Guide · Malaysia

Company Formation & Tax in Malaysia

Southeast Asia's manufacturing and shared-services base — 24% corporate tax with tiered SME rates, a sales-and-service tax instead of VAT, and full foreign ownership in most sectors.

Last reviewed: July 2026 Primary source: Inland Revenue Board of Malaysia (LHDN / HASiL)

Malaysia offers a 24% corporate tax with meaningfully lower tiers for smaller resident companies, no VAT — indirect tax runs through the narrower Sales and Service Tax (SST) — and 100% foreign ownership across most of the economy. Strong infrastructure, competitive costs and generous MIDA incentives keep it a first-choice location for regional manufacturing, distribution and shared-services operations.

The headline numbers

TaxRate
Corporate tax (standard)24%
SME rate — first RM150,00015%
SME rate — RM150,001–600,00017%
Sales tax (goods)5% / 10%
Service tax6% / 8%

There is no capital gains tax on most assets, though a capital gains tax now applies to disposals of unlisted Malaysian company shares, and real property gains are taxed separately under RPGT. Dividends flow to shareholders under the single-tier system without further corporate-level tax.

The SME rates come with a foreign-ownership catch

The 15%/17% preferential tiers apply only to resident SMEs with paid-up capital of RM2.5 million or less and turnover not exceeding RM50 million — and, critically, they are not available where more than 20% of shares are held by foreign companies or non-citizen individuals. Most wholly foreign-owned subsidiaries therefore pay the flat 24% from the first ringgit. This single condition is one of the most common surprises in Malaysian structuring, and it can shape whether a local partner or a different entry structure makes sense.

SST, not VAT

  • Sales tax — a single-stage tax of 5% or 10% on taxable goods manufactured in or imported into Malaysia.
  • Service tax — 8% on most taxable services (6% retained for food and beverage, telecoms, parking and logistics), with the taxable scope expanded materially through 2024–2025 to cover rental, construction, finance and private healthcare and education categories.
  • No input-credit chain — unlike VAT, SST is generally a cost rather than a pass-through, so where it lands in your supply chain affects pricing.
Incentives can outweigh the headline rate. MIDA and MDEC administer pioneer status, investment tax allowances and Malaysia Digital status — packages that can reduce effective tax dramatically for manufacturing, green technology and digital businesses. Incentive eligibility is best assessed before incorporation, not after.

Forming the company

The standard vehicle is the Sendirian Berhad (Sdn. Bhd.) — a private company limited by shares registered with SSM through the MyCoID system, typically within a few days. Requirements: at least one shareholder (100% foreign ownership permitted in most sectors), at least one director ordinarily resident in Malaysia, a licensed company secretary appointed within 30 days, and a registered office in Malaysia. Minimum paid-up capital is RM1, though sector licences and expatriate work passes often require higher amounts in practice.

Frequently asked questions

What is Malaysia's corporate tax rate in 2026?

24% standard. Qualifying resident SMEs pay 15% on the first RM150,000 and 17% up to RM600,000 — but these tiers are unavailable if foreign ownership exceeds 20%.

Does Malaysia have VAT?

No. Malaysia abolished GST in 2018 and applies the Sales and Service Tax instead — sales tax at 5%/10% on goods and service tax at 6%/8% on a defined list of services.

Can a foreigner own a Malaysian company fully?

Yes, in most sectors 100% foreign ownership is permitted, though a Malaysia-resident director is required and certain regulated sectors carry equity conditions.

What is a Sdn. Bhd.?

The Malaysian private limited company — the standard vehicle for foreign investors, registrable with SSM in days with RM1 minimum capital and one resident director.

Official sources

This guide is general information prepared by ARM Management and is current as at July 2026. It is not legal or tax advice; SME-rate conditions, SST scope and incentive eligibility change. Confirm against LHDN, or with an advisor, before acting.

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