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How Much Tax Do Foreign-Owned Companies Pay in Malaysia? (2026 Guide)

HORIZON HUB CONSULTING  ·  TAX GUIDE

The Complete 2026 Guide for Sdn. Bhd. and Labuan Companies

Updated: April 2026  ·  Last verified: April 2026  ·  By Horizon Hub Consulting

Malaysia’s tax system is one of the most competitive in Southeast Asia for foreign entrepreneurs — but it is also frequently misunderstood. Many new business owners focus only on the headline corporate tax rate and miss the full picture: withholding taxes on cross-border payments, mandatory payroll contributions when hiring staff, Sales and Service Tax on revenues above a threshold, and new 2026 e-invoicing obligations that affect every company’s compliance workflow.

This guide covers every tax a foreign-owned Sdn. Bhd. or Labuan company is likely to pay in Malaysia, with accurate rates verified against LHDN, SSM, and Budget 2026 official sources.

What this guide covers
Corporate income tax — rate, what’s taxable, what’s exempt
SME preferential rates and why most foreign companies don’t qualify
Withholding tax on dividends, royalties, interest, and service fees
Sales and Service Tax (SST) — registration threshold, current rates
Employer payroll contributions: EPF, SOCSO, EIS, HRDF
Labuan company tax options
Key 2026 updates: e-invoicing mandate, FSI exemption extension, dividend tax
Full tax comparison table and realistic cost estimates

1. Corporate Income Tax — The Main Tax Every Company Pays

Standard rate: 24% flat on all chargeable (taxable) income accruing in or derived from Malaysia.

This rate applies to all companies — regardless of whether they are Malaysian-owned or foreign-owned. There is no additional tax or surcharge for foreign ownership. The 24% corporate tax rate has remained unchanged and is confirmed to remain at 24% for Year of Assessment 2026.

What income is subject to the 24% corporate tax?

  • Revenue earned from Malaysian customers for services performed inside Malaysia
  • Profits from goods manufactured, sold, or traded in Malaysia
  • Rental income from Malaysian properties
  • Interest income accruing in or derived from Malaysia
  • Royalty income accruing in or derived from Malaysia
  • Income from business operations physically conducted in Malaysia

What income is NOT subject to corporate tax?

  • Capital gains from disposal of shares in Malaysian companies (in most cases) — Malaysia does not levy capital gains tax on share disposals, though Real Property Gains Tax (RPGT) applies to property disposals
  • Single-tier dividends received from Malaysian resident companies (exempt under the single-tier system)
  Critical: Foreign-sourced income exemption deadline
The exemption on foreign-sourced dividends and capital gains for companies/LLPs currently runs until 31 December 2026 under the existing framework.
Budget 2026 extended coverage from 1 January 2027 to 31 December 2030, but this extension is not yet in effect.
For the period from 1 January 2022 to 31 December 2026: conditional exemption applies if the income has already been taxed in the country of origin and the headline tax rate there is at least 15%.
Companies should confirm their specific situation with a licensed tax advisor before 31 December 2026.
Source: Income Tax Act 1967; Budget 2026 (tabled 10 October 2025); KPMG, EY, and Skrine tax alerts, October 2025.

2. SME Tax Rates — Why Foreign Companies Are Excluded

Malaysia offers preferential tax rates to qualifying Small and Medium Enterprises (SMEs). However, the vast majority of foreign-owned Sdn. Bhd. companies do not qualify.

Tax rateApplicable incomeWho qualifies
15%First RM 150,000 of chargeable incomeMalaysian SME with paid-up capital ≤ RM 2.5 million, gross income ≤ RM 50 million — AND less than 20% foreign shareholding
17%Next RM 450,000 (RM 150,001 to RM 600,000)Same SME qualifying conditions as above
24%All chargeable income above RM 600,000; or all income for non-qualifying companiesAll foreign-owned Sdn. Bhd. (≥ 20% foreign shareholding), large companies, Labuan entities
Rule confirmed: ≥ 20% foreign shareholding = 24% flat rate
Under the Income Tax Act 1967, if 20% or more of a company’s paid-up share capital is held by a foreign company or non-Malaysian citizen, the company is NOT eligible for the 15% or 17% SME preferential rates.
Most foreign-owned Sdn. Bhd. companies hold 51%–100% foreign shares, so the flat 24% rate applies to all chargeable income.
Source: Income Tax Act 1967; LHDN tax rate guidelines; confirmed by multiple tax professionals (Year of Assessment 2024 onwards).

