Taxes in Malaysia: how the system works in 2026

Territorial taxation and foreign income

Malaysia taxes income accruing in or derived from Malaysia. That is the territorial principle: where the income comes from matters more than citizenship and even more than residency. A salary earned in Kuala Lumpur, the profit of a Malaysian company, rent from a Penang apartment - all of that is Malaysian income, and everyone pays tax on it, non-residents included.

Foreign income is the more complicated half, and it is where the real changes of the last few years happened. Before 2022 foreign income was simply outside the system. From 1 January 2022 foreign income remitted into Malaysia by a tax resident formally entered the tax base and the country moved to a remittance basis. Exemption orders were issued at the same time, so in practice almost nobody pays this tax.

Budget 2026 extended the exemption well into the future. For individuals it now runs to 31 December 2036 and covers all categories of foreign income except income from a partnership carrying on business in Malaysia. For companies, LLPs, cooperatives and trust bodies, the exemption on foreign dividends and gains from disposing of foreign assets runs to 31 December 2030.

There is one condition, and it is the decisive one: the income must have been subjected to a tax of a similar character to income tax in the country where it arose. For dividends received by companies there is an additional requirement that the headline rate in the source country is at least 15%. The exemption does not extend to banking, insurance, or shipping and air transport businesses.

The practical consequence is worth understanding before you move money. If your income comes from a zero-tax jurisdiction, the condition fails and the remitted funds can end up taxed on the ordinary scale. Exempt income still has to be declared, and evidence of the foreign tax has to be kept. Money you never bring into Malaysia is not taxed at all - but you cannot live on it while living here.

Tax residency: 182 days and three other tests

Residency is decided by physical presence, not by visa type. An MM2H holder, an Employment Pass employee and someone on a tourist stamp go through exactly the same tests. The tax year is the calendar year.

Short absences can count as presence when the linked-period test is applied, for example business trips, medical treatment or family circumstances. But the counting is formal, and disputes are settled with documents - stamps, boarding passes, contracts - rather than with explanations.

Resident status unlocks the progressive scale, the relief system and treaty benefits. A non-resident pays a flat rate and gets no reliefs. On mid-range incomes the gap between the two regimes runs to tens of percentage points of tax, which is why the first year in the country is planned separately from every year after it.

Personal income tax: the 2026 scale and reliefs

Residents pay on a progressive scale from 0% to 30%. Budget 2026 left both the rates and the band thresholds untouched, so the scale carries over unchanged.

Here is how it works in practice. On chargeable income of RM 120,000 the tax is RM 9,400 plus 25% of RM 20,000, so RM 14,400 in total - an effective rate of 12%. The headline 30% only starts above RM 2 million, so the real burden on typical expatriate salaries is far lower than the top of the scale suggests.

Chargeable income is income after reliefs, and Malaysia has a long list of them. The basic personal relief is RM 9,000. Beyond that: EPF and life insurance contributions, medical and education insurance, medical expenses, education, child-related costs and certain household purchases. Budget 2026 widened several of them - relief for the diagnosis and treatment of learning disabilities rose to RM 10,000, childcare and after-school relief now covers children up to 12, insurance reliefs were extended to the taxpayer's children, and a RM 1,000 relief for entry to domestic tourism and cultural attractions returned for 2026. The list changes every year, so check it before you file.

Dividends sit apart. From year of assessment 2025 individuals pay 2% on dividend income from Malaysian companies above RM 100,000 a year. The first RM 100,000 is untouched and only the excess is taxed. Foreign dividends fall outside this charge.

Non-residents and withholding tax

A non-resident pays 30% on all chargeable Malaysian-source income: no progression, no personal reliefs, none of the usual concessions. This is not a penalty - the scale and the relief system are built for people whose life is anchored in the country.

There is a short-stay exception. Employment income of a non-resident who spends 60 days or less in Malaysia during a calendar year is exempt. It does not extend to directors' fees or to public entertainers, who have their own regime.

Treaty rates are often lower - Malaysia's treaty network is wide. But a treaty rate is never automatic: you need proof of the recipient's residency and the right paperwork in place before payment. The tax is remitted within one month of payment; late remittance triggers a penalty and disallows the deduction for that expense, which usually costs more than the penalty itself.

