Malaysia

Inventory valuation

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.

Capital gains

Capital gains tax (CGT) will be imposed on companies, limited liability partnership (LLP), co-operatives, and trust bodies from 1 January 2024 on:

1. Gains from disposal of capital assets situated in Malaysia:
1. Shares in unlisted companies incorporated in Malaysia.
2. Shares in a foreign incorporated company deriving value from real property in Malaysia.
2. Gains from disposal of all types of capital assets situated outside Malaysia, remitted into Malaysia.

However, exemption is given for:

• Gains from disposal of shares in unlisted companies incorporated in Malaysia or shares in foreign incorporated company deriving value from real property in Malaysia, made on or after 1 January 2024 to 29 February 2024. The exemption does not apply where the gains are treated as business income. 
• Gains from disposal of all types of capital assets situated outside Malaysia, which are received in Malaysia from 1 January 2024 to 31 December 2026, by companies, LLPs, co-operatives and trust bodies resident in Malaysia which meet economic substance requirements.

The CGT rates are as follows:

Capital asset situated in Malaysia

Disposal of all types of capital asset situated outside Malaysia, remitted into Malaysia

Based on prevailing income tax rate of the taxpayer:

• Companies, LLPs, and trust bodies: 24% (headline)
• Co-operatives: 0% to 24% (scaled rates)

Other gains on capital assets

All other gains on capital assets are not subject to tax, except for gains arising from the disposal of real property situated in Malaysia, which is not subject to CGT from 1 January 2024, is subject to RPGT (see the Other taxes section for more information).

Dividend income

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.

Stock dividends

A Malaysian corporation may distribute bonus shares tax-free to shareholders.

Interest income

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

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.

Foreign income

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.