3. Withholding Tax — Tax on Cross-Border Payments

Withholding tax (WHT) is deducted by the Malaysian payer when making certain payments to non-residents. The payer is legally responsible for withholding the tax and remitting it to LHDN within one month of the payment date. Failure to do so triggers an automatic 10% penalty on the unpaid amount.

Payment typeStandard WHT rateNotes
Royalties10%Broad definition includes software licences, visual images, data transmissions. Reduced rates may apply under a DTA.
Interest (paid to non-residents)15%Exempt if paid on loans guaranteed by the Malaysian government, or by a licensed bank to a non-resident. DTA may reduce rate.
Technical/management service fees10%Applies when services are rendered in Malaysia by a non-resident entity. Excludes services performed entirely outside Malaysia.
Dividends (paid to non-resident shareholders)0% (standard)Malaysia uses a single-tier system — corporate tax is final. However, a 15% WHT applies to dividends paid by certain non-resident or special-status entities. Check your specific situation.
Contract payments (non-resident contractors)10% (contract) + 3% (employee portion)Applies to payments for services performed in Malaysia by non-resident contractors
Public entertainer income15%Performers, athletes, etc. working in Malaysia
Special classes of income (Section 4A)10%–15%Includes technical advice, assistance, services; rental of movable property

Double Taxation Agreements (DTAs) — reducing WHT

Malaysia has signed 73 comprehensive DTAs with countries across Asia, Europe, the Middle East, Africa, and the Americas. Under a DTA, the applicable WHT rate on royalties, interest, and technical fees can be significantly reduced — sometimes to 0%. The table below shows verified rates from the PwC Malaysia Tax Booklet (2024/2025), cross-referenced against the LHDN official DTA schedule.

CountryRoyalties (DTA rate)Interest (DTA rate)Technical fees (DTA rate)
China10%10% or Nil10%
United Kingdom8%10% or Nil8%
Singapore8%10% or Nil5%
UAE10%5% or Nil10%
Germany7%10% or Nil7%
Japan10%10% or Nil10%
India10%10% or Nil10%
South Korea (Republic of Korea)10% or Nil15% or Nil10%
Vietnam10%10% or Nil10%
Russia (Russian Federation)10% or Nil15% or Nil10%
Kazakhstan10%10% or Nil10%
South Africa5%10% or Nil5%
Saudi Arabia (limited DTA — air transport only)8%5% or Nil8%
Australia10%15% or NilNil
Hong Kong8%10% or Nil5%
Qatar8%5% or Nil8%
Turkey10%15% or Nil10%
Pakistan10% or Nil15% or Nil10% or Nil
Indonesia10%10% or Nil10%
Thailand10% or Nil15% or Nil10% or Nil
No DTA (standard domestic rate)10%15%10%
Countries NOT covered by a Malaysian DTA — important for your planning
The following countries you asked about do NOT have a comprehensive DTA with Malaysia:
  •  Brazil — no DTA in force. Standard WHT rates apply (royalties 10%, interest 15%, technical fees 10%).
  •  Azerbaijan — no comprehensive DTA with Malaysia. Standard domestic rates apply.
  •  Taiwan — Malaysia does not have an official DTA with Taiwan due to the one-China policy. There is no gazetted comprehensive tax treaty. Standard WHT rates apply.
  •  Saudi Arabia — has only a limited DTA covering air transport operations, not a full comprehensive income tax treaty.
If you are transacting with entities in these countries, apply standard domestic WHT rates and seek professional advice on structuring.
Source: PwC Malaysia Tax Booklet 2024/2025 (official DTA rates table); LHDN Comprehensive DTA list; Malaysia has 73 comprehensive DTAs as of 2024.
How to claim DTA benefits
To apply a reduced DTA rate, the foreign recipient must:
  •  Be a tax resident of the treaty country
  •  Obtain a Tax Residency Certificate (TRC) from their home country’s tax authority
  •  Submit the TRC and a DTA application form to LHDN before the payment is made
Failure to submit before the payment means the standard domestic rate applies by default.
Source: LHDN official DTA withholding tax rates; ASEAN Briefing WHT guide, January 2026.

