities under a production-sharing contract, which are taxed at a rate of 38%. For further details, see Section B.
(b) Real property gains tax is imposed on gains derived from disposals of real property or shares in real property companies. The maximum rate is 30% (see Section B).
(c) This is a final tax applicable only to payments to nonresidents.
(d) Bank interest paid to nonresidents without a place of business in Malaysia is exempt from tax. Interest paid to nonresident companies on government se curities and on sukuk or debentures issued in Malaysian ringgits, other than convertible loan stock, approved or authorized by, or lodged with the Securities Commission (SC), is exempt from tax. Interest paid to nonresident companies with respect to sukuk originating from Malaysia issued in any currency other than Malaysian ringgit, other than convertible loan stock, ap proved or authorized by, or lodged with the SC or approved by the Labuan Financial Services Authority, (LFSA) is also exempt from tax. The exemp tions do not apply to interest paid or credited to a company in the same group. Effective from 1 January 2022, the exemptions no longer apply if the interest is paid or credited by a special purpose vehicle (SPV) to a company, if the interest is paid pursuant to asset-backed securities (ABS) lodged with the SC and/or approved by the LFSA and if the company receiving the interest and the originator (that is, the person who established the SPV solely for the is suance of the ABS) are in the same group. Other tax exemptions may apply to interest and other conditions may apply to the exemptions.
(e) The 24% withholding tax is imposed on distributions to nonresident corpo rate unit holders by Real Estate Investment Trusts (REITs) and Property Trust Funds (PTFs) if the REITs or PTFs have been exempted from Malaysian in come tax as a result of meeting certain distribution conditions. Distributions by such REITs and PTFs to individuals, trust bodies and other non-corporate unit holders are subject to withholding tax at a rate of 10%.
(f) This withholding tax is treated as a prepayment of tax on account of the final tax liability.
(g) This is a final tax applicable to payments to nonresidents for services ren dered in Malaysia and to payments for the use of movable property excluding payments made by Malaysian shipping companies (as defined) for the use of ships under voyage charter, time charter or bare-boat charter. The rate is re duced under certain tax treaties.
(h) Withholding tax is imposed on “other gains or profits,” which includes, among other payments, commissions and guarantee fees that do not form part of the business income of the nonresident.
(i) See Section C.
B. Taxes on corporate income and gains
Corporate income tax. Resident and nonresident companies have for many years been taxed only on income accruing in or derived from Malaysia. Resident companies engaged in banking, insur ance, shipping or air transport are taxed on their worldwide income. A company is resident in Malaysia if its management and control is exercised in Malaysia; the place of incorporation is irrelevant. Effective from 1 January 2022, the longstanding income tax exemption on foreign-source income received by Malaysian residents (other than resident companies carrying on the business of banking, insurance or sea or air transport) is removed. The Ministry of Finance has however announced that foreign-source dividend income of companies and limited liabil ity partnerships continues to be exempt from tax from 1 January 2022 to 31 December 2026, subject to conditions that will be outlined in guidelines to be issued in due course.
Rates of corporate tax. From the 2020 year of assessment, resi dent companies incorporated in Malaysia that have paid-up capi tal with respect to ordinary shares of MYR2,500,000 or less, and have gross income from a source or sources consisting of a busi ness of not more than RM50 million for the relevant year of assessment (SMEs) are taxed at a rate of 17% on their first MYR600,000 of chargeable income with the balance taxed at 24%.This concessionary tax rate does not apply if the company controls, or is controlled directly or indirectly by, another com pany that has paid-up capital with respect to ordinary shares of more than MYR2,500,000 or is otherwise related directly or in directly to another company that has paid-up capital with respect to ordinary shares of more than MYR2,500,000. For the 2022 year of assessment only, a one-off higher corporate income tax rate of 33% is imposed on chargeable income above RM100 mil lion. Chargeable income of up to RM100 million continues to be taxed at the prevailing corporate tax rate of 24%.
Special rates apply to nonresident companies on income from interest (15%) and from royalties, services rendered in Malaysia and payments for the use of movable property (10%). Rental pay ments for ships made by Malaysian shipping companies (as de fined) for voyage charter, time charter or bare-boat charter are exempt from withholding tax. Withholding tax (10%) is imposed on “other gains or profits” derived by nonresident companies from Malaysia, which may include, among other payments, com missions and guarantee fees, to the extent that these payments are not business income to the recipient. For treaty withholding tax rates applicable to interest and royalties, see Section F.
