Business Tax in Malaysia: The Complete Guide for 2026

Business tax in Malaysia is not one single tax. Depending on how a business is structured and what it does, it can involve corporate income tax, personal income tax, Sales and Service Tax (SST), withholding tax, stamp duty and, since 2024, mandatory e-invoicing. Most guides online only cover one piece of this, usually corporate income tax for a Sdn Bhd. That leaves sole proprietors, partnerships and anyone trying to see the full picture without a clear answer.

This guide covers every tax a business in Malaysia is likely to encounter, how each one is calculated, who administers it, and what changed under Budget 2026. Figures reflect the position as at August 2026 and are sourced from the Inland Revenue Board of Malaysia (LHDN), the Royal Malaysian Customs Department (RMCD) and PwC’s Malaysian Tax Booklet.

What Counts as “Business Tax” in Malaysia?

There is no single “business tax” in Malaysian law. Instead, what a business pays depends on three things: how it is legally structured, what it earns, and what it sells. Broadly, a business in Malaysia may be liable for:

• Corporate income tax, if it operates as a company (Sdn Bhd or Bhd)
• Personal income tax, if it operates as a sole proprietorship or conventional partnership, since profits are treated as the owner’s personal income
• Sales Tax and Service Tax (SST), if it manufactures, imports or sells taxable goods or services above the registration threshold
• Withholding tax, on certain payments made to non-residents
• Real Property Gains Tax (RPGT), on gains from disposing of Malaysian property
• Stamp duty, on specific legal documents and instruments

Two different government agencies handle these: LHDN administers income tax and e-invoicing, while RMCD administers SST through the separate MySST system. A business can be fully compliant with one and still fall behind on the other, which is a common source of penalties.

How Different Business Structures Are Taxed

The single biggest factor in how much tax a business pays is its legal structure, not its industry.

Sdn Bhd (Private Limited Company)

A Sdn Bhd is a separate legal entity from its owners. It pays corporate income tax on its chargeable income, and because Malaysia uses a single-tier tax system, dividends paid out to shareholders are not taxed again at the shareholder level (subject to the new dividend tax noted further below).

Sole Proprietorship and Conventional Partnership

A sole proprietorship or conventional partnership is not a separate legal entity from its owner or partners. A sole proprietor is taxed on the business income as part of their personal income, while a conventional partnership generally does not pay income tax at the entity level. Instead, each partner is assessed on their share of the partnership income under Malaysia’s progressive personal income tax rates.

For a sole proprietorship, the business income is taxed at the owner’s personal income tax rates. For a conventional partnership, each partner is taxed individually on their allocated share of the partnership income. As personal tax rates generally increase at higher income levels, the tax treatment may differ from that of a similarly profitable Sdn Bhd.

Limited Liability Partnership (LLP)

An LLP sits between the two. It is generally taxed similarly to a company on its business income, but profit distributions to individual partners now carry their own tax treatment under Budget 2026, covered later in this guide.

Quick Comparison

Corporate Income Tax Rates for Companies

Corporate income tax (CIT) applies to Sdn Bhd and Bhd companies on income accruing in or derived from Malaysia. Resident companies are also taxed on certain foreign-sourced income received in Malaysia. 

Standard Rate vs SME Preferential Rate

The standard corporate tax rate is a flat 24%. Companies that qualify as small and medium enterprises (SMEs) are taxed on a tiered scale instead:

Understanding the applicable rates can help businesses make more informed tax decisions and make better use of tax services in Malaysia. 

Who Qualifies as an SME for Tax Purposes

A company qualifies for the SME rate if it meets all of the following:

• Incorporated in Malaysia under the Companies Act 2016
• Paid-up capital of RM2.5 million or less
• Gross business income not exceeding RM50 million for the basis period
• Not part of a group where a related company has paid-up capital above RM2.5 million, and no more than 20% of its paid-up capital is owned, directly or indirectly, by companies incorporated outside Malaysia or by non-Malaysian citizens

A company that fails any one of these conditions, even by a small margin, is taxed at the flat 24% rate on its entire chargeable income rather than the tiered scale.

Worked Example

A Malaysian SME with RM800,000 in chargeable income for the year would calculate its tax as follows:

• First RM150,000 at 15% = RM22,500
• Next RM450,000 (RM150,001–RM600,000) at 17% = RM76,500
• Remaining RM200,000 (RM600,001–RM800,000) at 24% = RM48,000
• Total tax payable: RM147,000

That works out to an effective tax rate of roughly 18.4%, well below the 24% flat rate a non-SME company would pay on the same income.

Non-Resident Companies

Non-resident companies earning Malaysian-sourced income are taxed at a flat 24%, with no access to the SME preferential rate, regardless of their size.

