As a separate legal entity, a Sdn Bhd company should comply with tax obligations. Understanding the tax requirements makes tax compliance a smoother process.
Running your startup as a separate legal entity through a Sdn Bhd company provides you benefits such as personal financial security and access to funding, but it also requires compliances towards laws and regulations in Malaysia. One of the most concerning compliances that many entrepreneurs face is taxes as required by Lembaga Hasil Dalam Negeri Malaysia (LHDN) and Royal Malaysian Customs Department (RMCD). Understanding each tax requirement can put you at ease on this matter so that you put more focus on growing your business.
Corporate tax is governed under the Income Tax Act 1967, which applies to all companies incorporated in Malaysia for chargeable income derived from Malaysia including business profits, dividends, interests, rents, royalties, premiums and other income. Income obtained from other countries are exempted from corporate tax except for businesses related to banking, insurance, and sea and air transport. Similar to personal income tax, there are tax exemptions available such as tax incentive and foreign tax credit.
Basically, newly formed Sdn Bhd company should file the estimation of tax payable within 3 months of operation and make monthly instalments starting from the 6th month of the assessment year by the 15th of each month. After the assessment year ended, Sdn Bhd company is required to file its tax to the LHDN within 7 months through the e-filling portal. If the actual tax liability is greater than the taxes paid based on the estimation, the balance of tax payable has to be paid. On the other hand, you can apply for a refund if the actual tax liability is lower than the taxes paid.
However, for Sdn Bhd company with a paid-up capital of 2.5 million or less, you don’t have to submit the estimation of tax payable for the first 2 assessment years. You only have to file the tax within 7 months after the end of the assessment year.
Withholding tax is applicable only if your Sdn Bhd company is paying a non-resident individual or company (known as the payee) for their services where a certain percentage of the payment is deducted and paid as their income taxes to the LHDN. Each payment type has a different tax rate according to Section 107A and Section 109 of the Income Tax Act 1967. Under the Double Taxation Agreements (DTA), you may apply for the refund of overpaid withholding tax.
The withholding ‘tax should be paid within 1 month from the date of payment to the non-resident payee.
As part of an employer’s responsibility, Sdn Bhd company with employees will need to retain a percentage of employees’ remuneration including salary, commission, bonus, incentives, etc. and pay as Monthly Tax Deduction (MTD) to LHDN for employees who are taxable. This deduction, along with EPF, SOCSO, and EIS, will be stated in the employees’ payslip as PCB (potongan cukai bulanan). This tax can be deducted if the employee is paying Zakat, a payment made under the Islamic law for charitable and religious purposes.
The calculation of PCB can be done based on the MTD schedule or through Computerised Calculation Method on the e-CP39 portal. The amount of PCB required from each employee varies according to the category they fall in and also the amount of remuneration they receive each month.
PCB should be paid to LHDN by the 15th of each month, for the remuneration issued for the preceding month.
Your Sdn Bhd company is required to pay for Stamp Duty when instruments are involved, which are written legal, commercial, and financial documents. Examples of taxable instruments are partnership agreement and mortgage agreement. There are two types of Stamp Duty, one with a fixed rate regardless of the amount stated in the instrument, the other which varies according to the nature of the instrument and the value stipulated. Besides some situations where the Stamp Duty is exempted, you may apply for Stamp Duty relief under certain cases.
All information regarding taxable instruments and exemptions are stated in the Stamp Act 1949. Instruments that are chargeable for Stamp Duty are listed in the First Schedule together with the rates while the persons liable to pay the Stamp Duty are listed in the Third Schedule.
The instrument should be stamped within 30 days of the execution of the instrument. These are the ways to pay Stamp Duty - Digital Franking System, stamp certificate, compound duty, revenue stamp (can be obtained from post offices) and direct payment to the Stamp Duty counter.
Sales Tax is a single-stage tax charged on taxable goods manufactured in or imported into Malaysia by a taxable person and is due when the goods are sold, disposed of, or first used with a total sale value of more than RM500,000 in 12 months. There are exemptions for certain goods manufactured or imported.
Not to be confused with service charge, Service Tax is charged on taxable services in Malaysia such as accommodation, gaming, telecommunication services, etc. provided by a taxable person with a total value of more than RM500,000 in 12 months. For the F&B industry, however, the threshold is a total value of more than RM1,500,000 in 12 months. Credit card services have no threshold and a different rate.
* SST does not apply to Special Area.
SST should be paid bi-monthly, except for the 1st tax period after your registration with RMCD.
Real Property Gains Tax is applicable only if your Sdn Bhd company disposes of chargeable assets such as houses, commercial buildings, farms, and vacant lands, and also shares in real property companies, gaining profit from the disposal. The calculation of chargeable gain is the disposal price minus by acquisition price. Governed under the Real Property Gains Tax 1976, the tax rates differ according to the holding period of the chargeable assets.
You and the acquirer of the chargeable assets are required to file the tax within 60 days from the date of disposal. The acquirer will pay part of the purchase consideration which will be deducted from the RPGT payable. After filling the tax, an assessment notice will be issued for taxable cases; for non-taxable cases, a certificate of non-chargeability will be issued instead. You are then required to pay the RPGT payable within 30 days from the date the assessment notice is issued.
Besides the taxes stated above, there are customs duty, excise duty, property taxes (cukai tanah and cukai pintu) and other taxes which might be applicable to your company according to industry and nature of business. Besides, please bear in mind that Labuan has a different tax regulation than other States in Malaysia. Fulfilling this obligation as a Sdn Bhd company should not be an obstacle that hinders your company growth or operations. Hence, understanding the taxes at the early stage of your business ensures that full compliance with the tax law and regulation can be met smoothly.
Disclaimer: Information provided in this article is for general reference only. Please seek advice from company secretary, lawyer or other professionals according to your business's needs.