# Losses, Group Relief and Unabsorbed Capital Allowances

> The ten-year cap on carried-forward business losses, why unabsorbed capital allowances are not capped, the section 44A group relief conditions, and what a change of shareholders does to a dormant company's losses.

- Category: taxation
- Language: en
- Status: published
- Updated: 2026-07-20
- Canonical: https://negaraku.md/en/taxation/losses-and-group-relief

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Two companies in the same group, both making losses, both with directors who
assume the losses will be there when profits come. One will still have them in
2035. The other will not, and nothing about its trading explains the difference.

Loss relief in Malaysia is governed by three separate mechanisms that most guides
run together: a ten-year expiry, a shareholder-continuity test, and a group
surrender regime that excludes almost every SME. They interact badly.

## How long do carried-forward losses last?

Section 44(5F) limits the deduction of an unabsorbed adjusted business loss to
**ten consecutive years of assessment**, and the period **commences immediately
following the relevant year of assessment**. Any balance at the end is disregarded
for the purposes of the Act.

So a loss arising in YA2020 is deductible from YA2021 through YA2030, and is gone
from YA2031. Public Ruling No. 1/2022 works exactly that example.

The history matters because a lot of ranking content is stuck at the wrong number.
The Finance Act 2018 introduced a **seven**-year limit with effect from YA2019.
The Finance Act 2021 amended it to **ten** years, also with effect from YA2019.
Paragraph 4.3 of the ruling records the change. Anything still quoting seven years
is citing repealed law.

There is also a transitional rule most people never reach. Amounts ascertained
under s.44(4) or (5) for YA2017 and earlier that had not been deducted by YA2018,
and any YA2018 amount, may be utilised against statutory business income under
s.43(2) **for YA2019 to YA2028**. The oldest stock of losses in Malaysian
companies has a fixed expiry of YA2028, independent of when it arose.

## Unabsorbed capital allowances are not capped

This is the single most common error in Malaysian loss content, and it points the
wrong way — it makes companies write off relief they still have.

Paragraph 75 of Schedule 3 says that where an allowance cannot be given in full
because of insufficient or absent adjusted income, the unused amount is **deemed
to be an allowance for the first subsequent year of assessment in which there is
adjusted income from that business, and so on for subsequent years of assessment
until the whole amount has been made**. No period is stated. There is no ten-year
cap on unabsorbed capital allowances.

What capital allowances *do* share with losses is the shareholder test.

## What a change of shareholders does

Section 44(5A) disregards a carried-forward loss unless the Director General is
satisfied that the shareholders on the **last day of the basis period in which the
loss was ascertained** were substantially the same as those on the **first day of
the basis period in which it would otherwise be deducted** — and the amount
disregarded is not allowed in any later year either. Paragraph 75A of Schedule 3
imposes the identical test on unabsorbed capital allowances.

Section 44(5B) defines “substantially the same” with two limbs that must **both**
be satisfied on both dates:

- more than **50% of the paid-up capital** in respect of ordinary shares is held
  by or on behalf of the same persons; **and**
- more than **50% of the value of the allotted ordinary shares** is held by or on
  behalf of the same persons.

Shares held by another company are deemed held by that company's own shareholders,
so a change two levels up in a group can still break continuity.

### The dormancy carve-out that decides most real cases

On its face s.44(5A) would kill the losses of every acquired company. It does not,
because s.44(5D) lets the Minister exempt a company in special circumstances, and
paragraph 8.3 of Public Ruling No. 1/2022 records that **from YA2006 the Minister
has allowed a company with a substantial change in shareholding to carry forward
its accumulated losses — unless the substantial change occurs in a dormant
company**.

That reverses the practical position entirely. A trading company can change hands
and keep its losses. A **dormant** company cannot.

The ruling defines dormant tightly: no significant accounting transaction in **one
financial year prior** to the substantial change in equity shareholding, meaning
no entry in the accounts other than the minimum expenditure needed to meet
statutory requirements. It lists that minimum exhaustively:

- filing of the company's annual return with SSM
- secretarial fee for filing the annual return
- tax filing fee
- audit fee
- accounting fee

Which is to say: buying a clean shell for its accumulated losses does not work,
and it is the *shell*, not the size of the loss, that triggers the disallowance.
A company that kept even modest genuine trading activity in the year before the
sale is outside the definition — but note the test bites on the financial year
**before** the change, so a buyer who restarts trading after signing has already
missed the window.

## Group relief: the regime that excludes SMEs

Section 44A lets a **surrendering company** give up not more than **70%** of its
adjusted loss for a basis period to one or more **claimant companies** in the same
group. Both sides must be resident in that basis year and incorporated in Malaysia.