Corporate tax and the SME rates

The standard corporate rate is 24%, applying to Malaysian companies and to branches of foreign companies alike. The 28% figure that still circulates in older guides has been out of date for years.

To reach the SME rates a company must satisfy two conditions at once: paid-up ordinary share capital of no more than RM 2.5 million at the start of the basis period, and gross business income of no more than RM 50 million for that period. Additional restrictions apply to ownership structure and group membership - these are checked separately, and they are where otherwise eligible companies most often fall out.

The Labuan regime charges 3% on audited net profits from trading activity, but only where the economic substance requirements are met: at least two full-time employees in Labuan and no less than RM 50,000 of annual operating expenditure there. Fail the test and the ordinary 24% applies. The regime no longer tolerates empty shells, and the requirements were tightened again in 2025.

For financial years starting on or after 1 January 2025 the global minimum tax is live. Malaysia introduced both a domestic top-up tax and a multinational top-up tax: where the effective rate in a jurisdiction falls below 15%, the difference is collected. For companies sitting on incentives such as Pioneer Status, part of the benefit now simply flows into the top-up tax instead. The first filing under this regime falls due on 30 June 2027.

From 2026, LLP profit distributions to individual partners above RM 100,000 a year are taxed at 2%, following the same logic as the dividend charge.

SST instead of VAT

Malaysia has no VAT. GST was introduced in 2015 and abolished in 2018, and the country reverted to SST - two separate taxes that behave quite differently from the VAT most newcomers are used to.

Sales tax applies to goods at the manufacturer or importer level, at 5% or 10%, with a range of exempt goods. Service tax applies to a closed list of taxable services at 6% or 8% depending on the category. The 8% rate covers most services; 6% was retained for food and beverage, telecommunications, parking and logistics.

From 1 July 2025 the scope widened considerably. Service tax now reaches rental and leasing (8%), construction works (6%), fee-based financial services (8%), private healthcare for non-citizens (6%) and private education for international students (6%). The transition period for that expansion ended on 31 December 2025, and full enforcement has applied since 1 January 2026.

Registration thresholds differ by sector: RM 500,000 of annual taxable turnover as the general rule, RM 1 million for rental, leasing and financial services, and RM 1.5 million for construction and food and beverage.

The feature that catches people out is this: there is no input tax credit under SST. It is not a pass-through tax, it is a direct cost. Across a chain of intermediaries the tax compounds, and it has to be built into the margin model from the start rather than discovered after the first quarter.

Running alongside is mandatory e-invoicing through MyInvois. Large taxpayers were onboarded first, the final phase started on 1 January 2026 with a grace period, and full enforcement begins in 2027. E-invoice data is reconciled against tax returns, so mismatches between filings and invoices surface automatically.

Capital gains, inheritance and property

There is no general capital gains tax on individuals in Malaysia. Gains from selling shares, fund units and crypto assets in the course of ordinary investing are not taxed. There is no inheritance tax - it was abolished in 1991 - and no gift tax or wealth tax. For people holding capital, this is one of the strongest arguments for the country.

Three exceptions matter, and they are better understood before a transaction than after it.

The first is RPGT, the real property gains tax, which also catches shares in real property companies. The rate depends on the holding period and on who is selling.

The second is the capital gains tax on disposals of unlisted Malaysian shares introduced in 2024. It applies to companies, LLPs, trusts and cooperatives, but not to individuals: 10% of the net gain, or, by election for shares acquired before 2024, 2% of the gross consideration.

The third is stamp duty. From 1 January 2026 foreigners pay a flat 8% on residential property transfers, up from 4%. Citizens pay on a tiered scale of 1% to 4%. Certain MIDA-approved projects keep their exemptions.

Holding property attracts local charges: assessment tax (cukai pintu) is levied on the annual value of the property at a rate set by the local council, which varies noticeably between cities, while quit rent (cukai tanah) is an annual state land charge based on area. By European standards the amounts are modest. Rental income is taxed as ordinary income on the progressive scale.