For resident and nonresident companies carrying on upstream oil and gas operations under a production-sharing contract, petroleum income tax is charged at a rate of 38% instead of income tax at the above rates.
Tax incentives. Malaysia offers a wide range of incentives such as tax holidays or investment allowances, which are granted to promote investments in selected industry sectors and/or promoted areas.
Labuan international business and financial center. In 1990, the Malaysian government enacted legislation that created a business and financial center on the island of Labuan with a separate and distinct tax and regulatory regime.
A Labuan entity is required to have one director that may be a foreign corporation and at least one secretary who must be an officer of a Labuan trust company.
Labuan entities may transact business with Malaysian residents and may hold shares, debt obligations or other securities in domestic companies. However, historically Labuan entities that transacted with Malaysian residents were not allowed to benefit from the preferential Labuan tax regime (with certain excep tions). Effective from 1 January 2019, the restriction on transac tions between Labuan entities with Malaysian residents is abolished.
Labuan entities are subject to tax at a rate of 3% on their net audited profits derived from their Labuan trading activities (as defined) if prescribed substance conditions are met (see below).
Instead of paying tax at the 3% rate, historically Labuan entities could have elected to pay a fixed annual tax of MYR20,000 on their Labuan trading activities. Labuan trading activities include banking, insurance, trading, management, licensing and shipping operations. Income derived from wholly non-trading activities, such as dividends and interest, is not subject to tax if prescribed substance conditions are met. A Labuan entity carrying on both trading and non-trading activities is deemed to be carrying on a trading activity. However, effective from the 2020 year of assess ment (as defined), the option to pay income tax at the fixed annual tax of MYR20,000 is abolished.
Labuan entities may alternatively elect to be taxed under the Income Tax Act, 1967 (ITA). If they make such election, the rules described above in Corporate income tax and Rates of corporate tax apply. Labuan entities are generally exempt from the obliga tion to withhold tax on payments made to nonresidents. These exemptions may be subject to conditions.
Labuan entities may open and maintain bank accounts in foreign currency in Malaysia or abroad. In general, no restrictions are imposed on the movement of funds through these accounts.
Similar to non-Labuan entities, Country-by-Country (CbC) reporting regulations for Labuan entities have been legislated and apply from 1 January 2017 (see Transfer pricing in Section E for further details). Penalty provisions have also been introduced for failure to comply with the CbC reporting. Effective from the
2020 year of assessment, anti-avoidance and transfer-pricing provisions are included in the Labuan tax legislation.
Effective from 1 January 2019, to be taxed at the preferential Labuan rates, Labuan entities must carry on prescribed activities and have a minimum number of employees and a minimum amount of annual business spending in Labuan, with limited exceptions. In addition, income from intellectual property assets held by Labuan entities is now subject to tax under the ITA and can no longer be taxed under the Labuan tax legislation. Labuan entities that do not comply with the prescribed substance require ments are taxed at 24% of net audited profits.
Real property gains tax. Real property gains tax is levied on capital gains derived from disposals of real property located in Malaysia and shares in closely controlled companies with substantial real property interests. The tax applies to gains derived by residents and nonresidents.
Effective from 1 January 2020, the following are the real property gains tax rates for disposals by companies:
Time of disposal Companies Companies incorporated incorporated in Malaysia outside Malaysia Rates (%) Rates (%)
Disposal within three years after the acquisition date 30 30 Disposal in the fourth year after the acquisition date 20 30 Disposal in the fifth year after the acquisition date 15 30 Disposal in the sixth or subsequent year after the acquisition date 10 10
Persons other than companies are also subject to real property gains tax on relevant disposals at prescribed rates.
Purchasers of real property located in Malaysia or shares in real property companies must withhold tax at a rate of up to 3% of the purchase price, except in limited circumstances. Effective from 1 January 2018, the rate of 3% was increased to 7% for persons disposing of real property who are neither citizens nor permanent residents of Malaysia. Effective from 1 January 2020, the 7% rate applies to disposals by foreign-incorporated companies. Effective from 1 January 2021, the 7% rate also applies to disposals by an executor of a deceased person who is not a citizen and is not a permanent resident in Malaysia. Effective from 1 January 2022, a 5% withholding rate applies to disposals by companies incor porated in Malaysia if the disposals are made within three years after the date of acquisition. Losses incurred on disposals of real property may be carried forward indefinitely to offset future real property gains. Losses on the disposal of shares in real property companies are disregarded.
