Malaysia

Market overview

In January 2017, Malaysia announced its intention to participate in the BEPS inclusive framework as a BEPS associate.

This move requires changes in Malaysia's domestic legislation and illustrates the government's desire to align with OECD country standards. It also enables the government to directly participate in shaping international tax rules to address tax evasion and avoidance issues. Meanwhile, tax authorities have also been displaying a more enhanced focus on TP audits.

"The authorities are trying to get to grips with BEPS. The [Malaysian] government is trying to align itself with what was signed and committed to in the BEPS action plan," said Adeline Wong, who heads the tax practice group at Wong & Partners.

Malaysia's tax authority, the Inland Revenue Board (IRB), has taken a proactive role in promoting the new BEPS regime. The IRB's CEO Datuk Sabin bin Samitah has ambitious plans. "His focus is to enforce tax compliance and he has a huge collection target," said Theresa Goh, the head of the TP practice at Deloitte.

"Time for the settlement of transfer pricing and tax audits is getting shorter. [The IRB is] in a hurry to settle cases," she said.

Bob Kee, co-lead partner in charge of transfer pricing at KPMG, said that the IRB is intensifying its tax auditing activities. "It is broadening its reach and targeting professionals. It is more challenging for clients because the IRB is getting more sophisticated and aggressive," he said.

Goh Ka Im, the head of the tax and revenue practice group at Shearn Delamore & Co agreed that the IRB has been actively pursuing TP audits and retroactive adjustments.

"The director-general [Sabin bin Samitah] wants to collect more tax than his predecessor," she said. "This carries over into initiatives trying to challenge and overturn tax cases we won years ago. This led to very aggressive audits with some astronomical figures thrown around for back years. Some cases go back as far as 2008."

Kee and Chang Mei Seen, an executive director at KPMG, have written in International Tax Review about the Malaysian government's creation of a special tax investigation team in December 2016. The so-called LHDN Tax Investigation Team 2017 consists of 272 intelligence officers and tax investigators. Part of the team's agenda is to audit MNEs that transfer their profits to countries with lower tax rates than Malaysia.

The Central Bank of Malaysia is also involved in assisting its government in curbing base erosion. Kee said: "The Central Bank [of Malaysia] issued a directive to banks and insurance companies to require them to get external auditors to certify that those charges [payments made by companies to their parent companies] are in compliance with TP guidelines.

Kee added that the extra attention from the IRB, and the difficulty in making payments to parent companies, has pushed some banks to hire external auditors to ease the pressure on, and supplement the knowledge of, their in-house tax departments.


Tax authorities

Royal Malaysian Customs Department
Jabatan Kastam Diraja Malaysia,
Kompleks Kementerian Kewangan No 3, Persiaran Perdana, Presint 2, 62596, Putrajaya
Tel: +60 3 8882 2100/2300
Email: ccc@customs.gov.my
Website: www.customs.gov.my

Inland Revenue Board
Headquarters Inland Revenue Board of Malaysia
12th Floor Menara Hasil, Persiaran Rimba Permai, Cyber 8, 63000 Cyberjaya Selangor
Tel: +60 3 8313 8888
Fax: +60 3 8313 7848 / +60 3 8313 7849
Website: www.hasil.gov.my


Tax rates at a glance

(As of August 2017)

Corporate income tax rate 24% (a)
Real property gains tax rate 30% (b)
Branch tax rate 25% (a)
 
Withholding tax
Dividends 0%
Interest 15% (c)(d)
Royalties from patents, know-how, etc. 10% (c)
Distributions by real estate Investment trusts and property Trust funds 10/25% (e)
Payments to non-resident contractors 13% (f)
Payments for specified services and Use of movable property 10% (g)
Other income 10% (h)
Branch remittance tax 24%
 
Net operating losses (years)
Carryback 0
Carryforward Unlimited

  1. Effective from the 2016 year of assessment, the main rate of corporate tax decreases by 1% from 25% to 24%, while the rates for resident companies that have paid-up capital in respect of ordinary shares of MYR2,500,000 or less and that satisfy specified conditions are also reduced by one percentage point; that is, the rates are 19% on the first MYR500,000 of chargeable income and 24% on the remaining chargeable income. The above rates do not apply to petroleum companies, which are taxed at a rate of 38%.
  2. Real property gains tax is imposed on gains derived from disposals of real property or shares in real property companies. The maximum rate is 30%.
  3. This is a final tax applicable only to payments to non-residents.
  4. Interest on approved loans is exempt from tax. Bank interest paid to non-residents without a place of business in Malaysia is exempt from tax. Interest paid to non-resident companies on government securities and on Islamic securities is exempt from tax.
  5. The 25% withholding tax is imposed on distributions to non-resident corporate unit holders by Real Estate Investment Trusts (REITs) and Property Trust Funds (PTFs) that have been exempted from Malaysian income tax as a result of meeting certain distribution conditions. Distributions by such REITs and PTFs to individuals, trust bodies and other non-corporate unit holders are subject to withholding tax at a rate of 10%.
  6. This withholding tax is treated as a prepayment of tax on account of the final tax liability.
  7. This is a final tax applicable to payments to nonresidents for specified services rendered in Malaysia and to payments for the use of movable property excluding payments made by Malaysian shipping companies for the use of ships under voyage charter, time charter or bare-boat charter. The rate is reduced under certain tax treaties.
  8. Withholding tax is imposed on "other income," which includes, among other payments, commissions and guarantee fees.

Source: EY 2017 Worldwide Corporate Tax Guide and Deloitte