Malaysia Corporate Tax Rates

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.