MM2H: what it gives you and what it does not

MM2H is a long-stay visa, not a tax regime. It grants no exemption, does not make you a tax resident and does not carry the right to take up employment. Confusing it with a tax status is the most common and most expensive mistake applicants make.

The rebuilt programme sets a minimum age of 25 for the principal applicant and a presence requirement of 60 days a year across all tiers, with dependants able to satisfy it in certain cases for applicants aged 25 to 49. The property must be bought and held, and half the deposit can be released after a year for housing, medical treatment or domestic tourism. The wording on purchase deadlines and minimum stay has been revised more than once, so confirm both at the point of application.

The Platinum tier used to lead to permanent residence; it is now a 20-year renewable pass. The route from MM2H to PR is closed, which materially changes the calculation for anyone who saw the programme as a step towards citizenship.

The tax logic for an MM2H holder is straightforward. Under 182 days in the country and you are a non-resident: Malaysian income is taxed at 30%, foreign income is not taxed at all. From 182 days you are a resident: the scale and reliefs apply, and remitted foreign income is exempt provided it was taxed abroad. Separate concessions have been announced for the Forest City Special Financial Zone in Johor, but their terms keep moving and should be checked case by case.

Filing and deadlines

Malaysia runs on self-assessment. The tax year is the calendar year and returns are filed the following year through the MyTax portal.

Individuals without business income file Form BE by 30 April, with an e-filing grace period to 15 May. Individuals with business income file Form B by 30 June, with an extension to 15 July for electronic submission. Non-residents use Form M. Paper filing is no longer available for most categories.

Employers withhold MTD (PCB) from salary each month as advance income tax and issue an EA statement after year end. When a foreign employee joins or leaves, the employer files notifications on Forms CP22 and CP21 and withholds the final salary until tax clearance is obtained. Leaving the country for good without settling your tax position does not work in practice: without clearance the withheld amounts are not released.

Companies file Form C within seven months of the financial year end, and submit a tax estimate on Form CP204 thirty days before the basis period starts, with fixed windows for revising it during the year.

Since 1 October 2025 EPF contributions have been mandatory for foreign employees as well, at 2% from the employer and 2% from the employee. SOCSO and EIS contributions are calculated on wages capped at RM 6,000 a month. Tax records and supporting documents must be kept for seven years.

Who Malaysia does not suit and what can go wrong

Malaysia is often sold as a tax-free haven for remote entrepreneurs. That is an overstatement, and disappointment usually arrives from one of six directions.

Income from a zero-tax jurisdiction. The foreign income exemption works only if the income was taxed in the source country. Dividends from a zero-rate offshore company, or profits from a jurisdiction with no corporate tax, do not meet that condition, and remitting them into Malaysia can put them into the tax base on the progressive scale. The move-and-pay-nowhere structure breaks down precisely here.

Remote work performed in Malaysia. If you are physically working while sitting in Kuala Lumpur, the income is very likely Malaysian-sourced regardless of where the client sits or which account the money lands in. That is not foreign income, and no exemption applies to it.

The first year. Until you cross 182 days you are a non-resident paying a flat 30% with no reliefs. Arriving in the second half of the year almost guarantees an expensive first tax year, and shifting the arrival date is usually cheaper than fixing it afterwards.

The cost of exiting MM2H. The deposit is locked, the property purchase is compulsory, stamp duty for foreigners is 8% from 2026, and RPGT is 30% on a sale within the first five years. Reversing quickly can easily cost more than several years of tax savings. The programme fits poorly for anyone who is not confident about a five to seven year horizon.

The pace of change. In four years: foreign income brought into charge in 2022, capital gains tax introduced and service tax raised in 2024, SST widened in 2025, MM2H rewritten twice, 8% stamp duty from 2026. Planning ten years ahead on today's rules is not advisable - build in a margin.

Business economics. 24% is not a low rate for the region, SST is not recoverable and sits in your cost base, and the 3% Labuan rate demands genuine presence: two employees and real spending on the island. For companies relying on investment incentives, the global minimum tax cancels out part of the benefit.

Key features of the Malaysian tax system

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