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 2021 will be incredibly simple.
Before you begin, you might already have a couple of questions in mind:
- Does a small business have to pay tax?
- What is the standard rate of corporate tax in Malaysia in 2021?
- What is the meaning of SME paid-up capital and Authorised Share Capital, and how does it affect my SME’s corporate tax rate?
We look to not only clear your doubts but also help guide you through submitting your corporate tax for the assessment year 2021. Here are some of the fundamentals you should know before you read further:
What is an SME?
According to Lembaga Hasil Dalam Negeri (LHDN) in Malaysia, an SME is defined as a company resident in Malaysia which has a paid-up share capital of RM2.5 million or less and is not related to any other company with paid-up capital of more than RM2.5 million. Paid-up share capital is the amount of money for which shares of the company were issued to shareholders and payment was made by the shareholders.
Subsequently, an SME’s authorised share capital is the maximum amount of the capital for which shares can be issued by the company to shareholders. The amount in question is decided prior to the incorporation of the company through a legal document known as the Memorandum of Association (MoA).
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.
First off, let us brush up on some Malaysian company taxation basics for 2021
- 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.
- Does a small business have to pay tax? The answer is yes. As for what Malaysia’s corporate tax rate is for the assessment year 2021, read on to find out.
The standard rate of corporate tax in Malaysia in 2021 is 24%. For small and medium enterprises (SME) with paid-up capital, not more than 2.5 million, the first RM500,000 Chargeable Income will be taxed at 18% (effective from year of assessment 2019 the rate is 17%), and the Chargeable Income above RM500,000 will be taxed at 24%.
What are the various tax deductions 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 that 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 2020?
- In 2020 the government 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 (2021) 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.
Plan to diversify your investment portfolio? Click here to start your investment with Funding Societies Malaysia.
Need funds for your business? Click here to register and check your eligibility.
View our Disclaimer here.
Disclaimer: The information provided to you in this blog post is intended only for general information purposes only and does not constitute legal or other professional advice on any subject matter. The materials and the information provided are not intended to be and do not constitute an advertisement or solicitation. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for use of such information by you or any unauthorized third party