Corporate tax refers to a tax levied by various jurisdictions on the profits made by companiesor associations. It is a tax on the value of the corporation’s profits.
Taxable income of firms in Malaysia is subject to corporate tax at the rate of 25%. Small and medium sized enterprises (SMEs) that qualify for the conditions are subject to tax at 20% for the first Ringgit Malaysia (RM) 500,000 taxable income. It is 25% of the taxable income thereafter.
To simplify and relieve the administrative burden, a single tier tax system was introduced in 2008. Under the new system, tax levied on company’s profit is a final tax and dividends distributed are exempt from tax in the hand of shareholders. Under the conversion period, tax credit brought forward under the preceding system will still be available for franking of dividends, subject to meeting terms and conditions. The conversion period will finish by December 2013.
A taxpayer may ask for an advance ruling from the Director General of Inland Revenue (DGIR) on the request of any proviso of the Income Tax Act, 1967 to a selective kind of agreement. Locally incorporated resident companies can avail of group relief, subject to meeting terms and conditions. Under this condition, a firm may choose to give in 50% of tax losses to related claimant firms.
The tax authorities of Malaysia are authorised to adjust transfer pricing and thin capitalisation cases to make sure transactions performed between related companies, especially cross-border transactions, are on the basis of arm’s length principles. Companies can apply for an advance pricing agreements through a prescribed form containing essential details as required by the tax authorities.