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Tips for Small Business Tax Deductions in Malaysia

March 04, 2016 | Trinh Danh

Malaysian small to medium businesses (SMBs) or enterprises (SMEs) can avail of multiple tax benefits to get maximum tax savings. The Malaysian government has also incentivized SME growth by giving them tax benefits or breaks under certain legal circumstances for them to increase their potential profits and decrease the number of overhead expenses as they struggle to stay afloat in the first few years of their existence. 

Lower Corporate Income Tax and Tax Rates 

If your company has a taxable income of less than 500,000 Malaysian Ringgit, then your business with being taxed at a 19 percent rate versus the usual 25 percent. Before 2016, the reduced rate was at 20 percent, but because the Malaysian government wants to increase SME growth within the country, they lowered the reduction percentage even more. 

Here are the two things you need to remember about Malaysia's personal income tax rates at present. 

  • Progressiveness: Malaysia's progressive tax rates mean you only have to pay a higher rate on the amount above the rate. This is to avoid receiving less income after tax from earning more. 
  • Chargeable Income: Tax rates apply to chargeable income, not total income or salary. This is calculated after tax reliefs and tax exemptions. 

Malaysian Tax Incentives 

Malaysia also offers a multitude of tax incentives that range from tax deductions to tax exemptions as well as allowances (which can be carried forward until a company decided to use it).  These benefits depend on the sector your business resides. Here are the two most relevant ones for SME usage. 

  • Merger and Acquisition: If Malaysians fully own your service sector SME, then it could receive a flat tax rate of 20 percent of all its income. This applies to companies that carry out a scheme of merger and acquisition approved by Malaysia's Small and Medium Enterprises Corporation. 

The flat rate applies for 5 years or half a decade from the date of completion of the merger. These SMEs will also acquire certain exceptions on stamp duty as indicated by the policies of this particular Malaysian tax incentive scheme. 

  • Information and Communication Technology: As for SMEs involved in IT and telecommunications tech, they are eligible for a 20 percent annual deduction for half a decade as well for all the costs incurred on development from their e-commerce website. If it is a virtual overhead expense, then it is applicable under this program. 

Double Deductions in Malaysia 

Aside from the incentives discussed above, other expenses qualify for a double deduction in Malaysia. These include the following: 

  • Expenses from participation in career fairs abroad that are endorsed by Talent Corp.
  • Expenditures for Goods and Service Tax (GST) connected to employee training in accounting as well as information and communication technology.
  • Employee childcare allowances.
  • Expenses made by enterprises when it comes to employee training under an approved training regimen.
  • Expenditure that involves obtaining of recognized quality standards, halal certification, and systems. 

If you wish to learn more about deductible expenses, read up on the PWC Malaysian Tax and Business booklet. 

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