# Global Minimum Tax in Malaysia: DTT and MTT

> What the Malaysian subsidiary of an in-scope multinational group has to do under Part XI of the Income Tax Act 1967 — who files the Top-up Tax Return, what breaks the transitional safe harbour, and how a 15% effective tax rate interacts with Malaysian incentives.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/global-minimum-tax-pillar-two

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Almost everything written about Pillar Two is written for the ultimate parent
entity. If you run finance for a Malaysian subsidiary of a foreign group, that
is the wrong audience — the parent decides the group's position, but **you** are
the one LHDN expects a return from.

Malaysia's rules are in **Part XI of the Income Tax Act 1967, sections 157 to
239**, effective for financial years beginning on or after **1 January 2025**.
They come in two parts: the **Domestic Top-up Tax (DTT)**, Malaysia's qualified
domestic minimum top-up tax, and the **Multinational Top-up Tax (MTT)**, its
income inclusion rule. This page is about what the Malaysian entity does.

## Are we in scope?

The test is at group level. A Malaysian constituent entity is subject to DTT if
the multinational group's **consolidated annual revenue reached EUR 750 million
in at least two of the four preceding financial years**.

Two clarifications from LHDN's FAQ version 7.0 matter here:

- The group must be **multinational in the tested year** only. For the two-of-four
  revenue test, it may have been a purely domestic group in those earlier years.
  A group that internationalised recently does not get a grace period.
- The effective date runs off the **ultimate parent entity's consolidated
  financial statement accounting period**, not the Malaysian entity's.

Practical consequence: the size of your Malaysian operation is irrelevant. A
RM30 million subsidiary of a EUR 2 billion group is in scope; a RM900 million
Malaysian group with no foreign presence is not.

Some entities are excluded from DTT scope entirely — government entities,
international organisations, non-profit organisations, pension funds, and
investment funds or real estate investment vehicles that are ultimate parent
entities — along with certain 95%-owned or 85%-owned holding and ancillary
entities beneath them.

## Who files what

This is where subsidiary teams most often get it wrong, because two different
returns get called *the Pillar Two filing*.

| | GloBE Information Return (GIR) | Top-up Tax Return (TTR) |
| --- | --- | --- |
| Who files | The ultimate parent entity **or** a designated filing entity, once for the group | **Each** constituent entity located in Malaysia |
| Contents | The full top-up tax computation, for exchange with other jurisdictions | The tax liability of that entity — a simplified return |
| Filed with | LHDN, which exchanges it onward | LHDN |
| Deadline | 15 months after the reporting financial year end; 18 months for the first transition year | The same |

Paragraph 10.1 of the Domestic Top-up Tax guidelines is unambiguous: **every**
constituent entity of an MNE group located in Malaysia furnishes its own DTT
Top-up Tax Return, electronically, in the prescribed form. Paragraph 10.3 adds
that the return reflects **either a declaration of no tax liability or the amount
payable** — a nil position still requires a return.

One trap on group structuring: an MNE group **cannot appoint more than one
Designated Local Entity** to file the GIR for different groups of constituent
entities. There is one GIR filer.

### The deadline runs off the parent's year end

LHDN's FAQ answers this directly: the 15-month, or 18-month transitional, due
date is based on the **financial year end of the ultimate parent entity, not the
respective constituent entity**. The same applies to a joint venture with a
different year end from its parent.

For a group with a 31 December year end, the first financial year in scope ends
**31 December 2025**, and the first GIR and TTR are due **30 June 2027**.

And the point that keeps getting lost in group planning calls: **the Form C
deadline is unchanged**. LHDN states it explicitly — 31 July with a one-month
grace period for a December year end. Top-up tax filing is an addition to the
ordinary corporate compliance calendar, not a substitute for any part of it.

Returns must be submitted in **Malaysian ringgit**. Where the computation was
done in the parent's presentation currency, convert using the **average Bank
Negara Malaysia monthly exchange rate** for the financial year.

## What breaks the safe harbours

Most in-scope Malaysian entities will spend the first few years trying to land
inside the **Transitional CbCR Safe Harbour** rather than running a full GloBE
computation. Two conditions are doing the work, and both are failable by a
subsidiary's own administration.

**The Country-by-Country Report must be filed.** LHDN's FAQ is categorical: for
the transitional safe harbour, submission of a CbC Report is a **prerequisite**,
and groups subject to CbC reporting that fail to file **are not eligible**. A
missed CbCR filing does not cost a penalty alone — it costs the safe harbour,
and with it the exemption from full GloBE calculations.

**The report must rest on Qualified Financial Statements.** The financial
information must not be adjusted to align with the GloBE rules, except for
purchase price allocation adjustments needed to meet the consistent reporting
condition, and goodwill impairment adjustments. Qualified Financial Statements
means the accounts used to prepare the parent's consolidated financial
statements, or separate constituent entity financial statements prepared under
an acceptable or authorised accounting standard and reliably maintained. All
entities in the tested jurisdiction must draw on the **same type** of qualified
financial statement.

The transitional safe harbour is time-limited. For DTT purposes it applies only
for financial years **beginning on or before 31 December 2027**, and not to any
financial year **ending after 30 June 2029**.

Separately, where Malaysian constituent entities qualify for the **QDMTT Safe
Harbour**, the group is exempted from performing additional GloBE calculations
for them — which is the practical point of Malaysia having a qualified domestic
regime at all.