Administration. For tax purposes, companies may adopt their accounting year as the basis period for a year of assessment. Income tax is chargeable in the year of assessment on the income earned in the basis period for that year of assessment.
Malaysia has a self-assessment regime under which companies must file their tax returns within seven months after the end of their accounting period. A tax return is deemed to be an assessment made on the date of filing the return. Effective from the 2014 year of assessment, the tax return must be filed electroni cally and based on audited accounts.
Companies must provide an estimate of their tax payable no later than 30 days before the beginning of their basis period (different rules may apply to a company in the year of assessment in which it commences operations). The estimated tax is payable in 12 equal monthly installments by the 15th day of each month begin ning in the second month of the basis period. SMEs (as defined) that begin their operations during a year of assessment are ex empt from paying their tax by installments in the year of assessment in which they commence business and in the immediately following year of assessment. They are required only to settle the tax due when they file their income tax returns. All companies may revise their estimate of tax payable in the sixth and/or ninth months of their basis period. Special revisions may apply in lim ited circumstances. For example, for the 2021 and 2022 years of assessment, a special 11th-month revision may be available for companies whose 11th month of the basis period falls between November 2021 and November 2022. Effective from the 2018 year of assessment, estimates and revised estimates may only be filed electronically.
Companies must pay any balance of tax due by the tax filing deadline.
Different rules apply under the Labuan tax legislation and to taxpayers undertaking upstream oil operations.
Dividends. Effective from the 2008 year of assessment, a singletier system of taxation replaced the full imputation system. Under the single-tier system, dividends paid, credited or distributed by a company are exempt from tax in the hands of the shareholders. Certain transitional rules applied up until 31 December 2013.
Foreign tax relief. Malaysian law allows both bilateral and unilateral foreign tax relief, subject to conditions.
C. Determination of trading income
General. The assessment is based on the audited financial state ments, subject to certain adjustments. A nonresident company trading in Malaysia prepares the financial statements of its Malaysian branch in accordance with the Malaysian Companies Act. This act sets out disclosure requirements for financial state ments, but does not prescribe the accounting treatment for spe cific transactions. Malaysian Financial Reporting Standards, which are based on the International Financial Reporting Standards (IFRS), govern the accounting treatment for transac tions.
Deductions are allowed for expenses incurred wholly and exclusively in the production of income and for bad debts. No deduction is allowed for the book depreciation of fixed assets, but statutory depreciation (capital allowances) is granted. In general, the cost of leave passages is not deductible. Limits on the
deductibility of entertainment expenses may be imposed. However, a full deduction for entertainment expenses may be claimed in specified circumstances. Double deductions are available with respect to certain expenses relating to the following:
• Participation at approved trade fairs, exhibitions or trade mis sions
• Maintenance of overseas trade offices
• Research and development
Effective from 1 January 2019, Malaysian residents making pay ments to Labuan entities are not able to claim a full tax deduction on such payments; 25% of lease and interest payments to Labuan entities are disallowed as tax deductions, while 97% of all other payments to Labuan entities are disallowed.
Inventory. Trading inventory is valued at the lower of cost or net realizable value. Cost must be determined under the first-in, first-out (FIFO) method; the last-in, first-out (LIFO) method is not accepted.
Provisions. General provisions and reserves for anticipated losses or contingent liabilities are not deductible.
Capital allowances
Plant and machinery. Depreciation allowances are given on capi tal expenditure incurred on the acquisition of plant and machinery used for the purposes of trade or business. An initial allowance of 20% and an annual allowance ranging from 10% to 20% are granted for qualifying expenditure. An accelerated capital allow ance (20% initial allowance and 40% annual allowance) is given for the purchase of machinery and equipment during the period of 1 March 2020 to 31 December 2021.
Industrial buildings. An initial allowance of 10% and an annual allowance of 3% are granted for qualifying expenditure on the construction or purchase of industrial buildings. As a result of these allowances, qualifying expenditure on industrial buildings is fully written off in the 30th year after the year of construction or purchase. Certain buildings may qualify for higher rates of industrial building allowances. For purposes of the allowances, industrial buildings include hotels.
