Why is Corporate Tax Planning Essential for Businesses in Malaysia?
As Malaysia companies navigate the increasingly complex tax landscape in 2025, proactive tax planning has become not just a best practice but a critical necessity.
With new tax regulations, heightened digital compliance obligations, and global calls for greater transparency, businesses must go beyond mere preparedness. Effective tax planning now plays a pivotal role in ensuring compliance, minimising liabilities, and driving long-term growth.
Tax planning is the process of evaluating available tax options to determine how the Company can conduct business transactions to minimise or eliminate taxes.
Below are some key points that companies may consider for tax purposes depending on their tax position.
Why Is Tax Planning Essential for Malaysian Businesses in 2025?
1. Navigating Malaysia’s Evolving Tax Framework
Malaysia’s tax environment is undergoing rapid transformation, with 2025 poised to introduce key regulatory changes that will significantly impact businesses. From adjustments to corporate tax rates to the nationwide implementation of digital taxation mechanisms, such as mandatory e-invoicing, staying ahead of these developments is critical. Companies must remain proactive and adaptable to remain compliant and competitive in this dynamic fiscal landscape.
2. Optimising Business Income for Sustainable Growth
Tax planning goes far beyond meeting compliance obligations—it serves as a strategic tool to enhance profitability. By leveraging available tax incentives, capital allowances, and allowable deductions, companies can minimise taxable income. These savings can then be reinvested into core business areas such as expansion, innovation, or sustainable initiatives, fueling long-term growth and resilience.
3. Managing Taxable Income to Mitigate Risk
Failure to comply with Malaysia’s tax regulations can result in substantial penalties and reputational damage. Effective tax planning ensures accurate reporting of business income, timely submission of tax filings, and well-documented financial records. This not only protects businesses from fines and audits but also promotes transparency and reduces the risk of being flagged for tax avoidance or non-disclosure.
General Tax Planning
- Running your business through a company rather than a sole proprietorship. Being a SME company, the first RM600,000 chargeable income will be taxed at 17% and the excess will be taxed at 24%. The tax liability is lower if your personal tax bracket is high. Additionally, an SME is not required to provide a tax estimate or make installment payments for the first two years of assessment and only needs to pay the tax upon filing the tax return. Therefore, it will help improve cash flow.
- Accurate estimation of tax payable is crucial to avoid penalties under the Income Tax Act. The Company can submit the CP 204A to revise the estimate of tax payable in the sixth and/or ninth month of the basis period, ensuring compliance and avoiding unnecessary costs.
- Apply for a specific industry tax incentive, such as MSC Status.
- Keep your documents for 7 years. Supporting documentation for transactions is vital to substantiate a tax deduction claimed. Examples include invoices, receipts, contracts, agreements, etc. If the taxpayer is unable to provide sufficient documentation to support the claimed tax-deductible expenses, the IRB is likely to disallow the deduction, resulting in additional tax payable and potentially significant penalties. As such, it is important to keep all the relevant supporting documents and ensure they are readily available in the event of a tax audit.
- Start early to optimise tax deductions. Generally, pre-commencement expenses are not allowable as a deduction against gross income as they are not wholly and exclusively incurred in the production of income.
- To consider the implications of withholding tax if there are payments to be made to non-residents. This may increase the company’s running costs.
For companies in a loss-making/ non-tax-paying position
- Business losses can be deducted from income from all sources in the current year. Any unutilised losses can be carried forward indefinitely to be utilised against income from any business source (up to 10 years). If the company is dormant, the carry forward of losses is only allowed if the shareholder continuity test is met.
- Unabsorbed capital allowances can be carried forward indefinitely to be utilised against income from the same business source. If the company is dormant, carry-forward of capital allowances is only allowed if the shareholder continuity test is met.
- Group relief is a scheme that enables Malaysian-related companies to deduct 70% of the current year’s adjusted business losses of the surrendering company from the defined aggregate income of another company (subject to conditions).
For companies in a tax-paying position
- Capital allowances may be utilised to reduce the chargeable income.
- The declaration of remunerations may be considered if the arrangement offers potential tax savings. This can be achieved through tax planning, which involves comparing effective tax rates.
- Know what tax-allowable and non-allowable expenses are for tax deduction claims.
- Companies may also consider debt financing over equity financing, as interest expenses are tax-deductible, provided the borrowed funds are used for business purposes.
- A review may be conducted to write off outstanding debts that are long overdue and irrecoverable.
- A review may be conducted on the obsolete stock to write off.
- Annual bonus payments to the employees (the actual bonus amounts must be ascertained and made known to the employees, thereby ‘incurring’ the bonus expense, notwithstanding that the payment is made after year-end).
- Companies may reassess the accounts to identify any omitted accrual expenses.
- Deferring taxable income to the next year of assessment. Delaying can sometimes result in being charged at a lower corporate tax rate, particularly in cases where the corporate tax rate is reduced. It will result in some tax savings and cash flow.
- Bringing forward tax-deductible expenses would also reduce the tax payable.
- Motor vehicle – claiming of capital allowance for company vehicles and reimbursement of motor vehicle expenses used for business purposes (the motor vehicle benefits may need to be disclosed in the EA form). The taxpayer is advised to maintain records for both business and private use.
- Subsidised interest for housing, education, or car loan received by an employee is fully exempted from tax if the total amount of the loan taken does not exceed RM300,000.
- Employees receiving gratuity on retirement would be exempt from tax if certain conditions are met.
All business decisions today have tax implications and it is important for a company to manage its income tax requirements efficiently. At 3E Accounting Malaysia, we work closely with you to identify tax strategies that work best within your organisation and manage your tax compliance.
