Inventories are generally stated at the lower of cost or net realisable value. Cost may be determined using one of several methods (e.g. unit cost, average cost, or first in first out [FIFO]), as long as the basis used is consistent for each year.
Generally, gains on capital assets are not subject to tax, except for gains arising from the disposal of real property situated in Malaysia, which is subject to RPGT (see the Other taxes section for more information). The government has announced that capital gains from disposal of unquoted shares by companies will be taxed with effect from 2024.
Malaysia is under the single-tier tax system. Dividends are exempt in the hands of shareholders. Companies are not required to deduct tax from dividends paid to shareholders, and no tax credits will be available for offset against the recipient’s tax liability. Corporate shareholders receiving exempt single-tier dividends can, in turn, distribute such dividends to their own shareholders, who are also exempt on such receipts.
A Malaysian corporation may distribute bonus shares tax-free to shareholders.
Interest income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to CIT. Exemptions granted include interest income earned by a non-resident person from deposits placed in designated financial institutions in Malaysia.
Royalty income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to CIT. Malaysia has a wide definition of royalty that also includes software, visual images or sounds transmitted via satellite, cable, or fibre optic, and radio frequency spectrum. Payments to non-residents falling within the definition of royalty will be subject to withholding tax (WHT) requirements. However, certain royalty income earned by a non-resident person may be exempted from tax.
A tax-resident is taxed on income derived from Malaysia and foreign-sourced income remitted to Malaysia, except for the following foreign-sourced income received in Malaysia (subject to conditions):
- Dividend income received by resident companies and limited liability partnerships.
- All classes of income received by resident individuals, except for resident individuals who carry on business through a partnership.
Income of a resident company from the business of air/sea transport, banking, or insurance is taxed on a worldwide basis.
Taxation on a worldwide basis does not apply when income attributable to a Labuan business activity of a Labuan branch or subsidiary of a Malaysian bank is subject to tax under the Labuan Business Activity Tax Act 1990. This exception will not apply if the Labuan entity has made an irrevocable election to be taxed under the Income Tax Act 1967 in respect of its Labuan business activity.
Relief from double taxation is available by means of a bilateral credit if there is a governing tax treaty or unilateral relief where there is no treaty. The relief is restricted to the lower of Malaysian tax payable or foreign tax paid if there is a treaty, or one-half of the foreign tax paid if there is no treaty.
Undistributed income of foreign subsidiaries is not taxable.