Corporations are taxed on all earnings, including gains or profits from a trade or business, dividends, interest, rents, royalities, premiums or other earnings, derived onshore, from Malaysia. Foreign-source income is exempt unless the corporation is carrying on a business in the banking, insurance, air transport or shipping sectors.
Capital gains are not taxed in Malaysia (except for gains derived from the disposal of real property or on the sale of shares in a real property company. All corporations in Malaysia are required to adopt the single-tier system (STS). Dividends paid by companies under the STS are not taxable. Losses may be carried forward for seven years of assessment (YAs) (except where there is substantial change in corporate ownership of a dormant company).
The standard corporate tax rate is 24%, while the rate for resident small and midium-sized companies (i.e. companies incorporated in Malaysia with paid-up capital of RM2.5 million or less) is 17% on the first RM500,000, with balance being taxed at the 24% rate.
Dividends: Malaysia does not levy withholding tax on dividends.
Interest: A withholding tax of 15% applies to interest paid to a nonresident (unless reduced under a tax treaty).
Royalties: A withholding tax of 10% applies to royalities paid to a nonresident (unless reduced under a tax treaty).
Technical Service Fees: A 10% withholding tax applies to service fees paid to a nonresident for services (technical and non-technical) rendered onshore (unless reduced under a tax treaty).
Others: A 10% withholding tax applies to the rental of movable property, installation fees and certain one-time income to nonresidents (unless reduced under a tax treaty).
Other Application Taxes on Corporations:
Capital Duty: No capital duty is payable, but a local company is subject to an incorporation fee of RM1000 and a foreign company is subject to an incorporation fee ranging from RM5000 to RM70,000.
Payroll Tax: Tax on employment income withheld by the employer under a pay-as-you-earn (PAYE) scheme and remitted to the tax authorities.
Real Property Tax: Individual states in Malaysia levy “quit” rent and assessments at varying rates.
Social Security: Both the employer and the employee are required to make contributions to the Social Security Organisation (SOCSO). The employer generally contributes 1.75% for each employee registered with the SOCSO. The employer and the employee also contribute to the Employees Provident Fund (EPF) at a rate of 12%/13% and 11% of the employee’s remuneration, respectively. Both the employee and the employer contribute 0.2% of the employee’s remuneration (capped at RM4000 a month) to the Employment Insurance System (EIS).
Stamp Duty: Stamp duty is levied at rates between 1% and 4% of the value of property transfers, and at 0.3% on share transaction documents.