Malaysia's Tax System and Framework in 2025

Malaysia operates under a dual-tier tax system, where both federal and state governments have distinct taxation powers. The Ministry of Finance oversees national tax administration, setting policy and ensuring compliance through key agencies: the Inland Revenue Board (IRB), responsible for direct taxes, and the Royal Malaysian Customs Department, which manages indirect taxes. Direct taxes include corporate income tax, personal income tax, and petroleum income tax, while indirect taxes cover import duties, sales tax, service tax, excise duties, and stamp duty. State governments independently levy taxes on land, minerals, forestry, licenses, entertainment, accommodation, and property rates. Notably, foreign companies and individuals are subject to the same tax obligations as local entities and residents, ensuring a level playing field.

Key Taxes and Rates in Malaysia (2025)

Corporate Income Tax

The standard corporate tax rate in Malaysia remains at 24%. However, small and medium-sized resident enterprises—defined as those with paid-up capital not exceeding MYR 2.5 million and not part of a larger corporate group—benefit from a reduced rate. For taxable income up to MYR 600,000, the rate is 17%, down from 18% in earlier years. Income above this threshold is taxed at the full 24%. This incentive supports local entrepreneurship and SME growth across sectors such as technology, manufacturing, and services.

Petroleum Income Tax

Companies engaged in upstream oil and gas operations in Malaysia, including Petronas and its joint venture partners like the Malaysia-Thailand Joint Authority, are taxed at a higher rate of 38%. This reflects the strategic importance and profitability of the energy sector, with special provisions often outlined in production-sharing contracts.

Personal Income Tax

Under the Income Tax Act, any individual—Malaysian or foreign—who resides in Malaysia for more than 182 days within a calendar year and earns income must file a tax return. The progressive tax scale ranges from 1% to 30%, with the first MYR 5,000 exempt from tax. The top marginal rate of 30% applies to annual income exceeding MYR 2 million. Foreign nationals working in Malaysia are generally taxed at a flat rate of 30% unless covered by a double taxation agreement (DTA) that provides relief.

Withholding Tax

Withholding tax applies to payments made to non-residents and is deducted at source by the payer. Common rates include: 10% on technical fees, royalties, and service charges; 15% on interest; 10% on contract payments to non-resident contractors (with employees taxed at 3%); and 10% on commissions, brokerage, and similar fees. These rates may be reduced under applicable DTAs, such as those with Singapore, Australia, or Germany, encouraging cross-border investment and collaboration.

Real Property Gains Tax (RPGT)

RPGT is imposed on gains from the disposal of real estate and related rights, including shares in property-rich companies. The rate depends on the holding period: 30% if sold within 3 years; 20% in the fourth year; 15% in the fifth year; and 5% from the sixth year onward. A 0% rate applies to disposals by individuals after the seventh year, promoting long-term investment in property markets. Certain exemptions exist for first-time home sellers and transfers between family members.

Import Duty

Most imported goods are subject to customs duties, calculated either ad valorem (based on value) or specific (per unit). In recent years, Malaysia has eliminated import duties on numerous raw materials, machinery, and components to support industrial expansion and digital transformation. Strategic sectors such as renewable energy, electric vehicles, and semiconductor manufacturing benefit from duty-free imports of critical equipment.

Export Duty

Malaysia imposes export taxes on select natural resources to manage supply and generate revenue. Products subject to export duties include crude oil, timber, sawn logs, and crude palm oil. Rates vary from 0% to 20%, depending on global prices and domestic availability. For example, palm oil exports are subject to a sliding-scale duty based on reference prices set monthly by the Palm Oil Council.

Excise Duty

Under the Excise Act 1976, excise taxes apply to domestically produced or imported goods deemed non-essential or luxury items. These include tobacco products, alcoholic beverages, motor vehicles, motorcycles, four-wheel drives, playing cards, and mahjong sets. Rates differ significantly—for instance, cigarettes face high per-pack levies, while luxury cars are taxed based on engine capacity and value.