Personal Income Tax for Sole Proprietors and Partners

If a business operates as a sole proprietorship or conventional partnership, its profit is not taxed separately from the owner. Instead, it is combined with the owner’s other income and taxed under the personal income tax scale for residents:

Every resident individual receives a personal tax relief before this scale is applied, and business-related deductions (allowable expenses, capital allowances) reduce chargeable income the same way they would for a company. Non-resident individuals running a business in Malaysia are taxed at a flat 30%, with no personal reliefs.

This progressive structure is the reason many growing sole proprietorships eventually convert to a Sdn Bhd: once profit climbs past roughly RM100,000 to RM150,000, the personal income tax rate often overtakes what the same income would face under the SME corporate tiers.

Sales and Service Tax (SST) for Businesses

Malaysia does not have GST or VAT. Since September 2018, indirect tax has run through the Sales and Service Tax (SST) system instead, administered by the Royal Malaysian Customs Department (RMCD), not LHDN. SST is a single-stage tax: there is no input tax credit mechanism, so it embeds directly into pricing rather than being reclaimed along the supply chain.

Sales Tax vs Service Tax

• Sales Tax applies to taxable goods at the point of manufacture or import, at 5% or 10% depending on the goods category.
• Service Tax applies to prescribed taxable services, generally at 8%, with a reduced 6% band for specific sectors such as food and beverage, telecommunications, logistics, parking, construction, healthcare, education, and rental or leasing services (reduced from 8% to 6% effective 1 January 2026).

Registration Thresholds

Most businesses providing taxable services must register once annual turnover crosses RM500,000. For rental and leasing services, the registration threshold is RM1.5 million, effective 1 January 2026, up from RM1 million. Financial services continue to have a registration threshold of RM1 million. Construction services have their own registration threshold of RM1.5 million. Businesses must register within 30 days of crossing the applicable threshold.

The 2025 Scope Expansion and 2026 Enforcement

Effective 1 July 2025, the government expanded SST’s scope to bring over 4,800 additional goods and services into the tax net, including financial services, rental and leasing, construction, and private healthcare and education. A compliance grace period for newly taxable businesses ran until 31 December 2025. From 1 January 2026, full enforcement applies, meaning 2026 is the first full year in which penalties for non-compliance with the expanded scope are actively enforced.

Businesses file SST-02 returns bi-monthly through the MySST portal, due by the last day of the month following each two-month taxable period, even when no tax is payable for that period. Late payment penalties escalate: 10% for the first 30 days overdue, a further 15% for the second 30 days, and another 15% for the third, up to a maximum of 40% of the tax due. Separately, failure to register or file SST returns can result in penalties of up to RM500,000 under the Sales Tax Act 2018 and Service Tax Act 2018. 

Other Taxes Businesses in Malaysia May Face

Beyond income tax and SST, several other taxes apply depending on what a business does:

• Withholding tax: deducted from certain payments to non-residents, such as royalties, interest, technical fees and contract payments, at rates that vary by payment type and any applicable double taxation agreement.
• Real Property Gains Tax (RPGT): charged on gains from disposing of Malaysian real property or shares in a real-property-rich company, at rates that depend on how long the asset was held.
• Stamp duty: payable on specified legal, commercial and financial instruments, including share transfers, loan agreements and certain property transactions.
• Digital Service Tax: a form of service tax charged at 8% on digital services supplied to Malaysian consumers by foreign service providers once their annual turnover from those services exceeds RM500,000.
• Capital Gains Tax (CGT): introduced from 1 January 2024, CGT applies to certain gains from the disposal of capital assets. For companies, LLPs, trust bodies and co-operatives, this includes qualifying disposals of unlisted shares in Malaysian-incorporated companies, subject to the conditions and exclusions under Section 15C of the Income Tax Act 1967. CGT can also apply to gains from the disposal of capital assets situated outside Malaysia where the gains are received in Malaysia, subject to applicable economic substance requirements. Disposals of Malaysian real property and shares in a real-property-rich company remain generally subject to Real Property Gains Tax (RPGT) rather than CGT. 

e-Invoicing: The New Compliance Layer

Since August 2024, LHDN has been rolling out mandatory e-invoicing through its MyInvois platform under Section 82C of the Income Tax Act 1967. Every validated e-invoice is checked in near real time and assigned a unique identifier before it carries legal standing, covering B2B, B2C and B2G transactions alike.

The rollout has been phased by annual turnover:

Following a Cabinet decision in December 2025, the previously planned final phase for businesses below RM1 million was cancelled, and the permanent exemption threshold was raised to RM1 million in annual turnover. Businesses below that threshold are not required to adopt e-invoicing, though they may opt in voluntarily. Phase 4 businesses have been granted an extended penalty-free relaxation window running into 2027 to complete their transition, though registration on MyInvois and a genuine, demonstrable compliance effort are still expected during that period.