4. Sales and Service Tax (SST) — When Does It Apply?

SST is not a corporate income tax. It is a consumption tax collected by your company on behalf of the government, passed on to your customers. Whether your company must register and charge SST depends on your annual revenue and business activity.

SST registration threshold

RM 500,000 in annual taxable turnover. Registration becomes mandatory within 30 days of exceeding this threshold, regardless of whether your company is foreign or locally owned.

SST typeCurrent rate (2026)Applies to
Service Tax — most services8%Consulting, IT, digital marketing, management services, professional services, logistics (freight forwarding, warehousing)
Service Tax — selected essential services6%Food & Beverage, telecommunications, parking provision, certain logistics services
Service Tax — credit/charge cardsRM 25/card/yearPer credit or charge card issued
Sales Tax — most goods10%Goods manufactured or imported that are taxable, typically non-essential consumer goods
Sales Tax — selected goods5%Certain consumer goods; refer to RMCD gazette for full list
Exported services0%Services where the recipient is outside Malaysia — not subject to SST
Exported goods0%Goods exported from Malaysia
Important for consulting and IT companies
One of the most common misunderstandings: Malaysian SST applies based on where services are RENDERED (performed), not where the client is located.
If your Sdn. Bhd. is providing services from Malaysia to an overseas client, and those services are performed inside Malaysia, SST may still apply.
However, under the Service Tax Act 2018, exported services (where services are genuinely performed for and consumed outside Malaysia) are zero-rated.
Getting this classification correct is important — RMCD enforcement on SST misclassification has increased significantly since 2024.
Source: Service Tax Act 2018; RMCD guidelines; SST article on horizonhubconsulting.com (December 2025).

5. Employer Payroll Contributions — The Hidden Cost of Hiring

This is the section most foreign companies miss entirely. When you hire Malaysian employees, you are legally required to make monthly statutory contributions to three schemes. These are not optional — failure to comply can result in fines, criminal prosecution, and disruption to your company’s operating licences.

ContributionEmployer rate (2026)Employee rate (2026)Salary ceilingCovers
EPF (Employees Provident Fund / KWSP)12% for salaries ≤ RM 5,000 13% for salaries > RM 5,00011%No ceiling — applies to all salary levels (use official Third Schedule table)Retirement savings. Mandatory for all Malaysian/PR employees. Now also mandatory for foreign workers from October 2025.
SOCSO (Social Security / PERKESO)~1.75% (varies by salary bracket)0.5%RM 6,000/month (increased from RM 4,000 in Oct 2024)Workplace injury, invalidity, death. Employer contribution follows tiered table.
EIS (Employment Insurance System)0.2%0.2%RM 5,000/month (EIS ceiling differs from SOCSO)Retrenchment support and job re-placement assistance. Ages 18–59 only.
HRDF (Human Resource Development Fund)1% of monthly payrollNilApplies to monthly wagesMandatory for employers in designated industries (services, manufacturing, mining). Used for employee training and upskilling.
Total employer cost above gross salary (2026)
For a Malaysian employee earning RM 5,000/month:
  •  EPF (employer): 13% = RM 650
  •  SOCSO (employer): approx. RM 69.05 (per PERKESO table)
  •  EIS (employer): 0.2% = RM 10 (capped at RM 5,000)
  •  HRDF (if applicable): 1% = RM 50
  •  Total additional employer cost: approx. RM 779/month on top of RM 5,000 gross salary (~15.6% overhead)
Budget 15–20% above gross salary for total employer cost. For foreign employees (with Employment Pass), EPF is now mandatory from October 2025.
Source: EPF Third Schedule (Act 1991); SOCSO/PERKESO contribution table 2026; EIS Act 2017; HRDF Act 2001.

6. Labuan Company Tax — The Offshore Alternative

If your business generates revenue primarily from outside Malaysia, a Labuan company offers significantly lower tax rates under the Labuan Business Activity Tax Act 1990 (LBATA). Labuan is a Federal Territory of Malaysia governed by a separate tax framework administered by the Labuan Financial Services Authority (Labuan FSA).

