Many entrepreneurs in Malaysia choose to operate as an Enterprise (Sole Proprietorship) because it is affordable, simple to set up, and easy to manage. However, this simplicity also means that enterprise owners are personally responsible for managing their income tax obligations, without the separation that exists in a private limited company.
As an enterprise owner, your business income is taxed under personal income tax in Malaysia, and understanding how this works is essential to remaining compliant in 2026. This guide explains enterprise income tax in Malaysia, key tax terms, income tax brackets, deductions, filing deadlines, and Form B requirements in simple language.
What Does Income Tax Mean for Enterprise Owners in Malaysia?
Income tax in Malaysia is governed by the Income Tax Act 1967 and administered by the Inland Revenue Board of Malaysia (LHDN). For enterprise owners, business profits are not taxed separately from personal income. Instead, your enterprise profits are added to your personal income and taxed accordingly.
This makes it especially important for enterprise owners to understand how income is calculated, which deductions are allowed, and how progressive tax rates apply.
How is Enterprise Income Tax Treated Under Malaysian Law?
In Malaysia, an enterprise is not recognised as a separate legal entity. This means:
- Only profits, rather than total revenue, are subject to tax
- Business profits are assessed as personal income of the owner
- Income from other sources (such as salary, rental, or freelance work) is combined
- Tax is calculated based on personal income tax rates
This difference between revenue and profit is crucial and is commonly misunderstood by first-time enterprise owners.
What are the Key Income Tax Terms Every Enterprise Owner Should Know?
Understanding these terms will make income tax compliance far easier:
Chargeable Income
The portion of income remaining after allowable deductions and reliefs. This is the amount that is actually taxed.
Tax Deductions
Business-related expenses that reduce chargeable income.
Tax Reliefs
Personal reliefs (such as insurance or education) that further reduce taxable income.
Progressive Tax System
Higher income is taxed at higher rates, rather than a single flat rate.
Marginal Tax Rate
Different portions of income are taxed at different rates based on income brackets.
What are LHDN’s Income Tax Brackets and Rates for 2026?
The table below reflects YA 2025 tax rates, which are to be filed and paid in 2026.
| Category | Chargeable Income (RM) | Marginal Rate (%) |
|---|---|---|
| A | 0 – 5,000 | 0% |
| B | 5,001 – 20,000 | 1% |
| C | 20,001 – 35,000 | 3% |
| D | 35,001 – 50,000 | 6% |
| E | 50,001 – 70,000 | 11% |
| F | 70,001 – 100,000 | 19% |
| G | 100,001 – 400,000 | 25% |
| H | 400,001 – 600,000 | 26% |
| I | 600,001 – 2,000,000 | 28% |
| J | Above 2,000,000 | 30% |
How do Marginal Tax Rates Work for Enterprise Owners?
Marginal tax rates mean that income is taxed at multiple rates. Instead, your income is taxed in parts.
Each portion of your chargeable income falls into a different tax band. The lower bands are taxed at lower rates. Only the amount that falls into a higher band is taxed at the higher rate.
For example, if an enterprise owner has a chargeable income of RM150,000, the revenue is split across several tax brackets. The first portion is taxed at the lowest rate. The next portion is taxed at the next rate, and so on. The full RM150,000 is not taxed at the highest rate.
Because of this system, the total tax payable is lower than it would be under a flat tax rate. This is how Malaysia’s personal income tax system is designed to work.
Guide to Select Your Malaysia Company Names
Is There an Income Tax Calculator for Enterprises in Malaysia?
Yes. Enterprise owners can estimate their tax payable using the 3E Accounting’s Malaysia Income Tax Calculator . These provide accurate projections based on current tax laws, corporate structure, and eligible deductions, helping businesses plan cash flow and compliance efficiently.
For accurate results, professional tax computation is strongly recommended.
Which LHDN Tax Form Must Enterprise Owners File in Malaysia?
Enterprise owners must file Form B.
Key points:
- Form B is used for business and personal income
- It must be completed accurately
- The latest version should always be used
Sample forms are available via LHDN.
What Tax Deductions Can Enterprise Owners Claim in Malaysia?
Understanding allowable tax deductions is essential for effective tax planning and compliance. In Malaysia, enterprise owners may reduce their taxable income by claiming eligible business expenses, approved donations, and personal tax reliefs. The following are the key categories of deductions that enterprise owners should understand.
Common Business Expenses
- Office rent and utilities
- Business travel and transport
- Marketing and advertising costs
- Professional and accounting fees
- Business-related software and tools
Donations
- Approved donations to recognised bodies
- Can be in cash or approved assets
- may be deductible, subject to limits.
- Refer to the official list on LHDN’s portal.
Personal Reliefs
- Life insurance and EPF
- Medical expenses
- Education fees
- Lifestyle purchases (subject to caps)
Important: Allowable deductions and reliefs may change each year. Always check the latest LHDN guidelines.
What are the Filing Options and Deadlines for Form B in 2026?
Filing Deadline & Methods
- The filing deadline for Form B in 2026 is 30 June 2026.
- Taxpayers are required to submit their forms through Online Submission.
- Register and submit Form B through MyTax.
Manual Submission
- Use the Bahasa Melayu version of Form B
- Print the form in line with LHDN’s printing requirements
- Submit the completed form to the relevant LHDN office
Conclusion
For enterprise owners in Malaysia, income tax compliance is a personal obligation that requires careful attention. A clear understanding of chargeable income, marginal tax rates, Form B requirements, and allowable deductions reduces the risk of penalties and provides confidence in meeting tax obligations.
As your business grows, managing tax obligations alone can become complex. 3E Accounting Malaysia provides reliable income tax and compliance support for enterprise owners, ensuring accurate filings, timely submissions, and strategic tax planning.
Speak to 3E Accounting Services today to ensure your enterprise income tax is handled correctly in 2026.
Understand Your Enterprise Income Tax Obligations Today
Ensure accurate filing and timely compliance with Malaysia’s enterprise income tax rules. Speak to 3E Accounting Services today.
Frequently Asked Questions
No. An enterprise is not a separate legal entity. The business’s profits are taxed as the owner’s personal income.
Only profits are taxed. Allowable business expenses must first be reduced from revenue to arrive at chargeable income.
Enterprise income tax is calculated using Malaysia’s progressive personal income tax rates, where income is taxed across different brackets.
Yes. Enterprise owners can claim allowable business expenses that are wholly and exclusively incurred for business purposes.
Yes. Enterprise owners may also claim personal tax reliefs, subject to LHDN conditions and annual limits.
Yes. Business losses may generally be carried forward to offset future income, subject to LHDN rules.
Abigail Yu
Author
Abigail Yu oversees executive leadership at 3E Accounting Group, leading operations, IT solutions, public relations, and digital marketing to drive business success. She holds an honors degree in Communication and New Media from the National University of Singapore and is highly skilled in crisis management, financial communication, and corporate communications.