Effective from the 2016 year of assessment, for certain types of buildings, industrial building allowances are available only to taxpayers that own the building and operate the relevant business in the building (that is, lessors may not be eligible to claim indus trial building allowances with respect to certain buildings).
Childcare centers. An annual allowance of 10% is granted for expenditure incurred for the construction or purchase of build ings used as childcare facilities for employees.
Employee housing. An annual allowance of 10% is granted for expenditure incurred by manufacturers and certain approved service companies for the purchase or construction of buildings for the accommodation of employees. Buildings occupied by management or administrative staff do not qualify for this allowance.
Educational institutions. An annual allowance of 10% is granted for expenditure on the construction or purchase of buildings used as schools or educational institutions or for industrial, technical or vocational training.
Motor vehicles. Capital expenditure incurred on motor vehicles qualifies for an annual allowance of 20%. Qualifying capital expenditure on noncommercial vehicles is restricted to MYR100,000 per vehicle if the vehicle is new and if the total cost of the vehicle does not exceed MYR150,000. Qualifying capital expenditure is restricted to MYR50,000 per vehicle if the vehicle is not new or costs more than MYR150,000.
Office equipment. An initial allowance of 20% and an annual allowance of 10% are granted for capital expenditure on office equipment.
Computer equipment. An initial allowance of 20% and an annual allowance of 20% are granted for capital expenditures on infor mation and communication technology (ICT) equipment and computer software. Certain conditions must be met to benefit from these accelerated capital allowances. Effective from the 2018 year of assessment, these capital allowance rates also apply to other expenditures such as consultation fees, payment for rights of software ownership and incidental fees for the develop ment of customized software, subject to conditions. An acceler ated capital allowance (20% initial allowance and 40% annual allowance) is given for the purchase of ICT equipment during the period of 1 March 2020 to 31 December 2021.
Small value asset. For assets with a value not exceeding MYR1,300, a 100% allowance is given in the year in which the asset is ac quired. However, the total allowance granted for such assets is capped at MYR13,000 for non-SMEs. Effective from the 2020 year of assessment, a 100% allowance is given for assets with a value not exceeding MYR2,000. The total allowance granted for such assets is capped at MYR20,000 for non-SMEs. Only SMEs having gross income from a source or sources consisting of a business of not more than MYR50 million for the relevant year of assessment are eligible for the unlimited 100% allowance claim.
Agriculture. Annual allowances are given on capital expenditure incurred on new planting (50%), roads or bridges (50%), farm buildings (10%) and buildings for accommodation of farm work ers (20%). Accelerated allowances may be allowed at the discre tion of the Minister of Finance.
Forestry. Annual allowances are given on capital expenditure in curred for purposes of extraction of timber from a forest. Effective the 2015 year of assessment, the capital allowances are available only to persons with a concession or license to extract timber. The rates are 10% for a road or building and 20% for a building for accommodation of employees.
Other matters. Capital allowances are generally subject to recap ture on the sale of an asset to the extent the sales proceeds exceed the tax written-down value. To the extent sales proceeds are less than the tax-depreciated value, an additional allowance is given.
Relief for trading losses. Current-year trading losses may offset all other chargeable income of the same year. Unused losses may be carried forward for offset against chargeable income from business sources only. Excess capital allowances from a business source may be carried forward indefinitely for offset against income from the same business source that generated the capital allowances.
The carryforward of losses and excess capital allowances is subject to the shareholders remaining substantially (50% or more) the same at the end of the year in which the losses or capital allow ances arose and on the first day of the year of assessment in which the losses or unabsorbed capital allowances are to be used. If the shareholder of the loss company is another company, the loss company is deemed to be held by the shareholders of that other company. Under an administrative concession, the authorities have indicated that they will not enforce the shareholding test except in the case of dormant companies. In addition, under the concession, the substantial change in shareholder rule only ap plies to changes in the immediate shareholder of the loss com pany. As a result, unused losses of non-dormant companies may continue to be carried forward even if a substantial change in shareholders occurs.
