Corporate Tax Rate in Malaysia: A Comprehensive Guide

What Is Corporate Income Tax?

Corporate income tax is a direct tax imposed on the profits of companies operating in Malaysia. Administered by the Inland Revenue Board (LHDN), it funds government services and infrastructure, which makes understanding your obligations essential for every business owner. Getting it right does more than help you avoid penalties — it lets you legitimately lower your bill by using the reduced rates and incentives the law already provides.

This guide is verified as of August 2026 and reflects the rates for year of assessment (YA) 2026. Tax rules change with each annual Budget, so always confirm current figures with LHDN or a licensed tax agent before filing.

Why Understanding Corporate Tax Rates Matters

Knowing your exact corporate tax rate directly affects cash flow, pricing, and how you structure the business. The gap is real: a qualifying small company pays as little as 15% on its first slice of profit, while a company that fails the small-business test pays a flat 24% on every ringgit. Understanding where you fall — and what could disqualify you — is often worth tens of thousands of ringgit a year.

Corporate Tax Rate in Malaysia (2026)

Overview of Corporate Tax Rates for YA 2026

Malaysia’s corporate tax rate depends on the type of company and, for small and medium enterprises (SMEs), on how much you earn. The headline rate is a flat 24%. Qualifying resident SMEs instead pay on a three-tier scale. Here are the rates for YA 2026:

Note the important update: the reduced band is 15% on the first RM 150,000 (not 17% on the first RM 600,000, as older guides — and earlier versions of this article — used to state). The 15% floor rate was introduced from YA 2023 to give genuinely small businesses extra relief. Figures verified against PwC’s Malaysia tax summary (last reviewed June 2026).

Who Actually Qualifies as an SME for the Reduced Rate?

This is where many companies trip up. To pay the 15% / 17% tiered rate, a resident company must meet all of the following conditions for the year of assessment:

• Paid-up ordinary share capital of RM 2.5 million or less at the beginning of the basis period.
• Gross business income of not more than RM 50 million for the year.
• It does not control — and is not controlled by — another company with paid-up capital above RM 2.5 million (the “group” test that stops large groups splitting into small units).
• No more than 20% of its paid-up capital is owned, directly or indirectly, by a foreign company or a non-Malaysian citizen.

Miss any one of these and the company is taxed at the flat 24% on all chargeable income. The foreign-ownership condition (in force since YA 2024) catches many joint ventures by surprise: cross the 20% foreign-ownership line and you lose the SME rate entirely, even if you are small on every other measure.

Comparison of Tax Rates for SMEs and Larger Companies

The tiered structure is meaningful. A qualifying SME earning exactly RM 600,000 pays RM 99,000 in tax (an effective rate of about 16.5%), while a non-SME on the same profit pays RM 144,000 at the flat 24% — a difference of RM 45,000. This is a deliberate policy to support smaller businesses, which form the backbone of the Malaysian economy. If you are close to the RM 2.5 million paid-up capital or RM 50 million income thresholds, careful planning around when you cross them can preserve the lower rate for another year.

Recent Changes and Updates

A few developments matter for companies planning ahead:

• Global minimum tax (Pillar Two): Malaysia’s Multinational Top-up Tax and Qualified Domestic Minimum Top-up Tax of 15% apply to large multinational groups (consolidated revenue of at least €750 million) for financial years starting on or after 1 January 2025. Ordinary SMEs are not affected.
• 2% tax on dividends: From YA 2025, individual shareholders pay a 2% tax on dividend income above RM 100,000 a year. This is a shareholder-level tax, separate from corporate tax, but worth factoring into how owners draw profits.
• Sales & Service Tax (SST) expansion: The SST scope was widened from 1 July 2025, with the service tax at 6% or 8% depending on the service. This is a separate indirect tax, not corporate income tax, but it affects overall tax cost.
• E-invoicing (MyInvois): LHDN’s phased e-invoicing rollout continues. Businesses with annual turnover up to RM 5 million fall under Phase 4 from 1 January 2026 (with a relaxation period to 31 December 2026), while those between RM 1 million and RM 5 million become mandatory from 1 January 2027. Businesses below RM 1 million turnover are currently exempt.

Scope of Corporate Income Tax in Malaysia

Who Needs to Pay Corporate Tax?

Corporate income tax is charged on income accruing in or derived from Malaysia, for both resident and non-resident companies. Resident companies are also taxed on foreign-sourced income received in Malaysia. A company is Malaysian-resident if its management and control are exercised in Malaysia — typically where board meetings are held — not simply where it is incorporated. If you are still deciding on a structure, our guide to choosing the right business entity explains how each type is taxed.

Basis Period for Corporate Tax Calculation

Corporate tax is assessed on a current-year basis, and the basis period is normally the company’s financial year end (FYE). All income earned during that accounting period is reported for the corresponding year of assessment. Companies choose their own FYE; the first set of accounts can cover up to 18 months, after which a consistent 12-month period applies.

Tax Deductible Expenses for Malaysian Companies

Overview of Tax Deductible Expenses

Deductible expenses reduce your chargeable income and therefore your tax. Under Section 33 of the Income Tax Act 1967, an expense is deductible only if it is “wholly and exclusively” incurred in producing that income. Capital items are handled separately through capital allowances rather than as an outright deduction.

Common Tax Deductible Expenses

Frequently claimed deductions for Malaysian companies include:

• Employee salaries and statutory contributions: wages, plus EPF, SOCSO and EIS contributions.
• Rental and utilities: business premises rent, electricity, water and internet.
• Business travel and marketing: travel to earn income and advertising or promotion costs.
• Entertainment: generally only 50% deductible under Section 39, though staff entertainment and promotional gifts to the public can be fully deductible.
• Approved donations: cash donations to approved institutions, capped at 10% of aggregate income.