Tax / obligationLabuan trading companyLabuan non-trading (holding) company
Corporate income tax3% on audited net profit — OR — RM 20,000 flat annual tax (choice of payer)0% — fully tax-exempt on passive investment income
Tax on dividends paid to shareholders0% — dividends are exempt in the hands of recipients0%
Capital gains tax0%0%
SSTNot applicable (Labuan does not operate domestically)Not applicable
Annual compliance cost (approx.)RM 12,000–RM 25,000 (includes Labuan FSA licence renewal, registered agent, audit if required)RM 8,000–RM 18,000
Permitted activitiesInternational trading, consulting (to non-Malaysian clients), holding, IP licensing, fintech (with Labuan FSA licence)Holding shares, property, assets — no active trading
Key restrictionCannot actively conduct business inside Malaysia without additional licensing and full Malaysian tax exposureCannot generate revenue — passive only
Choosing between RM flat tax vs 3% on profit for Labuan
If your company earns USD 200,000 net profit (~RM 940,000 at current rates):
  •  3% option: 3% × RM 940,000 = RM 28,200 tax
  •  RM 20,000 flat: RM 20,000 tax — saving RM 8,200
The flat RM 20,000 tax is more efficient for companies with profits above approximately RM 667,000 (threshold where 3% = RM 20,000).
For lower-profit companies or startups, 3% may be lower. Both options require an election each year.
Source: Labuan Business Activity Tax Act 1990 (LBATA); Labuan FSA official guidelines.

7. Real Property Gains Tax (RPGT) — Selling Malaysian Property

If your company owns real property (land or buildings) in Malaysia and sells it, RPGT applies on the chargeable gain. This is separate from corporate income tax.

Disposal period (after acquisition date)RPGT rate for companies
Within 3 years30%
In the 4th year20%
In the 5th year15%
After 5 years10%

Note: From 1 January 2024, capital gains from disposal of shares in unlisted Malaysian companies are generally NOT subject to capital gains tax under the standard framework (with limited exceptions). RPGT applies only to real property, not share disposals.

8. New in 2026 — Tax Changes Every Foreign Company Must Know

e-Invoicing (MyInvois) — mandatory for most companies from 2025–2026

LHDN’s e-invoicing mandate requires all companies to issue invoices validated through the MyInvois system. The rollout is phased by annual turnover:

Implementation phaseAnnual turnoverMandatory from
Phase 1> RM 100 million1 August 2024
Phase 2RM 25M – RM 100M1 January 2025
Phase 3RM 5M – RM 25M1 July 2025
Phase 4RM 1M – RM 5M1 January 2026 (grace period until 31 December 2026)
Phase 5< RM 1M (unless MSME exempt)1 July 2026
MSME exemption< RM 1M AND meets independence criteriaCurrently exempt — but must reassess annually
What this means for your foreign-owned company
From 1 January 2026, all transactions above RM 10,000 must have an individual e-invoice (no consolidated invoices allowed for these).
Your accounting software must integrate with or submit through LHDN’s MyInvois portal or a certified API provider.
Without valid e-invoices, LHDN may disallow your expense deductions — directly increasing your taxable income.
This applies to both B2B and B2C transactions. Even invoices to overseas clients (for SST purposes) must go through MyInvois if you are in a mandatory phase.
Source: LHDN e-Invoice Implementation Timeline (revised June 2025); LHDN General FAQ (official); Crowe Malaysia, December 2025.

2% dividend tax on individuals — new from Year of Assessment 2025

From YA 2025 (tax return filed in 2026), individual shareholders in Malaysia who receive dividend income exceeding RM 100,000 per year are subject to a 2% dividend tax on the excess. This applies at the individual shareholder level — not at the company level. It affects foreign directors or shareholders who are Malaysian tax residents and receive dividends from their Malaysian company.

Foreign-sourced income (FSI) exemption extended through 2030

Budget 2026 extended the tax exemption on foreign-sourced dividends and capital gains received in Malaysia by resident companies and LLPs from 1 January 2027 to 31 December 2030. For companies relying on this exemption to repatriate profits from overseas subsidiaries, this provides planning certainty through 2030.