Effective from the 2019 year of assessment, the carryforward of unused losses is limited to 10 years of assessment. Any unused losses will be disregarded thereafter. To ease the transition for taxpayers, special provisions stipulate that unused losses for any year of assessment before the 2018 year of assessment, and cur rent year losses for the 2018 year of assessment, can be carried forward for 10 consecutive years from the 2018 year of assessment; that is, until the 2028 year of assessment. Similar rules apply for unused reinvestment allowances and investment allowances but with a shorter carryforward period of seven years of assessment.
Groups of companies. Under group relief provisions, 70% of current-year adjusted losses may be transferred by one company to another company in a group. A group consists of a Malaysianincorporated parent company and all of its Malaysian-incorporated subsidiaries. Two Malaysian-incorporated companies are mem bers of the same group if either of the following circumstances exist:
• One is at least 70% owned (through other companies resident and incorporated in Malaysia) by the other.
• Both are at least 70% owned by a third Malaysian-incorporated company.
To obtain group relief, the recipient of the losses and the trans feror of the losses must have the same accounting period and each must have paid-up capital in respect of ordinary shares exceeding MYR2,500,000. Effective from the 2019 year of assessment, a company can only surrender its losses after it has been in operation for more than 12 months, and the surrendering period is limited to 3 consecutive years of assessment from the year of assessment in which the surrendering company com mences operations. In addition, a claimant company is not eligi ble to claim the group relief if it has carryforward or current-year investment allowances or pioneer losses. Other conditions also
apply. Effective from the 2022 year of assessment, for the sce nario in the second bullet above, in the case of indirect shareholdings, surrendering and claimant companies are treated as being in the same group of companies only if both companies are at least 70% owned by a third Malaysian-incorporated resident company, through the medium of other companies resident and incorpo rated in Malaysia. Limited exceptions apply.
D. Sales Tax and Service Tax
Goods and Services Tax was abolished and replaced with Sales Tax and Service Tax, effective from 1 September 2018. Sales Tax is imposed at a rate of 5%, 10% or at a specific rate with respect to petroleum, while Service Tax is imposed at a rate of 6% or at a specific rate for credit card services. Sales Tax applies to locally manufactured and imported taxable goods (unless exempted). Service Tax applies to certain prescribed services locally supplied or imported into Malaysia. Any person that manufactures taxable goods and/or provides taxable services in Malaysia, and that has annual taxable turnover exceeding the prescribed registration threshold in a 12-month period, is required to register for Sales Tax and/or Service Tax.
Effective from 1 January 2020, Service Tax is also charged and levied on any digital service provided by a foreign service pro vider to any consumer in Malaysia. If a foreign service provider provides digital services to consumers in Malaysia and if the value of the digital services for a period of 12 months or less exceeds the threshold or MYR500,000, the service provider is required to register for Service Tax in Malaysia, and account for Service Tax accordingly.
E. Miscellaneous matters
Foreign-exchange controls. Over the years, the foreign exchange administration policies have been progressively liberalized and simplified. Nonresidents are now free to make direct or portfolio investments in Malaysia in either Malaysian ringgit or foreign currency. No restrictions are imposed on the repatriation of capi tal, profits or income earned in Malaysia.
Malaysian companies generally need to transact with each other in Malaysian ringgit, with limited exceptions. Nonresidents may obtain any amount of foreign currency credit facilities from licensed onshore banks.
Nonresidents may lend in foreign currency to residents if the resident’s total foreign currency borrowings are within permitted limits. However, no limits are imposed on loans in foreign cur rency by nonresident entities within a group of entities (as de fined) to resident companies.
Foreign-equity restrictions. Foreign-equity restrictions have been liberalized over the years. As a result, no restrictions are imposed on the ownership of most companies except those in certain regu lated industries.
Anti-avoidance legislation. Legislation permits the tax authorities to disregard or vary any transaction that is believed to have the effect of tax avoidance.
Transfer pricing. The tax authorities have issued transfer-pricing legislation, rules and guidelines requiring taxpayers to determine and apply an arm’s-length price in their intercompany transac tions. The transfer-pricing rules also require the preparation of contemporaneous transfer-pricing documentation to substantiate the arm’s-length contention.
The guidelines provide a detailed list of information, documenta tion and records with respect to related-party transactions that need to be compiled to meet the contemporaneous documenta tion requirement. The guidelines are based on the arm’s-length principle set forth in the Organisation for Economic Co-operation and Development (OECD) transfer-pricing guidelines and pro vide several methods for determining an arm’s-length price.
