Income tax
A plain guide to income tax in Malaysia: how rates, reliefs, deductions and filing work for small businesses.
Published Friday 2 October 2026
Table of contents
Key takeaways
- Income tax in Malaysia is run by Lembaga Hasil Dalam Negeri Malaysia (LHDN) under a self-assessment system, and the year of assessment matches the calendar year
- Resident individuals are taxed at progressive rates between 0% and 30%, non-residents pay a flat 30%, and companies pay 24% with lower tiered rates for qualifying SMEs
- Reliefs cut your chargeable income, deductions cover allowable business expenses, and a rebate reduces the tax you actually pay
- You file and pay online through LHDN's MyTax portal, using Form B, Form P or Form C depending on how your business is set up
Types of income tax in Malaysia
Income tax in Malaysia falls into different types depending on who's earning the money and how the business is structured. Knowing which one applies to you is the first step to getting your numbers right.
The tax you pay depends on whether you earn as an individual, run an unincorporated business, or trade through a company. Each one is treated differently by LHDN.
Personal income tax
Personal income tax applies to individuals on income that accrues in or is derived from Malaysia. If you spend 182 days or more in Malaysia during a calendar year, you're generally a tax resident, so you're taxed at progressive rates and can claim reliefs. Non-residents are taxed at a flat 30% with no reliefs.
Sole proprietor and partnership income tax
If you run a sole proprietorship, your business profit is added to your personal income and taxed at the individual progressive rates. There's no separate sole-proprietor rate, and you report through Form B.
A partnership files Form P, which is an informational return, so the partnership itself pays no tax. Each partner is taxed individually on their share of the profit. Good small business accounting habits make it easier to split and report those shares correctly.
Company income tax
A company pays corporate income tax on its profits, separately from the owners. The standard rate is 24%, but a qualifying resident small and medium enterprise (SME) pays lower tiered rates on its first slices of chargeable income. A company reports through Form C.
Malaysia uses a progressive system for resident individuals, so the rate rises as your chargeable income grows. Companies work a little differently, with a flat standard rate and concessions for smaller businesses.
How Malaysia's income tax rates work
For resident individuals, chargeable income is split into bands, and each band is taxed at its own rate. Only the income that falls inside a band is taxed at that band's rate, not your whole income. You can check the current bands on the LHDN website, and these rates are the same for the 2025 and 2026 years of assessment.
The resident individual bands and their marginal rates are:
- The first RM5,000 is taxed at 0%
- RM5,001 to RM20,000 is taxed at 1%
- RM20,001 to RM35,000 is taxed at 3%
- RM35,001 to RM50,000 is taxed at 6%
- RM50,001 to RM70,000 is taxed at 11%
- RM70,001 to RM100,000 is taxed at 19%
- RM100,001 to RM400,000 is taxed at 25%
- RM400,001 to RM600,000 is taxed at 26%
- RM600,001 to RM2,000,000 is taxed at 28%
- Above RM2,000,000 is taxed at 30%
Your marginal rate is the rate on your next ringgit of income, while your effective rate is the total tax divided by your total chargeable income. Because the early bands are low or zero, your effective rate is always lower than your top marginal rate. Non-residents skip the bands entirely and pay a flat 30% on Malaysian income, with no reliefs to claim.
Working out income tax follows a clear path: settle your chargeable income first, then apply the rates, then subtract any rebate. The examples below show how this plays out for a company and an individual.
How to calculate income tax
The maths is straightforward once you have tidy figures. Start with what you earned, take off what you're allowed to claim, then apply the right rate.
Work out your chargeable income
Chargeable income is your gross income less allowable deductions and reliefs. Deductions are business expenses incurred wholly and exclusively to produce income, and reliefs reduce your chargeable income further. What's left is the amount the tax rate is applied to.
The basic formula
The core calculation is income tax = chargeable income multiplied by the tax rate, less any rebate. For progressive individual rates, you apply each band's rate to the income inside that band and add the results together before taking off a rebate.