Non-Deductible Expenses

Certain costs cannot be deducted, including:

• Personal or domestic expenses.
• Fines and penalties.
• Capital expenditure (claim capital allowances instead).
• Provisions and general reserves that are not actually incurred.

For a fuller playbook, see our guide to smart, legal ways to reduce company income tax in Malaysia.

Corporate Tax Filing Requirements and Deadlines

Form C and Form E Explained

Companies file Form C (the corporate income tax return) each year through LHDN’s e-Filing system. Separately, every employer files Form E (the employer return, summarising employees and remuneration) and issues Form EA to staff. New companies must also submit Form CP204 to estimate tax payable, generally at least 30 days before the basis period begins, and pay in monthly instalments.

Key Filing Deadlines

Form C is due seven months after the company’s financial year end. For example, a company with a 31 December FYE must file by 31 July the following year. Form E is generally due by 31 March each year. Missing these dates triggers penalties, so calendar them early.

Tax Payment Options

Tax can be paid through LHDN’s ByrHASiL portal, online banking (FPX), or at appointed banks. Monthly CP204 instalments are typically paid by the 15th of each month, with a final balancing payment when the return is filed.

Tax Incentives and Exemptions for Companies

Government Incentives for Businesses

Beyond the SME rate, Malaysia offers targeted incentives to attract investment:

• Pioneer Status: partial or full exemption on statutory income for up to five to ten years for promoted activities.
• Investment Tax Allowance (ITA): an allowance on qualifying capital expenditure, offset against statutory income.
• Reinvestment Allowance: for existing manufacturers expanding, modernising or automating.
• New Investment Incentive Framework: Malaysia is moving toward a more outcome-based, tiered incentive model to reward high-value activities — check the latest terms with MIDA.

Industries Eligible for Tax Exemptions

Sectors such as high-technology manufacturing, digital and green technology, research and development, and selected services benefit most from these incentives. Approvals are activity-specific, so eligibility depends on what the company actually does, not just its industry label.

How to Calculate Corporate Income Tax in Malaysia

Step-by-Step Guide to Calculating Taxable Income

To work out your tax:

1. Determine gross income from all business sources.

2. Subtract allowable deductible expenses to reach adjusted income.

3. Deduct capital allowances to arrive at statutory income, then apply any approved incentives and reliefs to reach chargeable income.

4. Apply the relevant rate — the tiered SME scale if you qualify, otherwise a flat 24%.

Worked Example (Qualifying SME)

Suppose a qualifying SME has gross income of RM 1 million and RM 400,000 of deductible expenses, leaving RM 600,000 of chargeable income:

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Chargeable income: RM 1,000,000 − RM 400,000 = RM 600,000

First RM 150,000 × 15% = RM 22,500
Next RM 450,000 × 17% = RM 76,500
Total tax = RM 99,000 (effective rate ≈ 16.5%)

The same RM 600,000 taxed at the flat non-SME rate of 24% would be RM 144,000 — so qualifying as an SME saves RM 45,000 here.

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Compliance and Penalties for Late Corporate Tax Submission

Penalties for Late Filing

Filing late or under-declaring income carries steep penalties — typically a percentage loading on the tax due, and higher penalties for repeated or deliberate default. Under-estimating your CP204 instalments by more than 30% can also attract a 10% penalty on the shortfall. Prompt, accurate filing is far cheaper than the penalties.

Tips to Ensure Compliance

To stay on the right side of LHDN:

1. Keep accurate, up-to-date financial records (and retain them for seven years).
2. Set reminders for CP204, Form C and Form E deadlines.
3. Prepare for e-invoicing (MyInvois) if your turnover brings you into scope.
4. Engage a licensed tax agent for anything complex — the fee is usually deductible.

How to Choose the Right Approach for Your Company

Not sure how the rules apply to you? Work through these four questions:

1. Do you pass all four SME conditions? Paid-up capital ≤ RM 2.5 million, gross income ≤ RM 50 million, no disqualifying group control, and under 20% foreign ownership. If yes, you get the tiered 15% / 17% / 24% rate. If no, plan around a flat 24%.
2. Where does your profit land on the scale? If chargeable income sits under RM 600,000, the reduced bands do the most work — protect that position.
3. Are you leaving deductions or incentives on the table? Capital allowances, approved donations, and Pioneer Status or ITA can materially cut the bill.
4. Are you ready for SST and e-invoicing? These are separate from income tax but affect cash flow and compliance workload — factor them in early.

Conclusion: Stay Compliant and Save with Effective Tax Planning

Malaysia’s corporate tax system rewards businesses that understand it. The flat rate is 24%, but a genuinely small resident company can pay as little as 15% on its first RM 150,000 of profit — provided it meets every SME condition, including the 20% foreign-ownership limit. Layer on legitimate deductions, capital allowances and approved incentives, and the effective rate can fall further still.

The rules shift with each Budget, so treat this guide as a starting map, not a substitute for advice. Confirm current figures with LHDN and consider a licensed tax agent to structure things correctly.

Read also: 4 Smart Methods to Reduce Company Income Tax in Malaysia · Understanding Sales and Service Tax (SST) in Malaysia · Types of Business Licenses in Malaysia · How to Register a Company in Malaysia

Frequently Asked Questions (FAQs)

Figures verified August 2026 for year of assessment 2026 against LHDN and PwC’s Malaysia tax summary; rates and thresholds change with each annual Budget, so confirm current details with the provider before filing.

Disclaimer: This article by KayaToday provides general information about corporate taxation in Malaysia and is not tax, legal or financial advice. For guidance tailored to your business, please consult a licensed tax professional or LHDN.