Doing business as a separate legal entity through a registered company can provide you with advantages such as personal financial security and funding, but it also needs compliance with the laws and regulations in Malaysia. Tax, as required by the Lembaga Hasil Dalam Negeri (LHDN) and the Inland Revenue Board of Malaysia (IRBM) is one of the most concerning compliances that many entrepreneurs face. Understanding each company tax requirement can put you at ease on this matter and you can put more focus on growing your business. Some adjustments have been made to the tax deadlines due to the recent COVID-19 outbreak.
1. Corporate tax
Corporate tax is governed under the Income Tax Act 1967. All companies registered in Malaysia which generate chargeable income derived from Malaysia including business profits, dividends, interests, rents, royalties, premiums and other income are governed by this act. Income obtained from other countries is exempted from corporate tax except for businesses related to banking, insurance, and sea and air transport. However, just like personal income tax, there are tax exemptions like tax incentive and foreign tax credit which are available for businesses to utilize.
When do businesses have to pay corporate tax?
For newly registered companies, the estimation of tax payable must be filed within 3 months of operation and monthly instalments should be made starting from the 6th month of the assessment year by the 15th of each month. A company is required to file its taxes to LHDN within 7 months after the assessment year has ended. If the actual tax payable is greater than the monthly instalments paid, then balance of the tax payable has to be paid. On the other hand, if the actual tax liability is lower than the monthly instalments paid, you can apply for a tax refund. For Sdn Bhd companies with a paid-up capital of 2.5 million or less, you don’t have to submit the estimation of tax payable for the first 2 assessment years.
2. Withholding tax
Withholding tax applies only if your company is paying a non-resident individual or foreign company for their services. A certain percentage of the payment must be deducted and paid as their income taxes to the LHDN. According to Section 107A and Section 109 of the Income Tax Act 1967, each and every payment type has a different tax rate.
When to pay withholding tax?
The withholding tax needs to be paid within 1 month from the date of payment to the non-resident payee.
3. Payroll tax
As part of the employer’s responsibility, a company with employees will need to retain a percentage of the employees’ remuneration including salary, commission, bonus, incentives, etc. and pay as Monthly Tax Deduction (MTD) to LHDN on behalf of employees who are taxable. This deduction will be stated in the employees’ payslip as PCB (potongan cukai bulanan). If the employee is paying Zakat, a payment made under the Islamic law for charitable and religious purposes, the payroll tax can be deducted.
When to pay payroll tax?
PCB should be paid to LHDN by the 15th of each month, for the remuneration issued for the previous month.
4. Stamp duty
A company is required to pay for Stamp Duty when instruments are involved, which are written legal, commercial, and financial documents. Examples of taxable instruments are share transfers, partnership agreements and mortgage agreements.
When to pay stamp duty?
The instrument should be stamped within 30 days of the execution of the instrument
5. Sales & Service Tax (SST)
Sales tax was reinstated on 1 September 2018 as Malaysia moved away from the former GST regime. “Sales Tax” is a single-stage tax charged on taxable goods manufactured in or imported into Malaysia. As a general rule, goods are subject to sales tax at a rate of 10%, however some goods are taxed at the reduced rate of 5%, specific rates and others are specifically exempt.
On the other hand, “Service Tax” is charged on taxable services in Malaysia such as accommodation, gaming, telecommunication services, etc. provided by a taxable person.
There are several laws that govern SST. Your company is required to register for SST if the requirements are met.
When to pay Sales & Service Tax (SST)
SST should be paid bi-monthly, except for the 1st tax period after your registration with LHDN.
6. Real property gains tax (RPGT)
Real Property Gains Tax (RPGT) 2020 is a form of Capital Gains Tax that is imposed on the disposal of property in Malaysia. RPGT is applicable only if your company disposes of chargeable assets such as houses, commercial buildings, farms, and vacant lands, and also shares in real property companies, gaining profit from the disposal. The calculation of chargeable gain is the disposal price minus by acquisition price. The tax rates differ according to the holding period of the chargeable assets governed under the Real Property Gains Tax 1976.
When to pay real property gains tax (RPGT)
Within 60 days from the date of disposal, the acquirer of the chargeable assets and you are required to file the tax. The acquirer will pay part of the purchase consideration which will be deducted from the RPGT payable. An assessment notice will be issued for taxable cases after filling the tax. For non-taxable cases, a certificate of non-chargeability will be issued instead. You are then required to pay the RPGT payable within 30 days from the date the assessment notice is issued.
Other than the taxes stated above, there are customs duty, excise duty, property taxes (cukai tanah and cukai pintu) and other taxes which might be applicable to your company according to industry and nature of business. Fulfilling this obligation as a company should not be an obstacle that hinders your business growth or operations. Hence, understanding the taxes at the early stage of your business ensures full compliance with the tax law and regulations.