What is Actually Corporate Tax in Malaysia ?

For a corporation involved in insurance, air transportation, sea transportation, or finance, corporate tax is paid to the resident company or Sdn Bhd earning revenue both inside and outside Malaysia. We’ll go into what corporate tax is in Malaysia, who pays it, and when it’s due, as well as how to quantify corporate tax in Malaysia and other relevant considerations. 

By AZIZAM AZIZAN

Corporate tax in Malaysia is imposed on all Malaysian-registered businesses. It refers to chargeable profits generated from a company’s business while working in Malaysia. In Malaysia, the tax assessment scheme is based on self-assessment (SAS). SAS also includes a function for calculating corporate taxes in Malaysia. Manually calculating, submitting, and remitting tax returns and payments are replaced by this mechanism.

What is the Corporate Tax Rate in Malaysia?

Malaysian resident corporations trading in Malaysia are subject to the corporation tax Malaysia 2020. These businesses are subject to a 24 percent tax rate (Annually). This is a smaller average than what we had the previous year. Small and medium-sized businesses (SMEs) pay a significantly different company tax from all resident businesses. Small and medium-sized enterprises (SMEs) are described as businesses with a paid-up capital of RM2.5 million or less.

The appraisal takes place at the outset of the year-long appraisal cycle (YA). If a SME’s first chargeable revenue is RM500,000, it will be taxed at a rate of 18 percent. If the revenue hits the chargeable income cap, it is assessed at a rate of 24 percent. Non-resident businesses are similarly charged at a rate of 24%.

What is the amount of corporate tax that I might pay?

Under most cases, permissible costs are withheld from taxable income. These costs are borne as part of the company’s normal operations. The taxable gains are measured by applying the required amendments specified in the Income Tax Act of 1967. (ITA).

Both taxed and non-taxable revenue, as well as excluded income, are subject to these changes. It also requires reinvestment/capital allowances, as well as expenses carried forward/current year. These non-allowable costs, as well as any balancing payments, are taken into account when calculating taxable benefit in Malaysia. 

How to Calculate Corporate Tax Malaysia ?

A corporation’s or SME’s net income is used to calculate company tax. After essential deductions of various forms of expenditures, net income is the remaining money left with the company. In Malaysia, though, things are a little different.

The table below will give you an understanding of how corporation tax is calculated in Malaysia.

Paid-up capital up to RM 2.5 million or less

Rate

On the first RM 600,000 chargeable income

17%

On the chargeable income exceeding RM 600,000

24%

Paid-up capital over RM 2.5 million

Rate

Flat rate

24%

Who Is Responsible for Corporate Taxes?

The resident corporation is responsible for paying income tax in Malaysia (Sendirian Berhad and Berhad or Sdn Bhd). If you want to learn more about SDN BHD companies, read this guide on SDN BHD companies and how to register an SDN BHD business in Malaysia.

When operating their businesses in Malaysia, those corporations must be making gains or earnings. There are some of them:

  • Public and Private limited companies
  • Business trust
  • Partnership
  • Limited liability partnership 
  • A branch of a foreign corporation

Any of these corporate entities/corporations are subject to taxation in Malaysia based on the revenue they generate from their operations. Corporation tax is not applied on money earned abroad. Air transportation, banking, insurance, and shipping, on the other hand, are not protected by this exception.

For company tax purposes, taxable revenue covers all forms of profits that are normally obtained from various Malaysian business projects. Profits/gains from a company, leases, dividends, insurance, and some other forms of income are all examples of earnings.

Dividends, on the other hand, are not taxed and all companies follow the Single-Tier System (STS). The capital gain is therefore not taxable; however, there are a few exceptions to this provision. Capital profits resulting from the disposition of a corporation’s property are included in this definition

Company Obligations When Filing Income Tax in Malaysia

  1. When it comes to filing corporate taxes, companies must take the steps below.
  • Either by e-Filing (e-CP204) or by mailing it to the LHDNM Processing Centre, the corporation must register the calculated tax payable.
  • The estimated tax return deadline for a new business is three months after it begins operations.
  • Current businesses, on the other hand, must register the expected tax due 30 days prior to the start of the new year.
  1. When it comes to paying projected taxes, a corporate corporation can do so on or before the 10th of each month using CP207.A new company must pay this tax from the 6th month of the basis period
  • Beginning with the second month of the basis year, a current business must pay this fee
  1. Next, either use the e-Filing (e-C) facility or send Form C to the LHDNM Processing Centre.

When Do You Have to Pay Corporate Tax?

Within three months of their registration, newly incorporated businesses must file an estimate of tax due. Furthermore, starting in the sixth month of the appraisal year, such an organisation could begin paying monthly instalments (by the 15th of each month).

Any business must file its tax through the e-filing platform after the assessment year has finished. The outstanding balance must be charged if the payable tax is higher than what the corporation has paid under a previously calculated sum. In the opposite, if the real tax is less than the estimated sum paid by your corporation, you might be eligible for a refund.

Different criteria apply to Sdn Bhd firms with a paid-up capital of less than 2.5 million ringgit. These enterprises are not expected to apply the projected payable tax for the first two assessment years in this case. 

Is Corporation Tax a Cost?

Taxes on net income must be paid by a company. These gains aren’t counted as a cost of doing business. As a result, it is apparent that income tax cannot be considered an expense. Profits from a company are usually divided into two groups.

The first type is retained earnings, which are assets that a business keeps to cover losses or expand.

The second group includes benefit distributions, which are not taken into account when assessing corporation tax in Malaysia.

The below are some of the most well-known deductible business expenses:

  • Start-up costs
  • Operating expenses
  • Advertising expenses 
  • Salaries and bonuses
  • Expenses for the employee medical insurance and retirement plans

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