Sales and Service Tax (SST)

SST comprises two separate taxes: Sales Tax (on manufactured goods) and Service Tax (on specified services). Businesses with annual taxable sales exceeding MYR 500,000 are required to register, except food and beverage providers, whose threshold is MYR 1.5 million. The standard SST rate is 10%, though certain sectors like telecommunications and financial services may have different rates. This simplified system replaced the Goods and Services Tax (GST) in 2018 and continues to streamline compliance.

Stamp Duty

Stamp duty is levied on legal documents such as loan agreements, tenancy contracts, share transfers, and property deeds. It can be fixed or ad valorem. For example, property transactions incur progressive rates up to 4% on consideration above MYR 1 million, while share transfers are charged at MYR 10 per MYR 1,000 of value. Digital documentation platforms now allow e-stamping, improving efficiency and reducing fraud.

Digital Services Tax

In April 2019, Malaysia introduced a 6% service tax on foreign digital service providers under the Service Tax (Amendment) Act 2019. This applies to companies offering streaming, online advertising, cloud computing, and app-based services to Malaysian consumers, even without a physical presence. Platforms like Netflix, Google, and Spotify are registered and collect this tax, aligning Malaysia with global trends in taxing the digital economy.

Windfall Profit Tax (Cukai Makmur)

Introduced in the 2022 budget, the Cukai Makmur—or 'Prosperity Tax'—targets large corporations with annual taxable income exceeding MYR 100 million. These firms face an additional surcharge ranging from 24% to 33%, depending on industry and profit levels. Initially aimed at banking, plantation, and manufacturing giants during periods of exceptional profitability, the tax remains in effect in 2025 as part of fiscal consolidation efforts amid post-pandemic recovery.

Special Economic Zones and Incentives

Free Trade Zones and Bonded Manufacturing Facilities

Established under the Free Zones Act of 1990, Malaysia’s free trade zones (FTZs) promote export-oriented industries such as electronics, textiles, and logistics. Companies operating in FTZs enjoy exemptions from import duties and excise taxes on raw materials and components. Additionally, bonded manufacturing facilities allow deferred payment of duties until goods enter the domestic market, enhancing cash flow and competitiveness.

Five National Economic Corridors

Malaysia has developed five major economic corridors to drive regional development and attract foreign investment:

• Iskandar Malaysia (Johor): Focuses on urban development, education, healthcare, and advanced manufacturing.
• Northern Corridor Economic Region (NCER): Covers Perlis, Kedah, Penang, and Perak, emphasizing agro-based industries, tourism, and high-tech manufacturing.
• East Coast Economic Region (ECER): Spans Kelantan, Terengganu, Pahang, and northern Johor, targeting oil & gas, fisheries, and eco-tourism.
• Sabah Development Corridor (SDC): Promotes agriculture, tourism, and maritime industries in eastern Sabah.
• Sarawak Corridor of Renewable Energy (SCORE): Leverages hydropower to develop aluminum smelting, data centers, and green hydrogen projects.

Each corridor offers tailored tax incentives, including pioneer status (5–10 years of partial or full tax exemption), investment tax allowances, and infrastructure grants.

The Greater Kuala Lumpur Initiative

Launched as part of Malaysia’s national transformation program, the Greater Kuala Lumpur project aims to elevate the capital into one of the world’s top 20 most livable cities by 2025. The initiative includes massive investments in public transport (e.g., MRT lines), affordable housing, smart city technologies, and sustainable urban planning. Businesses relocating to designated hubs within KL receive preferential treatment, including fast-track approvals and tax breaks. The plan also fosters innovation districts like KL Metropolis and TRX (Tun Razak Exchange), positioning Malaysia as a regional financial and tech hub.

For expatriates and global professionals navigating Malaysia’s evolving tax landscape, expert advisory services are essential. SailGlobal offers comprehensive offshore human resource solutions, helping international firms comply with local regulations while optimizing workforce deployment.