Starting a new business in Malaysia can be an exciting venture, but understanding the country's tax system is crucial for compliance and financial planning. Malaysia offers a business-friendly tax regime designed to support both local and foreign entrepreneurs. This article provides an overview of the key tax considerations for new businesses in Malaysia, including corporate income tax, sales and service tax (SST), goods and services tax (GST), withholding tax, and other relevant tax obligations.

Corporate Income Tax

In Malaysia, the corporate income tax rate varies based on the type of company and its taxable income. For resident companies with paid-up capital not exceeding MYR 2.5 million, the tax rate is 17% on the first MYR 600,000 of chargeable income and 24% on the remaining income. Non-resident companies are taxed at a flat rate of 24%.

New businesses should note that Malaysia offers various tax incentives to encourage investment. These include the Pioneer Status, Investment Tax Allowance, and incentives for certain industries such as biotechnology, manufacturing, and information technology.

Sales and Service Tax (SST)

The SST system, reintroduced in September 2018, comprises two separate taxes: sales tax and service tax. The sales tax, which ranges from 5% to 10%, applies to taxable goods manufactured in or imported into Malaysia. Service tax, at a rate of 6%, applies to certain prescribed services provided by taxable persons.

Businesses must determine their liability to register for SST. If the annual turnover exceeds the threshold of MYR 500,000, registration is mandatory. Compliance includes submitting SST returns and making payments bi-monthly.

Goods and Services Tax (GST)

Malaysia previously implemented GST at a standard rate of 6% from April 2015 until it was abolished in June 2018. While GST is no longer applicable, businesses should be aware of historical liabilities and ensure they are compliant with any outstanding obligations from the GST period.

Withholding Tax

Withholding tax is crucial for businesses engaging in transactions with non-residents. It applies to various payments, including royalties, interest, technical fees, and service payments. The withholding tax rates vary depending on the type of payment and the recipient's country of residence, as per Malaysia’s tax treaties.

For example, royalties paid to non-residents are subject to a 10% withholding tax, while technical fees attract a 10% rate. Businesses must deduct the appropriate amount and remit it to the Inland Revenue Board of Malaysia (LHDN).

Personal Income Tax for Business Owners

Business owners must also consider their personal income tax obligations. Residents are taxed on a progressive scale from 0% to 30%, while non-residents are taxed at a flat rate of 30%. Malaysia offers various tax reliefs and rebates, which can help reduce the overall tax liability for individuals.

Other Relevant Taxes

New businesses in Malaysia should be aware of additional taxes and contributions, such as:

• Real Property Gains Tax (RPGT): Applicable on gains from the disposal of real property.
• Stamp Duty: Levied on certain legal documents and transactions.
• Employee Provident Fund (EPF) and Social Security Organization (SOCSO) Contributions: Mandatory contributions for employees’ retirement savings and social security.

Compliance and Reporting

Compliance with Malaysia’s tax laws requires timely submission of tax returns and payments. Corporate tax returns must be filed within seven months from the end of the financial year. Failure to comply can result in penalties and interest charges.

The Inland Revenue Board of Malaysia (LHDN) and the Royal Malaysian Customs Department (RMCD) are the primary tax authorities. They provide guidance and support to businesses to help them navigate the tax landscape.