How a Limited Liability Partnership is Taxed in Malaysia

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.