Introduction to Global Minimum Tax in Malaysia

The Two-Pillar Solution is comprised of Pillar One and Pillar Two. Pillar One aims to ensure a fairer distribution of profits and taxing rights among countries with respect to the largest multinational enterprises (MNEs). Meanwhile, Pillar Two puts a floor on tax competition on corporate income tax through the introduction of a global minimum corporate tax rate that countries can use to protect their tax bases. The Global Anti-Base Erosion (GloBE) Rules are the main Pillar Two Rules which set out the scope and mechanism of the new global minimum effective tax rate (ETR) of 15%. A top-up tax will be charged when the group’s ETR in a jurisdiction falls below the 15% level. 

Malaysia announced its commitment to implementing the Global Minimum Tax (GMT) during the Budget 2024 speech, targeting MNE Groups with consolidated revenues of EUR 750 million or more in at least two of the four consecutive Financial Years immediately preceding the tested Financial Year.

With the enactment of the Finance (No. 2) Bill 2023 on 29 December 2023, the GloBE Rules have been incorporated into Malaysian tax law. Multinational Top-up Tax (MTT) and the Domestic Top-up Tax (DTT) are effective from the financial year beginning on or after 1 January 2025.

This adoption reflects Malaysia's commitment to curbing tax base erosion and profit shifting while maintaining its competitiveness in the global market. By aligning with international tax standards, Malaysia supports fair taxation and at the same time safeguards its tax revenue base.

What Is Global Anti-Base Erosion (GloBE) Rules?

GloBE Rules set out the scope and mechanism together with the Subject to Tax Rule (STTR) to collect at 15% corporate income tax (CIT) on the global level of MNE Groups by three rules:

• Qualified Domestic Minimum Top-up Tax (QDMTT) is collected by the low-tax jurisdiction;
• Income Inclusion Rule (IIR) imposes top-up tax on the ultimate parent entity (UPE) of the low-taxed income of a constituent entity (CE);
• Undertaxed Profit Rule (UTPR) denies deduction or requires an equivalent adjustment on the taxes paid by MNE group.

Malaysia Global Minimum Tax (Malaysia GMT)

Malaysia GMT in Malaysia ITA 1967 (Sections 157 to 239 in Part XI of the ITA 1967) provides regulations on DTT and MTT, equivalent to QDMTT and IIR from OECD, respectively. There is no regulation on UTPR in Malaysia ITA 1967 at the moment.

The GMT legislation shall also apply to any Labuan entity under the Labuan Business Activity Tax Act 1990 and to a chargeable person under the Petroleum (Income Tax) Act 1967 if it is a CE that is a member of a MNE Group that falls within the scope.

Core Information And Requirements About Malaysia GMT

In-scope multinational enterprises (MNEs):   

MNE Groups with consolidated revenues of EUR 750 million or more in at least two of the four consecutive Financial Years immediately preceding the tested Financial Year.

Where MNE Groups: With at least one entity or permanent establishment (PE) not located in the same jurisdiction as the UPE.

Effective:   

In-scope MNE Groups with the financial year beginning on or after 1 January 2025. 

Filling requirements:   

GloBE Information Return (GIR) – Information Return: 

- GIR is a comprehensive reporting document that MNEs must file annually to disclose their financial and tax information under the GloBE Rules. The GIR includes detailed information on the MNE Group’s income, taxes, and the ETR calculation across all jurisdictions where the MNE Group operates or has a business presence. 

- For the CE of a foreign MNE Group, where the UPE or the Designated Filing Entity (DFE) of the foreign MNE Group reside in a jurisdiction with a Qualifying Competent Authority Agreement (QCAA) to exchange the GIR with Malaysia, they do not have to file the Information Return with the IRBM. 

- When a foreign MNE Group's UPE or DFE resides in a jurisdiction that does not have a QCAA with Malaysia, the CE must file the Information Return to the Inland Revenue Board of Malaysia (IRBM). But if that foreign MNE Group has more than one CE in Malaysia, it can nominate a Designated Local Entity (DLE) to submit the Information Return to the IRBM on behalf of all the other CEs. 

Elections/Filing: 

- The election to appoint a DFE must be made by a notice in writing in the prescribed form and furnished to the DGIR no later than 15 months from the last day of Reporting Financial Year by a CE. 

- The election to appoint a DLE must be made by a notice in writing in the prescribed form and furnished to the DGIR not later than 15 months from the last day of Reporting Financial Year by a DLE on behalf of that CE. 

- A Filing CE may elect not to treat an Entity as an Excluded Entity

Domestic Top-up Tax (DTT): 

- Every CE of an MNE Group located in Malaysia shall furnish its DTT Return in the prescribed form on an electronic medium to the IRBM.

- The DTT return reflects either a declaration of no tax liability or the amount of tax payable for the Financial Year.

Due date: 

- The due date to submit the GIR/Information Return is no later than 15 months after the end of the Financial Year. The GloBE Rules provide transitional relief for filing obligations where the GIR and notifications can be filed with the DGIR no later than 18 months after the last day of the Reporting Financial Year for the first filing transition year. 

- The due date to submit the DTT is no later than 15 months after the end of the Financial Year. For the first filing transition year, the due date is no later than 18 months after the last day of the corresponding Reporting Financial Year. 

- The due date of payment for DTT means the last day of the 15th month from the close of the Reporting Financial Year.

Penalty Provisions and Transition Penalty Relief:

- GIR/Information Return: The information furnished in the information return must be complete and correct. Incomplete and/or incorrect information provided to the DGIR may result in a penalty or fine ranging from RM20,000 to RM100,000, or imprisonment for up to six months, or both.

- DTT Return: The DGIR may impose a fine of not less than RM20,000 and not more than RM100,000 and a special penalty of double the amount of tax which has been undercharged for: 

(a) an incorrect DTT return that omits or understates the DTT; or 

(b) any incorrect information affecting the chargeability to tax of any CE. 

- Where no prosecution has been instituted, the DGIR may require the CE to pay a penalty equal to the amount of tax which has been undercharged for an incorrect DTT return that omits or understates the DTT. 

- Relief: During a Transition Period, no fines or penalties will be imposed if the DGIR considers that the CE has taken “reasonable measures” to ensure the correct application of the GMT legislation. 

- OECD Transition Period refers to any Financial Years beginning on or before 31/12/2026 but does not include Financial Year that ends after 30/06/2028. For Malaysia, the Transition Period will apply to Financial Years starting on or after 01/01/2025, but not exceeding 31/12/2026, and the Financial Year must not end after 30/06/2028. 

How Grant Thornton Malaysia Supports Malaysia Global Minimum Tax Compliance

• Grant Thornton Malaysia supports businesses by:
• Advising on Malaysia GMT compliance frameworks and regulatory requirements
• Supporting tax planning strategies aligned with business objectives
• Integrating tax with audit, assurance, and risk management
• Strengthening governance structures and internal control

Learn more about Grant Thornton Malaysia’s Tax compliance services

Conclusion

Tax compliance in Malaysia is becoming more complex, data-driven, and closely scrutinised. Businesses must go beyond basic tax filing in Malaysia and adopt a structured approach that integrates compliance, tax planning in Malaysia, and indirect tax management.

By strengthening controls, aligning tax with audit and governance, and seeking professional support where needed, organisations can remain compliant without unnecessary risk or disruption.

Effective tax compliance is not just about meeting obligations, it is about protecting the business and supporting sustainable growth.