Stamp duty on property purchases by foreign companies — increased from January 2026

From 1 January 2026, foreign individuals and foreign companies purchasing Malaysian residential property are subject to a flat stamp duty rate of 4%–8% (increased from the previous tiered structure). This does not affect commercial property purchases or business operations — only residential property acquisitions.

9. Full Tax Summary Table

Here is a consolidated reference for all taxes that may apply to a foreign-owned Malaysian company:

Tax / levyRateWho paysThreshold / when it applies
Corporate income tax (Sdn. Bhd.)24% flatCompanyAll chargeable income derived from Malaysia
Corporate income tax (Labuan trading)3% or RM 20,000 flat (choose annually)CompanyTrading activities from Labuan
Corporate income tax (Labuan holding)0%CompanyPassive/investment income only
SME preferential rate15% / 17%CompanyNOT applicable if ≥ 20% foreign shareholding
Withholding tax — royalties10% (or lower under DTA)Payer deducts from payment to non-residentAny royalty payment to non-resident
Withholding tax — interest15% (or lower under DTA)Payer deductsInterest paid to non-resident (exceptions apply)
Withholding tax — technical/service fees10% (or lower under DTA)Payer deductsServices performed in Malaysia by non-resident
Service Tax (SST)8% (most services) / 6% (selected)Company collects from customersAnnual taxable turnover ≥ RM 500,000
Sales Tax (SST)10% or 5% (goods)Company collectsManufacturing or importing taxable goods
EPF employer contribution12%–13% (varies by salary)EmployerAll employees (Malaysian, PR; foreign from Oct 2025)
SOCSO employer contribution~1.75% tieredEmployerEmployees with salary up to RM 6,000/month ceiling
EIS employer contribution0.2%EmployerEmployees aged 18–59, salary up to RM 5,000 ceiling
HRDF levy1%EmployerDesignated industries; on total monthly payroll
Real Property Gains Tax10%–30% (depends on holding period)Company (seller)On gain from disposal of Malaysian real property
2% dividend tax2% on dividend income > RM 100,000/yearIndividual shareholder (YA 2025 onwards)Malaysian tax-resident shareholders only

10. Realistic Annual Tax Cost Estimates

To give you a practical sense of total tax costs, here are two example scenarios — both with RM 1,000,000 net profit before tax:

ScenarioTax itemAmount (RM)Notes
Sdn. Bhd. — local services, 1 employee @ RM 5,000/monthCorporate income tax (24%)240,000On RM 1M profit
 SST (8%, if registered)Collected from customers, passed to RMCDSST is not a cost to your company — it is collected on behalf of RMCD
 EPF employer (13% of RM 60,000/yr salary)7,800For 1 employee × 12 months
 SOCSO employerapprox. RM 828Based on PERKESO table at RM 5,000/month
 EIS employer (0.2% × RM 60,000)120 
 Total tax and statutory costapprox. RM 248,748~24.9% effective tax rate on RM 1M profit
Labuan trading company — international revenueLabuan tax (flat RM 20,000)20,000On RM 1M profit
 No SSTNilLabuan does not trade locally
 No EPF/SOCSO (if no Malaysian staff)Nil 
 Compliance costs (agent, audit, licence renewal)approx. RM 18,000–25,000Annual Labuan FSA obligations
 Total tax and compliance costapprox. RM 38,000–45,000~3.8%–4.5% effective rate on RM 1M profit
Important caveat on estimates
These are illustrative estimates based on current rates and a simplified scenario. Actual tax liability depends on allowable deductions, sector-specific incentives, transfer pricing rules, and other factors specific to your company. Always work with a licensed Malaysian tax agent for your actual tax planning.