Since 1 January 2026, individual e-invoices are required for any single transaction above RM10,000; consolidated invoicing is no longer permitted for transactions of that size. Non-compliance can result in fines ranging from RM200 to RM20,000 per invoice, or imprisonment of up to six months, under the Income Tax Act.

Importantly, e-invoicing and SST are separate, parallel obligations. Issuing a compliant e-invoice does not satisfy SST filing requirements, and vice versa.

Filing and Payment Obligations

Companies and businesses in Malaysia operate under a self-assessment system, which places the responsibility for calculating and paying tax on the taxpayer rather than waiting for an assessment from LHDN.

For companies:

1. Estimate tax payable (CP204): new companies file this within three months of starting operations; existing companies file it at least 30 days before the start of the new basis year.
2. Pay in monthly installments: installments are due by the 15th of each month via CP204, generally starting from the second month of the basis period for existing companies, or the sixth month for new companies.
3. Submit Form C: the corporate income tax return, filed electronically (e-Filing) within seven months of the financial year-end.
4. Keep records for seven years: supporting documents, receipts and accounts must be retained for LHDN’s review, even though they are not submitted with the return itself.

For sole proprietors and partners, business income is reported as part of the individual’s annual personal income tax return (Form B), generally due by 30 June for those with business income, filed via e-Filing on MyTax.

Late filing or late payment triggers penalties starting at around 10% of the tax due, increasing for continued non-compliance.

Tax Incentives That Can Reduce Business Tax

Malaysia offers several incentive schemes that can lower the effective tax rate a business actually pays, beyond the standard SME tiers:

• Pioneer Status: partial or full income tax exemption for companies in promoted industries, typically for five years.
• Investment Tax Allowance: an allowance calculated on qualifying capital expenditure, deductible against statutory income.
• Capital allowances: replace accounting depreciation for tax purposes, allowing businesses to write off qualifying assets over time even where the assets are still shown on the books.
• Reinvestment allowance and export incentives: available to manufacturers reinvesting in expansion, and to companies promoting exports through qualifying activities.
• Approved donations: donations to approved institutions are deductible against a company’s aggregate income, within limits.

Because eligibility criteria are specific and industry-dependent, businesses considering any of these should confirm current qualifying conditions with LHDN or a licensed tax agent before relying on them in tax planning.

Budget 2026 Changes Businesses Should Know

Several measures from Budget 2026 and the accompanying Finance Bill 2025 directly affect how businesses and their owners are taxed:

• 2% tax on large dividend distributions: chargeable income from dividends exceeding RM100,000 received by an individual from a resident company is now subject to a 2% tax.
• 2% tax on LLP profit distributions: effective YA2026, profit distributions from an LLP to an individual partner exceeding RM100,000 per year are taxed at 2%.
• Global minimum tax (Pillar Two): Malaysia has implemented the OECD’s Global Anti-Base Erosion (GloBE) rules. A Multinational Top-up Tax applies to Malaysian parent entities of multinational groups with an effective tax rate below 15% in a low-tax jurisdiction, and a 15% Qualified Domestic Minimum Top-up Tax applies to Malaysian operations of affected multinational groups, effective for financial years starting on or after 1 January 2025.
• Foreign-sourced income exemption extended: the exemption on qualifying foreign-sourced income received in Malaysia has been extended to 31 December 2030.
• Carbon tax planned: the government has signalled a carbon tax on the iron, steel and energy industries, to be coordinated with the National Carbon Market Policy.
• Capital gains tax extension: the CGT treatment on qualifying foreign capital asset disposals received in Malaysia has been proposed for extension to 31 December 2030.

Most of these changes affect larger companies, multinational groups and higher-income individuals rather than typical SMEs, but the dividend and LLP distribution taxes are relevant to any business owner who takes profit out of a company or LLP in the form of a large distribution.

Conclusion

Understanding business tax in Malaysia requires looking beyond corporate income tax. Depending on your business structure and activities, you may also need to manage personal income tax, SST, withholding tax, e-invoicing, stamp duty and other tax obligations. Budget 2026 has also introduced changes that may affect how business owners and companies plan their taxes.

With tax rules and compliance requirements continuing to evolve, businesses should review their tax position regularly rather than only at filing time. Proper tax planning can help you remain compliant, manage tax risks and identify legitimate opportunities to improve tax efficiency.

If you need professional support with corporate tax, SST, tax planning or other business tax matters, Ledgen provides comprehensive tax services in Malaysia tailored to your business needs. Speak with our tax team to understand your obligations and plan your tax position with greater confidence.