Running a business in Malaysia comes with its own set of paperwork – the most important of this is the filing of the annual corporate tax. Seasoned business owners understand that attention to detail is the key to filing online tax returns smoothly and correctly – if you have kept your books in order the whole year, then your company taxation for the assessment year 2018 will be incredibly simple.
But whether you are a veteran tax filer or a brand new entrepreneur filing your very first company tax return in Malaysia, here are a few things you need to keep an eye on this year-
Some basics for Malaysian company taxation for 2018
- Malaysia adopts a territorial system of income taxation. If the income of your business is accrued in or derived from Malaysia, then you have to pay a tax on it. The income derived from the source outside Malaysia is exempt from tax in Malaysia. If your business is in the banking, insurance or sea and air transport business then the income remitted back to Malaysia from a foreign land is also taxable.
- The standard rate of taxation is 24%. For small and medium enterprise (SME) with paid-up capital not more than 2.5 millions, the first RM500,000 Chargeable Income will be tax at 18% (effective from year of assessment 2019 the rate is 17%), and the Chargeable Income above RM500,000 will be tax at 24%.
(Note: SME company means a company incorporated in Malaysia with a paid-up capital of ordinary share of not more than RM2.5 million.)
What are the various tax deduction and incentives offered under the corporate taxation law in Malaysia?
- In general, all expenses and outgoing amounts which deal with the production of the income are deductible — for example, the salary of employees, rental of the premises, advertisement costs, insurance and more.
- However, there are some costs which are not deductible. These range from startup or set up costs to bad debts to the first painting of the premises and entertainment of customers.
- Company taxation in Malaysia also offers a bouquet of tax incentives to certain businesses as well. Industries such as manufacturing, hotels, healthcare, IT services, biotechnology Islamic finance, tourism, venture capital, energy conservation, and environmental protection enjoy incentives such as tax holidays for up to 10 years, double deductions, extra allowances on capital expenditure incurred, reinvestment capital allowances, accelerated capital allowances and more.
Anything an SME should know that is different compared with 2017?
- This year the government has introduced a further 1% reduction in the corporate tax rate. For the assessment year 2016-2017 it stood at 19%, the corporate tax rate in 2018 dropped to 18% in Malaysia, and the government has announced a further reduction to 17% for SMEs with paid capital below RM2.5m and the rate only applicable on the first Chargeable Income of RM500,000. For Chargeable Income above RM500,000 will be taxed at 24%.
- With effect from 28 December 2018, withholding tax (WHT) is applicable on payments for technical and non-technical services performed in Malaysia. Earlier WHT was only applicable to technical services.
SMEs are the foundation of a strong economy, and the Malaysian Government is well ahead of the curve when it comes to creating an encouraging environment for them. The company taxation laws (2018) in Malaysia is just one of the many tools the government employs to make the country an inviting destination for foreign investors as well as homegrown entrepreneurs.
This article is co-authored with Cheng & Co
Cheng & Co was founded in 1993 by Prof. Dr. Paul Cheng & Prof. Dato’ Dr. Chua Hock Hoo and, in the same year, acquired an established member firm. As the services and clientele of the firm increased over the years, Cheng & Co expanded progressively through mergers & acquisitions.
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