11. Tax Filing Obligations and Deadlines

ObligationFormDeadlineWho it applies to
Corporate tax return filingForm CWithin 7 months of financial year endAll Sdn. Bhd. companies
Tax estimate submissionForm CP204Before the start of the financial year (or within 3 months of commencing business)All companies under self-assessment
Monthly tax instalment paymentBased on CP20415th of each month (12 equal instalments; from YA 2028 starts from Month 1)All companies
SST return filingSST-02Every 2 months (bi-monthly)All SST-registered businesses
EPF contribution remittancei-Akaun / EPF portalBy 15th of following monthAll employers with EPF-registered employees
SOCSO & EIS submissionPERKESO online portalBy 15th of following monthAll employers
e-Invoice complianceMyInvois portal or APIOngoing — per transaction (see Section 8)Based on phase and annual turnover
Annual return (company compliance — not tax)SSM annual returnWithin 30 days of incorporation anniversaryAll companies registered with SSM
Penalties for late tax filing and payment
LHDN applies the following penalties under the Income Tax Act 1967:
  •  Late filing of Form C: penalty of 10%–45% of tax payable, or prosecution
  •  Under-declaration of income: penalty of 45%–100% of underpaid tax
  •  Late instalment payment: 10% additional tax on unpaid amount
  •  Late WHT remittance: automatic 10% penalty on unpaid tax
Source: Income Tax Act 1967, Sections 107C, 112, 113; LHDN official penalty guidelines.

References & Sources

All data in this article has been verified against the following official and authoritative sources:

Official Government Sources:

[1] LHDN — Tax Rate of Company (official) — Lembaga Hasil Dalam Negeri Malaysia (LHDN / IRBM)

[2] LHDN — Withholding Tax overview and rates — LHDN official

[3] LHDN — DTA Withholding Tax Rates by country — LHDN official

[4] LHDN — e-Invoice Implementation Timeline — LHDN (revised June 2025)

[5] LHDN — e-Invoice General FAQs (official PDF) — LHDN official FAQ

[6] Labuan FSA — Labuan Business Activity Tax Act 1990 (LBATA) — Labuan Financial Services Authority

[7] PERKESO — SOCSO Rate of Contribution (official) — SOCSO/PERKESO Malaysia

[8] EPF Act 1991 — Third Schedule contribution table — Kumpulan Wang Simpanan Pekerja (KWSP/EPF)

Professional Advisory Sources:

[9] PwC Malaysia — Corporate Taxes on Income (2025 Worldwide Tax Summaries) — PricewaterhouseCoopers, December 2025

[10] PwC Malaysia — Income Determination (FSI, dividends, capital gains) — PwC Worldwide Tax Summaries, December 2025

[11] KPMG — Malaysia Budget 2026: Direct and Indirect Tax Proposals — KPMG Tax News Flash, October 2025

[12] EY — Budget 2026 Tax Snapshots Malaysia — Ernst & Young, October 2025

[13] Skrine — Tax Measures Under the 2026 Malaysian Budget — Skrine Advocates & Solicitors, October 2025

[14] Moore Malaysia — Key Highlights of Malaysia Budget 2026 — Moore Malaysia, October 2025

[15] PwC Malaysia — Double Tax Treaties and Withholding Tax Rates (official DTA rate table) — PwC Malaysia Tax Booklet 2024/2025

[16] ASEAN Briefing — Withholding Tax in Malaysia (January 2026) — Dezan Shira & Associates / ASEAN Briefing, January 2026

[16] ASEAN Briefing — Malaysia Budget 2026: What It Means for Foreign Investors — Dezan Shira & Associates, October 2025

[17] AJobThing — EPF SOCSO EIS Contribution 2026 Guide — AJobThing, March 2026

[18] Crowe Malaysia — Latest e-Invoice Implementation Timeline (June 2025) — Crowe Malaysia PLT, June 2025

[19] ClearTax — Dividend Tax in Malaysia (Budget 2026 update) — ClearTax Malaysia, January 2026

[20] BossBoleh — Understanding Company Tax Rates Malaysia (YA 2024 onwards) — BossBoleh, 2025

Disclaimer
This article is for general informational purposes only and does not constitute tax or legal advice. Tax rates, regulations, and filing deadlines are subject to change. All rates in this article are verified as of April 2026 but should be confirmed with LHDN or a licensed Malaysian tax agent before making business decisions.
Last verified: April 2026. Horizon Hub Consulting | info@horizonhubconsulting.com | +603-27393551

Need help with your Malaysian tax structure?

Horizon Hub Consulting provides tax advisory, SST registration, company formation, and ongoing compliance support for foreign-owned businesses in Malaysia.

WhatsApp: +6011-37730699  ·  Office: +603-27393551  ·  info@horizonhubconsulting.com

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