Malaysia Corporate Income Tax & SME Tax Rate Guide 2026: 17% vs 24% Rates
Understanding company income tax rate in Malaysia—searched frequently as "corporate income tax rate malaysia 2026", "sme tax rate malaysia", or "enterprise income tax malaysia"—is crucial for business founders, company directors, and foreign investors. Administered by LHDNM under the Income Tax Act 1967, Malaysia offers competitive corporate taxation with preferential tiers for SMEs.
Corporate Tax Key Highlights 2026
- •Standard Corporate Rate: Flat 24% on statutory chargeable income.
- •SME Preferential Rate: 17% on first RM 600,000 chargeable income (paid-up capital ≤ RM 2.5m).
- •Single-Tier Dividends: Corporate dividends paid to shareholders are 100% tax-exempt.
- •Interactive Calculator: Estimate corporate tax via our Malaysia Business Income Tax Calculator.
1. Headline Corporate Tax Rate (24%) vs SME Rates
In Malaysia, companies incorporated under the Companies Act 2016 (Sdn Bhd or Berhad) are subject to corporate income tax on statutory income derived from Malaysia.
| Company Classification | Chargeable Income Tier (MYR) | Statutory Tax Rate (2026) | Tax Payable Notes |
|---|---|---|---|
| Qualifying SME (Capital ≤ RM 2.5m) | First RM 600,000 | 17% | Max tax savings of RM 42,000 vs standard rate. |
| Above RM 600,000 | 24% | Balance taxed at standard rate. | |
| Non-SME / Large Corporation | Full Chargeable Income | 24% | Flat headline rate applied from RM 1. |
2. SME 17% Tax Tier Qualification Criteria
To enjoy the preferential 17% corporate tax rate on the first RM 600,000 of statutory income, a company must satisfy three mandatory LHDNM conditions:
- Paid-up Capital: Paid-up capital in respect of ordinary shares does not exceed RM 2.5 million at the beginning of the basis period.
- Gross Sales Turnover: Total annual gross business turnover does not exceed RM 50 million for the basis period.
- No Related Corporate Shareholding: The company is not part of a corporate group where a related company has paid-up capital exceeding RM 2.5 million.
3. Entity Tax Comparison: Sdn Bhd vs Sole Proprietorship
Entrepreneurs choosing between a Sdn Bhd (Private Limited) and a Sole Proprietorship / Partnership must consider tax structures:
4. Section 107A & Section 109B Withholding Tax
When Malaysian companies make payments to non-resident entities, withholding tax must be deducted and remitted to LHDNM within 1 month:
- Section 107A Withholding Tax: 13% withholding (10% contract value + 3% employee component) on payments to non-resident contractors for contract services rendered in Malaysia.
- Section 109B Withholding Tax: 10% withholding on payments for technical fees, installation services, software licensing, or royalties paid to non-resident service providers.
5. Form CP58 Agent & Distributor Commission Declarations
Under LHDNM rules, companies paying commissions, incentive trips, or bonuses to local agents, dealers, or distributors must issue an annual Form CP58 statement by March 31 if total incentives exceed RM 5,000 per year.
6. Capital Allowances vs Non-Deductible Expenses
Accounting depreciation is non-deductible for tax purposes in Malaysia. Instead, companies claim statutory Capital Allowances (CA):
Initial Allowance: 20% | Annual Allowance: 40% (Fully written off in 2 years)Initial Allowance: 20% | Annual Allowance: 14%Calculate your corporate tax obligation and SME exemptions using our Malaysia Business Income Tax Calculator.