## Local accounts, and when you may use them

A useful Malaysian-specific concession sits at subsection 164(2) of the ITA
1967. The DTT may be computed from financial statements prepared under **local
accounting standards** — MFRS or MPERS — instead of the group's standard,
provided that:

- **all** Malaysian constituent entities have the **same financial year as the
  ultimate parent**; and
- each prepares its own financial statements, which are either required to be
  kept or used under Malaysian written law, or audited by an approved company
  auditor.

LHDN's FAQ confirms that **unaudited** local accounts may be used, so long as
those same accounts are used for SSM submission or corporate income tax filing
and the other s.164(2) conditions are met. It also confirms that MFRS and MPERS
may coexist across entities in the same group.

Miss either condition and the computation reverts to the parent's consolidated
accounting standard and presentation currency — which usually means the
Malaysian team loses control of the numbers.

## How Malaysian incentives interact with the 15% rate

The mechanism is worth stating plainly because the conclusion is
counter-intuitive.

A Malaysian incentive that reduces tax payable — pioneer status, investment tax
allowance, reinvestment allowance, a reduced rate under a gazette order —
reduces **adjusted covered taxes**. The effective tax rate for the jurisdiction
is covered taxes over GloBE income. Push covered taxes down far enough and the
jurisdictional ETR falls below 15%, and the DTT collects the shortfall. Malaysia
keeps the revenue instead of another country's income inclusion rule taking it,
which is the design intent of a qualified domestic regime — but the incentive's
benefit to the group is gone either way.

What survives is the **substance-based income exclusion**: a carve-out of a
return on eligible payroll costs and the carrying value of eligible tangible
assets, which is deducted before top-up tax applies. Section 197 of the ITA 1967
gives a more generous SBIE percentage across an **eight-year transition period**,
and this transitional relief applies to the DTT computation.

LHDN's FAQ adds three usable details on the SBIE. Tangible assets shown under
property, plant and equipment but **not yet in use** during the year still
count. **Work in progress** capitalised and reported as PPE in the consolidated
statements counts. And reimbursements to employees for **housing or
transportation** are eligible payroll costs.

The strategic reading: incentives attached to real Malaysian headcount and real
Malaysian fixed assets keep more of their value under Pillar Two than incentives
attached to income. Two further points from the FAQ round out the covered-tax
picture — **real property gains tax is a covered tax**, while **zakat on
business is not**, because it is a religious duty rather than a compulsory
payment to general government.

## Common mistakes

- **Assuming the parent handles everything.** The GIR is a group filing; the
  Top-up Tax Return is per Malaysian entity, including a nil one.
- **Working to the local year end.** Both deadlines run off the ultimate
  parent's financial year end.
- **Treating a missed CbCR filing as a minor lapse.** It removes eligibility for
  the Transitional CbCR Safe Harbour outright.
- **Adjusting CbCR figures to look more GloBE-compliant.** Qualified Financial
  Statements must be unadjusted apart from purchase price allocation and
  goodwill impairment.
- **Letting one Malaysian entity drift onto a different year end from the
  parent.** It disqualifies the whole Malaysian group from using local accounts
  under s.164(2).
- **Assuming an existing incentive is unaffected.** It reduces covered taxes,
  and the domestic top-up tax reclaims the difference.
- **Reading OECD guidance as optional.** LHDN states that agreed administrative
  guidance issued by the OECD is automatically incorporated into Malaysian GMT
  rules, and prevails over LHDN's own guidelines where they conflict.
- **Relying on transitional penalty relief as a filing exemption.** It applies
  to accuracy where reasonable measures were taken, during the transition
  window, and only to groups that actually file.

## What's next

The concrete work for a Malaysian subsidiary in the current year is
unglamorous. Confirm with the parent that the group crosses the two-of-four
revenue test and which entity will be the designated filing entity. Confirm the
group's CbC Report has been filed for every relevant year, because that filing
is now load-bearing. Check whether every Malaysian constituent entity shares the
parent's financial year end, and fix it if not.

Then model the jurisdictional effective tax rate against the substance-based
income exclusion, so that when the group asks whether Malaysia will produce a
top-up tax liability, the answer comes from your numbers rather than the
parent's estimate.

## Sources

- Guideline — The Implementation of Domestic Top-up Tax in Malaysia — https://www.hasil.gov.my/wp-content/uploads/domestic-topup-tax-guidelines.pdf (LHDN)
- Frequently Asked Questions on the implementation of the Global Minimum Tax (GMT) in Malaysia, version 7.0 — https://www.hasil.gov.my/wp-content/uploads/faq-ver-70_23042026.pdf (LHDN)
- Global Minimum Tax (GMT) reference page — https://www.hasil.gov.my/antarabangsa/global-minimum-tax-gmt/ (LHDN)
- Tax Challenges Arising from the Digitalisation of the Economy — Global Anti-Base Erosion Model Rules (Pillar Two) — https://www.hasil.gov.my/wp-content/uploads/model-globe-rules-published-20-december-2021.pdf (OECD, republished by LHDN)
- Safe Harbours and Penalty Relief — Global Anti-Base Erosion Rules (Pillar Two) — https://www.hasil.gov.my/wp-content/uploads/safe-harbours-and-penalty-relief-published-20-december-2022.pdf (OECD, republished by LHDN)

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