# Malaysia Corporate Tax Rates

> The standard and SME corporate tax rates in Malaysia, the four conditions that disqualify a company from the SME rate — including the foreign-ownership limb added in YA2024 — and how the rate interacts with CP204.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/corporate-tax-rates

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Most guides tell you the SME rate starts at 15% and stop there. The interesting
question is not the rate — it is whether your company still qualifies, because
**four separate tests can disqualify you**, and one of them was added in YA2024
and is missing from most published guidance.

## The rates

| Company | Chargeable income | Rate |
| --- | --- | --- |
| Qualifying SME | First RM150,000 | **15%** |
| Qualifying SME | Next RM450,000 (to RM600,000) | **17%** |
| Qualifying SME | Above RM600,000 | 24% |
| Everyone else, and non-residents | All chargeable income | **24%** |

## The three conditions to qualify

Under Schedule 1 Part I paragraph 2A, a company must:

1. be **resident in Malaysia** for the basis year, **and be incorporated in
   Malaysia** — both, not either;
2. have paid-up capital in respect of ordinary shares of **RM2.5 million or
   less** at the beginning of the basis period; and
3. have **gross business income of RM50 million or less** for that year of
   assessment.

The incorporation limb catches people out. A company incorporated abroad but
managed and controlled from Malaysia may well be *resident* here — but it is not
*incorporated* here, so it cannot have the SME rate at any size.

## The four disqualifiers — including the one nobody publishes

Paragraph 2B removes the SME rate entirely if any of these apply:

| # | Disqualifier |
| --- | --- |
| (a) | More than **50%** of your paid-up capital is owned directly or indirectly by a related company |
| (b) | You own more than **50%** of a related company's paid-up capital |
| (c) | More than **50%** of both your capital and a related company's capital is owned by a third company |
| **(d)** | **More than 20% of your paid-up capital is owned, directly or indirectly, by companies incorporated outside Malaysia or by individuals who are not Malaysian citizens** — from **YA2024** |

Limb (d) is the one to check first. **Twenty per cent is a low bar**, it captures
indirect holdings, and it applies regardless of how small the company is. A
Malaysian Sdn Bhd with a single 25% foreign shareholder pays 24% from the first
ringgit.

Public Ruling 8/2025 closes the obvious workaround: where the Malaysian company
is held through a company incorporated outside Malaysia, the limb still bites
**even if the ultimate individual shareholders are Malaysian**. Interposing a
Singapore or Labuan holding company does not preserve the SME rate.

### "Related company" is a capital test, not a size test

Paragraph 2C defines a related company as one with paid-up ordinary share capital
**exceeding RM2.5 million**. Turnover, headcount and profitability are irrelevant.

This matters in both directions. A group of genuinely small companies, none with
capital above RM2.5 million, does not trigger limbs (a) to (c) at all. Conversely,
a dormant holding company with RM3 million of issued capital and no activity will
disqualify every subsidiary beneath it.

## The trap nobody joins up: SME rate and group relief cannot coexist

Group relief under s.44A requires paid-up capital **above** RM2.5 million on both
the surrendering and the claiming company. The SME rate requires it **at or
below** RM2.5 million.

So a company on the SME rate can never surrender or claim group losses, and a
company structured for group relief can never be on the SME rate. Every guide
covers these two reliefs separately; the choice between them is a real structuring
decision that has to be made once, deliberately.

## From accounting profit to chargeable income

The rate applies to chargeable income, which is not accounting profit:

1. **Add back non-deductible expenses** under s.39(1) — fines and penalties, the
   disallowed portion of entertainment, and expenses on which you failed to
   withhold tax, which are disallowed in full.
2. **Add back depreciation** and claim **capital allowances** instead, under
   Schedule 3.
3. **Deduct incentives** — reinvestment allowance, investment tax allowance, or
   pioneer status income where applicable.
4. **Deduct brought-forward losses** — capped at **10 consecutive years of
   assessment** — and unabsorbed capital allowances, which carry forward with
   **no time limit**. Both are subject to the shareholder-continuity test.

## CP204: paying before you file

- **Existing company** — submit CP204 no later than **30 days before** the basis
  period begins. The estimate must be at least **85%** of the previous year's
  revised estimate, from the second year of assessment onward.
- **New company** — where the first basis period is **at least six months**,
  submit within **three months of commencing operations**, and instalments start
  from the **sixth month**, not the second.
- **Instalments** are due on the **15th** of each month.
- **Revise** via CP204A in the **6th, 9th or 11th month** — the eleventh-month
  revision became permanent from YA2024 and is missing from most guidance still
  citing only the 6th and 9th.
- **Form C** is due within **7 months** of the accounting period close, with a
  further **one month** of e-Filing grace which also extends the balance-of-tax
  payment date.

A newly incorporated company that is resident and incorporated in Malaysia with
paid-up capital of RM2.5 million or less is **exempt from CP204 for its first two
years of assessment**. Note that this exemption turns on paid-up capital only —
the RM50 million gross income test belongs to the *rate*, not to this exemption.
The same four disqualifiers in paragraph 2B apply, including the foreign-ownership
limb.

## If you have been on the wrong rate

Limb (d) applies from YA2024, so a company with foreign shareholding may have
filed one or more returns at 15% or 17% when 24% was due. That is an
under-declaration, and it compounds: the tax itself, plus a penalty on the
shortfall, plus the knock-on effect on every CP204 estimate that was calculated
from the wrong base.

Do not wait for an audit to surface it. Voluntary disclosure carries materially
lower penalty rates than an LHDN-initiated adjustment, and the gap between the two
widens the longer the position stands. Establish which years are affected before
deciding how to correct them.

## Common mistakes

- **Assuming small means SME.** Profit size is the least important factor. Check
  incorporation, then the 20% foreign limb, then the related-company tests.
- **Missing limb (d) entirely.** It is absent from most published guidance
  because it only took effect in YA2024. A company with modest foreign investment
  may have been filing at the wrong rate.
- **Thinking a foreign holdco is neutral.** It actively causes the problem.
- **Reading "related company" as "large company."** It is a paid-up capital test
  at RM2.5 million.
- **Applying the 10-year loss cap to capital allowances.** Unabsorbed capital
  allowances have no time limit.
- **Revising only in the 6th or 9th month** and missing the 11th-month window.

## What's next

If limb (d) applies to you, the rate question is settled and the useful next
question is whether your estimate and instalment position is right — see the Form
C and CP204 mechanics, where the underestimation penalty is worked as arithmetic.

## Sources

- Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN)
- Public Ruling No. 8/2025 — Tax Treatment for Micro, Small and Medium Companies — https://www.hasil.gov.my/wp-content/uploads/pr-8-2025-tax-treatment-for-micro-small-and-medium-companies.pdf (LHDN)
- Company Tax Rates — https://www.hasil.gov.my/en/syarikat/kadar-cukai-syarikat/ (LHDN)
- Estimate of Tax Payable (CP204) — https://www.hasil.gov.my/en/syarikat/anggaran-cukai/ (LHDN)
- Return Form Filing Programme for the Year 2026 — https://www.hasil.gov.my/wp-content/uploads/program-memfail-bn-bagi-tahun-2026.pdf (LHDN)

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