Example: company (SME) calculation
Take a qualifying SME with RM200,000 of chargeable income. It pays 15% on the first RM150,000, which is RM22,500, plus 17% on the next RM50,000, which is RM8,500. That's a total of RM31,000.
Example: individual calculation
Now take a resident individual with RM70,000 of chargeable income. The tax on the first RM50,000 comes to RM1,500, and the next RM20,000 is taxed at 11%, which is RM2,200. Added together, the tax payable is RM3,700.
Reliefs, deductions and rebates all lower your tax bill, but they work at different points in the calculation. Mixing them up is a common way to get a return wrong.
Tax reliefs, deductions and rebates
Here's how the three differ:
- Deductions are business expenses incurred wholly and exclusively in producing income, and they reduce the profit you're taxed on
- Reliefs reduce your chargeable income, such as the automatic individual relief of RM9,000
- A rebate reduces the tax payable itself, such as the RM400 rebate where chargeable income is RM35,000 or below
The order matters because deductions and reliefs shrink the income before the rate applies, while a rebate comes off the tax at the end. Any excess rebate isn't refundable, so it can only take your tax down to zero.
Malaysia runs a self-assessment system, so you're responsible for reporting your own income and paying on time. The form you use and the deadline depend on your business type.
Reporting and paying income tax
Sole proprietors file Form B by 30 June, or 15 July when filing online. Partnerships file Form P as an informational return, and each partner reports their share on their own return. Companies file Form C within seven months of the financial year-end, or eight months when filing online.
Companies also pay estimated tax during the year through CP204 in monthly instalments. If you employ staff, you deduct income tax from their monthly pay under the Monthly Tax Deduction (MTD, also called PCB) and remit it to LHDN by the 15th of the following month.
Filing is done online through LHDN's MyTax portal, which has been mandatory for income tax return forms since the 2024 year of assessment. Accurate bookkeeping through the year keeps these submissions quick, and you can find a professional to help through the Xero advisor directory if you'd rather hand it over.
Pulling your figures together before you start saves time and reduces mistakes. A few core records cover most of what a business needs.
What info does a business need to calculate income tax?
Keeping clean records and recording transactions as they happen makes the calculation far simpler. To work out your income tax, gather:
- Revenue and expenses from your income statement, so you can work out profit
- Capital allowances or depreciation on business assets, such as equipment and vehicles
- Reliefs and rebates that apply to your situation, which bring down the final tax
Income tax gets easier when your records are already in order, and that's where good software earns its keep. Keeping income, expenses and reports current all year means less scrambling when it's time to file.
Simplify income tax season with Xero
Xero's accounting software tracks your income and expenses and reconciles your bank transactions automatically. It also turns your data into clear reports, so your figures are ready when the deadline comes round.
That means less time chasing paperwork and a clearer view of where your money goes each month. Start a Xero plan and you can get one month free.
FAQs on income tax
Here are quick answers to some of the questions small business owners ask most about income tax in Malaysia.
What is the income tax rate in Malaysia?
Resident individuals pay progressive rates between 0% and 30%, and non-residents pay a flat 30%. Companies pay a standard 24%, with qualifying SMEs paying 15% and 17% on their first bands of chargeable income.
Who has to pay income tax in Malaysia?
Anyone earning income that accrues in or is derived from Malaysia may be liable, including employees, sole proprietors, partners and companies. Your residency status decides whether you're taxed at progressive rates with reliefs or at the flat non-resident rate.
What is the difference between a tax relief, a deduction, and a rebate?
Deductions and reliefs both lower your chargeable income before the tax rate is applied, while a rebate comes off the tax payable at the very end. An unused rebate isn't refundable, so it can only reduce your tax to zero.
When is the income tax filing deadline in Malaysia?
Sole proprietors filing Form B have until 30 June, or 15 July when using e-filing. Companies file Form C within seven months of their financial year-end, or eight months when filing online.
Related terms
Learn more about income tax
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Disclaimer
This glossary is for small business owners. The definitions are written with their requirements in mind. More detailed definitions can be found in accounting textbooks or from an accounting professional. Xero does not provide accounting, tax, business or legal advice.