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Personal Tax vs Corporate Tax: When Does It Make Sense to Register an Sdn Bhd in Malaysia?

As a business owner in Malaysia, one of the key decisions you will face is whether to operate as a sole proprietor or to register a Sendirian Berhad (Sdn Bhd) company. Tax efficiency is often an important factor in this decision — but it should not be the only one. Your business structure should reflect your overall goals, operational needs, and long-term plans. While Sdn Bhd entities can offer lower tax rates at higher income levels, incorporation also comes with added responsibilities and costs. Always evaluate the full picture and seek professional advice before making the switch.

That said, tax is still a major consideration. So, when does it actually make more financial sense to run your business as an Sdn Bhd?

Table of Contents hide
1 Personal Income Tax vs Corporate Income Tax
2 Comparison of Tax Rates:
3 Breakeven Point: Where the Tax Savings Begin
4 But Tax Shouldn’t Be the Only Factor
5 Final Thoughts

Personal Income Tax vs Corporate Income Tax

Malaysia has a progressive tax system for individuals, meaning your tax rate increases as your income rises. Sole proprietors fall under this regime. Meanwhile, Sdn Bhd companies pay tax at flat corporate rates, which can offer potential savings as profits grow.

 

Comparison of Tax Rates:

Chargeable Income Personal Tax (Sole Proprietor) Corporate Tax (Sdn Bhd) Which Pays Less Tax?
RM50,000 ~RM1,500 (3.00%) RM7,500 (15.00%) Sole Proprietor
RM70,000 ~RM3,700 (5.28%) RM10,500 (15.00%) Sole Proprietor
RM100,000 ~RM9,400 (9.40%) RM15,000 (15.00%) Sole Proprietor
RM157,500 ~RM23,775 (15.09%) RM23,775 (15.09%) Similar
RM250,000 ~RM46,900 (18.76%) RM39,500 (15.80%) Sdn Bhd
RM400,000 ~RM84,400 (21.10%) RM65,000 (16.25%) Sdn Bhd
RM600,000 ~RM136,400 (22.73%) RM99,000 (16.50%)) Sdn Bhd

💡 Note: Personal tax figures are estimated based on Malaysia’s progressive tax rates for 2025, assuming no personal reliefs or deductions. Corporate tax assumes SME rate (15% on first RM150,000, then 17% on next RM450,000).

 

Breakeven Point: Where the Tax Savings Begin

Based on 2025 tax rates, the breakeven point—where personal tax and corporate tax are approximately equal—is at around:

  • Chargeable Income: RM157,500
  • Personal Tax Payable: RM23,775
  • Sdn Bhd Corporate Tax Payable: RM23,775

If your chargeable income is above RM158,000, running your business as an Sdn Bhd will likely result in lower tax overall.

 

But Tax Shouldn’t Be the Only Factor

While incorporating as an Sdn Bhd can offer tax advantages, it is important not to make the decision based on tax alone. A well-chosen business structure should align with your overall business goals and operations.

Beyond tax, you should also consider:

  • Compliance Costs: Sdn Bhd requires annual audit, company secretary, and tax filing costs (~RM4,000–10,000/year).
  • Limited Liability: Shareholders are protected from personal liability.
  • Business Image: An Sdn Bhd looks more credible to clients, banks, and investors.
  • Funding: Easier to raise capital or apply for business loans.
  • Succession Planning: More structured than a sole proprietorship.

 

Final Thoughts

If your business is growing and your chargeable income is approaching or exceeding RM158,000, it may be time to consider the benefits of incorporating as an Sdn Bhd—not just for tax savings, but also for liability protection, scalability, and long-term business sustainability.

However, structure your decision carefully. Tax is just one piece of the puzzle, and it is always best to consult a professional before making the leap.