The qualifying criteria in s.44A(2), restated at paragraph 6 of Public Ruling No.
2/2025, are cumulative:

| Condition | Detail |
| --- | --- |
| Incorporation | Both companies incorporated in Malaysia |
| Residence | Both resident in Malaysia in the basis year for that year of assessment |
| Relationship | Related throughout the basis period **and** the 12 months immediately preceding it |
| Paid-up capital | **More than RM2.5 million** in ordinary shares at the beginning of the basis period, for both |
| Basis periods | 12 months each, **ending on the same day** |
| Election | Irrevocable, made in the Form C furnished under s.77A for that year |
| Rate | Both taxed at the paragraph 2 rate of Part I of Schedule 1 |
| Claimant | Must have a defined aggregate income for that year |

The paid-up capital condition is the one nobody flags. It requires capital
**above** RM2.5 million — the same threshold that, in the *other* direction, gates
the SME rates in paragraph 2A. A company qualifying for 15% and 17% is therefore
structurally excluded from group relief, and the rate condition reinforces it by
requiring taxation at the paragraph 2 rate. Group relief is a large-company regime.

**Related** means at least **70%** of the ordinary shares, held directly or
indirectly through other companies **resident and incorporated in Malaysia**;
paragraph 7.1 of the ruling notes that any shareholding through companies neither
incorporated nor resident in Malaysia is **disregarded** in the computation, while
a Labuan company incorporated under the Labuan Companies Act 1990 counts as
incorporated in Malaysia. A second-level test under s.44A(7) then asks whether the
claimant is beneficially entitled to 70% of residual profits and residual assets.

### The three-year window

Section 44A(1) and (1A) confine surrender to **three consecutive years of
assessment**, running from immediately after the surrendering company's first
12-month basis period. Where the first basis period is not 12 months, the clock
starts after the second. A company that commenced operations in 2019 with a
calendar year end may surrender for YA2020, YA2021 and YA2022 — and from YA2023 it
cannot surrender at all. Paragraph 5.2 of the ruling closes off the older
population entirely: a company that commenced before YA2015 is not eligible.

Only **current-year** adjusted losses may be surrendered. Carried-forward losses
stay with the company that incurred them.

### Defined aggregate income

The claim is capped at the claimant's defined aggregate income, which is aggregate
income less current-year adjusted business loss under s.44(2), qualifying
prospecting expenditure under Schedule 4, qualifying pre-operational business
expenditure under Schedule 4B, and gifts and donations under the various limbs of
s.44(6) to (11D). A claimant that has already absorbed everything with donations
has no capacity left.

## Common mistakes

- **Applying the ten-year cap to unabsorbed capital allowances.** Paragraph 75 of
  Schedule 3 has no time limit. Only s.44(5F) losses expire.
- **Still quoting seven years.** The Finance Act 2021 made it ten, retrospective
  to YA2019.
- **Treating any change of control as fatal to losses.** Since YA2006 the general
  Ministerial relaxation means only dormant companies actually lose them.
- **Testing dormancy at the wrong date.** The test is the financial year
  **before** the substantial change, not the year of the change or after it.
- **Assuming a profitable SME can absorb its sister company's loss.** Group relief
  needs paid-up capital above RM2.5 million on both sides and taxation at the
  paragraph 2 rate.
- **Leaving the election out of the Form C.** It is irrevocable and must be made
  in the return for that year of assessment; there is no later application.
- **Counting a foreign intermediate holding company toward the 70%.** Shareholding
  through companies not incorporated and not resident in Malaysia is disregarded.

## What's next

If group relief is closed to you because of the RM2.5 million floor, the value
sits in timing instead: keep the loss company trading enough to stay outside the
dormancy definition, and track each year's loss against its own ten-year expiry
rather than as a single pooled balance. Confirm residence first, since both loss
relief regimes and the SME rates all fail without it.

## Sources

- Public Ruling No. 1/2022 — Time Limit for Unabsorbed Adjusted Business Losses Carried Forward — https://www.hasil.gov.my/wp-content/uploads/PR_01_2022.pdf (LHDN)
- Public Ruling No. 2/2025 — Group Relief for Companies — https://www.hasil.gov.my/wp-content/uploads/pr-2-2025-group-relief-for-companies.pdf (LHDN)
- Income Tax Act 1967 (Act 53), reprint as at 21 May 2024 — sections 43, 44, 44A and Schedule 3 paragraphs 75, 75A, 75B — https://www.hasil.gov.my/wp-content/uploads/20240521-akta-cukai-pendapatan-1967-akta-53.pdf (LHDN)
- Public Rulings index — https://www.hasil.gov.my/en/perundangan/ketetapan-umum/ (LHDN)

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