In addition, companies carrying out cross-border transactions with associated persons may apply for an advance pricing arrangement (APA) from the tax authorities subject to conditions. The earnings stripping rules (ESR), which are based on the principles in Action 4 of the OECD’s Base Erosion and Profit Shifting (BEPS) Project, took effect on 1 July 2019 and restrict the deduction of interest on financial assistance granted in controlled transactions, if the total amount of the interest expense for all such financial assistance exceeds MYR500,000 in the basis year for a year of assessment. The ESR applies only to cross-border financial assistance from associated parties and cross-border financial assistance from third parties if such assistance is guaranteed by related parties in or outside Malaysia. Limited exceptions apply.
Penalty provisions have been introduced for failure to comply with CbC reporting that is facilitated under the Mutual Administrative Assistance arrangements, in line with Action 13 of the OECD’s BEPS and other exchange-of-information requirements. The penalty provisions are effective from 17 January 2017. The rules to introduce CbC reporting have been legislated and apply from 1 January 2017, with the first filing of the CbC report required by 31 December 2018.
Effective from 1 January 2021, the Director General is given the power to disregard certain structures in a controlled transaction, as well as impose and collect surcharges of not more than 5% on transfer-pricing adjustments (even when there is no increase in tax payable). In addition, penalty provisions have been introduced for failure to furnish contemporaneous transfer-pricing documen tation.
F. Treaty withholding tax rates
The rates reflect the lower of the treaty rate and the rate under domestic tax law.
Dividends
Dividends (a) Interest Royalties % % %
Bosnia and Herzegovina 10 8
Brunei Darussalam 10 10
Cambodia 10 10
Canada 15 10 (d)
Chile 15 10
China Mainland 10 10
Croatia 10 10
Czech Republic 12 10
Denmark 15 10
Egypt 15 10 Fiji 15 10
Finland 15 10 (d)
France 15 10 (d)
Germany 10 7
Hong Kong 10 8
Hungary 15 10
India 10 10
Indonesia 10 10
Iran 15 10 Ireland 10 8
Italy 15 10 (d)
Japan 10 10
Jordan 15 10 Kazakhstan 10 10 Korea (South) 15 10 (d)
Kuwait 10 10
Kyrgyzstan 10 10 Laos 10 10 Lebanon 10 8 Luxembourg 10 8
Malta 15 10
Mauritius 15 10 Mongolia 10 10 Morocco 10 10 Myanmar 10 10
Namibia 10 5
Netherlands 10 8 (d)
New Zealand 15 10 (d)
Norway 15 Pakistan 15 10 (d)
Papua New Guinea 15 10
Philippines 15 10 (d)
Poland (c) 15 10 (d)
Qatar 5 8 Romania 15 10 (d)
San Marino 10 10
Saudi Arabia 5 8
Senegal (c) 10 10
Seychelles 10 10
Singapore 10 8
Slovak Republic 10 10
South Africa 10 5
Spain 10 7
Sri Lanka 10 10
Dividends (a) Interest Royalties
% % %
Sudan 10 10
Sweden 10 8
Switzerland 10 10 (d)
Syria 10 10
Taiwan (b) 10 10
Thailand 15 10 (d)
Turkey 15 10
Turkmenistan 10 10
Ukraine 10 8
United Arab Emirates 5 10
United Kingdom 10 8
USSR (e) 15 10 Uzbekistan 10 10
Venezuela 15 10 Vietnam 10 10 Zimbabwe 10 10
Non-treaty jurisdictions 15 10
(a) No dividend withholding tax is imposed in Malaysia. (b) This is the income tax treaty between the Taipei Economic and Culture Office (TECO) in Malaysia and the Malaysian Friendship and Trade Centre (MFTC) in Taipei.
(c) These treaties have been ratified, but they are not yet in force. (d) Approved royalties are exempt from Malaysian tax. (e) Malaysia is honoring the USSR treaty with respect to the Russian Federation. Malaysia has entered into separate tax treaties with Kazakhstan, Kyrgyzstan, Turkmenistan and Uzbekistan.
Malaysia has also entered into limited agreements covering only aircraft and ship transportation with Argentina and the United States.