# How a Limited Liability Partnership is Taxed in Malaysia

> An LLP is taxed in its own right at 24%, with SME tiered rates available on a capital contribution test rather than paid-up capital — and from YA2026 individual partners pay 2% on distributions above RM100,000.

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

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The LLP is Malaysia's most under-explained business form, and the confusion
starts with the statute. The Income Tax Act 1967 defines **company** as a body
corporate — and does **not** include an LLP. It defines **partnership** and
expressly **excludes** an LLP. An LLP is caught instead by the definition of
**person**, and taxed in its own right.

## What rate does an LLP pay?

Paragraph 2(1)(f) of Schedule 1 charges an LLP at **24%**. The 33% band that
applies to chargeable income above RM100 million is drafted for a *company*
only, so it does not reach an LLP.

The SME rates come from **paragraph 2D**, the LLP equivalent of paragraph 2A for
companies:

| Chargeable income | Rate |
| --- | --- |
| First RM150,000 | 15% |
| Next RM450,000 | 17% |
| Above RM600,000 | 24% |

## The capital test is where LLP and Sdn Bhd diverge

An Sdn Bhd is tested on **paid-up capital in respect of ordinary shares**. An
LLP has no shares, so paragraph 2D tests something different: a total
**contribution of capital, whether in cash or in kind**, of RM2.5 million or
less **at the beginning of the basis period**, plus gross business income not
exceeding RM50 million.

That phrase *or in kind* is the trap. Contributing equipment, property or
intellectual property to the LLP counts toward the RM2.5 million just as cash
does. A partnership that capitalises assets instead of cash can breach the
threshold without a ringgit changing hands.

Paragraph 2E then disqualifies an LLP where more than 50% of its capital
contribution comes directly or indirectly from a company, where the LLP owns
more than 50% of a company's ordinary paid-up capital, or where the two are
cross-held above 50%. A distinct limb has no company analogue: the LLP also
fails where **more than 20%** of its capital contribution comes from companies
incorporated outside Malaysia or from **non-citizen individuals**. Paragraph 2F
confines this to companies with paid-up capital above RM2.5 million.

## What partners pay

Historically, distributions were simply exempt in the partners' hands under
paragraph 12C of Schedule 6. The **Finance Act 2025 (Act 874)** changed that
with effect from **YA2026**:

- paragraph 12C now exempts distributions to partners **other than an
  individual** — corporate partners remain fully exempt;
- new paragraph 12D exempts an individual partner on distributions of
  **RM100,000 or less**; and
- new section 6(1)(s) and Schedule 1 Part XXIII charge an individual partner at
  **2%** on Malaysian-derived profits distributed, in cash or in kind, **in
  excess of RM100,000**.

Public Ruling No. 8/2022 still describes the old blanket exemption. It has not
been withdrawn, and it is now wrong on this point.

## Deductions, filing and audit

**Partner remuneration** is disallowed by **s.39(1)(n)** unless it is specified
or provided for in the LLP agreement made under s.9 of the LLPA 2012. PR 8/2022
reads *remuneration* as basic salary and fixed allowances, excluding the
employer's EPF, SOCSO and insurance contributions.

**Form PT** is due within **seven months** from the day after the close of the
accounting period (s.77A(1)), and e-Filing has been mandatory since YA2021 under
s.77A(1A).

**CP204** applies in full. There is no LLP version of the two-year waiver in
s.107C(4A) — that provision is written for a resident company incorporated in
Malaysia with paid-up capital of RM2.5 million or less. PR 8/2022 confirms the
exclusion, including for a company that converts into an LLP, whose business is
treated as continuing.

On the SSM side, s.68 of the LLPA 2012 requires an **annual declaration of
solvency by any two partners within 90 days** of the financial year end, the
first within 18 months of registration. And under **s.69(5)**, an LLP's accounts
**need not be audited** unless the LLP agreement requires it — the single
largest ongoing cost difference against an Sdn Bhd.

## Common mistakes

- Testing an LLP on paid-up capital. It has none; the test is capital
  contribution including contributions in kind.
- Paying partners a salary that is not written into the LLP agreement, then
  claiming it — s.39(1)(n) disallows it.
- Assuming a new LLP is exempt from CP204 for two years. It is not.
- Relying on PR 8/2022 for the treatment of distributions to individual
  partners.
- Treating an LLP as a partnership for tax filing. It files Form PT as a person,
  not Form P.

## What's next

If you are choosing between forms, price the real difference: no statutory
audit, a capital test that in-kind contributions can breach, and a 2% charge on
individual partners above RM100,000 from YA2026. If you already run an LLP,
check that every partner payment is specified in the LLP agreement before the
next return.

## Sources

- Income Tax Act 1967 (Act 53), consolidated text — https://lom.agc.gov.my/act-detail.php?act=53&lang=BI (Attorney General's Chambers)
- Limited Liability Partnerships Act 2012 (Act 743) — https://lom.agc.gov.my/act-detail.php?act=743&lang=BI (Attorney General's Chambers)
- Finance Act 2025 (Act 874) — https://lom.agc.gov.my/act-detail.php?act=874&lang=BI (Attorney General's Chambers)
- Public Ruling No. 8/2022 — Taxation of Limited Liability Partnership — https://www.hasil.gov.my/wp-content/uploads/pr_8_2022.pdf (LHDN)
- Program Memfail Borang Nyata Bagi Tahun 2026 — https://www.hasil.gov.my/wp-content/uploads/program-memfail-bn-bagi-tahun-2026.pdf (LHDN)

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