Malaysia

Market overview

There have been several updates to the Malaysian transfer pricing rules since their introduction in 2003 as the authorities' focus on the area has intensified. This includes the introduction of formal legislation in 2009 and its subsequent revision in 2012. The 2015 Budget introduced a further change with the extension of the statute of limitations to seven years from five years for transfer pricing audits specifically.

Malaysia, in its role as an OECD observer to the BEPS Project, has participated in the discussions around many of the topics in an effort to come to a global standard for BEPS implementation. Following the release of final reports in October 2015, Malaysia has been considering whether to include the minimum standards of the initiative in its domestic legislation, particularly Action 13 on country-by-country reporting (CbCR).

The government set up a special committee to study the recommendations and its first step was to sign the agreement on the automatic exchange of CbCR in January 2016. On March 24 2016, the government announced plans to update the existing local TP documentation requirements to include the master file and local file concepts and introduce the CbCR requirement, expected to be effective from January 2017.

Moreover, Malaysia has also indicated its interest in engaging the multilateral instrument under Action 15 to streamline the implementation of global tax treaties.

"Malaysian multinationals with international tax structures will need to begin assessing the impact to their business operations now," said Jagdev Singh, head of tax and transfer pricing at PwC.

These proposed updates will not be the only regulation changes to impact taxpayers in the coming year. New thin capitalisation rules are expected to be effective from January 1 2018 and some BEPS recommendations such as anti-avoidance provisions, may be adopted under the existing framework and not require separate legislation.

The Malaysian authorities are scrutinising transfer pricing policies more closely, but are also looking towards effective dispute resolution. Penalties are reduced for voluntary disclosure and the advance pricing agreement (APA) process is proving popular with taxpayers.

"I think APA will become more important and I'd expect more taxpayers to come on board to deal with all uncertainties rather than waiting for audits to happen," said Singh.


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 January 1 2016)

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 0%
 
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 2016 Worldwide Corporate Tax Guide