Tax Compliance in Malaysia: A Guide for Businesses

Tax compliance is a fundamental responsibility for every business operating in Malaysia. From tax filing in Malaysia to ongoing reporting obligations, companies must navigate a complex framework of direct and indirect taxes while meeting deadlines and maintaining accurate records.

As regulations evolve and enforcement becomes more stringent, businesses that fail to manage tax compliance effectively face penalties, audits, and reputational risks. 

At the same time, well-structured tax planning in Malaysia can help organisations remain compliant while optimising cash flow and managing tax exposure.

The following provides a comprehensive, practical overview of corporate income tax compliance in Malaysia, helping businesses understand what is required, what common pitfalls to avoid, and how to manage tax obligations efficiently.

What Is Tax Compliance in Malaysia?

In Malaysia, tax compliance refers to a business’s obligations to comply with tax laws, which are primarily overseen by the Inland Revenue Board of Malaysia (LHDN). These obligations include:

• Register for all applicable taxes – ensuring the business is properly registered with the IRB for taxes it is liable to pay
• Submit accurate tax returns within the required deadlines
• Remitting the correct amount of tax by the due dates
• Keep proper records and documentations
• Respond to queries and audits by the tax authority

Why Tax Filing in Malaysia Is Becoming More Complex?

Tax filing and tax compliance in Malaysia have become increasingly complex due to a combination of regulatory, technological, and enforcement-related developments. Key factors contributing to this growing complexity include:

• Frequent updates to tax laws, guidelines, and administrative practices
• Ongoing digitalisation of tax administration and reporting processes
• Heightened audit activity and more rigorous enforcement by tax authorities
• Increased data sharing and information exchange between government agencies
• Rising expectations regarding the accuracy, consistency, and quality of tax documentation

As a result, tax compliance can no longer be treated as a once-a-year exercise. Instead, it has evolved into a continuous, year-round responsibility that requires close coordination across finance, operations, tax, and corporate governance functions to ensure accuracy, transparency, and timely compliance.

Core Tax Filing Obligations for Businesses

Submission of Tax Return   

The income tax return of a company is to be submitted to the Inland Revenue Board of Malaysia (IRB) within seven months from the date of the closing of accounts. A company must submit its return based on the financial statements made in accordance with any written law.

Under the Self-Assessment System, the return Form e-C is deemed to be the notice of assessment. 

Submission of Documents through the Malaysian Income Tax Reporting System (MITRS)

With effect from YA 2025, companies are required to provide information and furnish documents determined by the Inland Revenue Board of Malaysia (IRBM) for ascertaining chargeable income and tax payable on an electronic transmission within 30 days after the due date for submission of the Return Form. The information and specified documents under Section 82B of the Act that are required to be submitted through MITRS.

Submission of Estimate of Tax Payable 

A company is required to furnish its tax estimate for a YA to the IRB, not less than thirty days before the beginning of the basis period for that YA. For a new company first commencing its operation, the estimate has to be furnished within three months from the date of commencement of its operation. 

A company other than a small medium enterprise (SME), which first commences operations in a YA, is not required to furnish an estimate of tax payable or make instalment payments, if the basis period for the YA in which the company other than a SME commences operations is less than 6 months.

A SME is not required to furnish an estimate of tax payable or make instalment payments for a period of two (2) years beginning from the year of assessment in which the SME commences operation. With effect from YA 2014, where a SME first commences operation in a YA and has no basis period in that YA, the SME is not required to furnish an estimate of tax payable for that YA and the immediate two (2) following YAs.

Notwithstanding the above, kindly note that the IRB still requires the CP204 Form to be submitted to them. 

Revision of Estimate of Tax Payable

The company is allowed to make a revision of the said estimate in the sixth and/or ninth and/or eleventh month of its basis period. 

Payment of Estimated Tax

Where an estimate of tax payable has been furnished, that amount shall be paid to the IRB in equal monthly instalments determined according to the number of months in the basis period, and each instalment shall be paid by the 15th beginning from the second month of the basis period for a particular YA. 

Effective from YA 2028, the first instalment shall commence in the first month of the basis period for that YA, and the final instalment shall fall within the same basis period. As a transitional measure for YA 2027, instalment payments will continue to commence in the second month of the basis period and the final instalment will be in the twelfth month of the same basis period. 

Penalty Rates for Late Submission of Income Tax Returns under Section 112(3) of the Act.

The following are the penalty rates for failure to furnish an income tax return or give notice of chargeability, with effect from 1 October 2019.

Despite the above, the IRB may still request a company to pay a penalty as high as treble the tax before any set-off, repayment or relief payable for that year, as provided under Section 112(3) of the Act.

Penalty Provisions

Effective from 30 December 2015, any person who, without any reasonable excuse, fails to furnish a return in accordance with Section 77(1) or Section 77A(1) of the Act in respect of any YA:

• for any one YA shall be guilty of an offence and shall, on conviction, be liable to a fine of not less than two hundred ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding 6 months or both.
• for 2 years or more shall, 
  • i. be liable to a fine of not less than one thousand ringgit and not more than twenty thousand ringgit or to imprisonment for a term not exceeding 6 months or both; and
  • ii. a special penalty equal to treble the amount of tax charged on the changeable income of a taxpayer as determined by the IRB to the best of his judgement.

A penalty of 10% of the tax payable will be imposed where for a YA :

1) No estimate is furnished by that company, limited liability partnership, trust body or co-operative society and no direction is given by the Director General to make payment by instalments ;

2) No prosecution has been instituted under Section 120 in relation to failure in furnishing such estimate; and

3) Tax is payable by that company, limited liability partnership, trust body or co-operative society pursuant to an assessment for that YA.

Sufficient Record Keeping

Under the Self-Assessment System, every person carrying on a business must keep sufficient records and books of account including a 

• Cashbook
• sales ledger
• purchase ledger
• general ledger

Entries to these books should be done on a regular basis. Supporting documents such as:

• invoices
• bank statements
• receipts for payments
• cheque butts
• payroll records, etc

should be retained and kept at the registered office or the business premises of the company. If the records and books of account are kept outside Malaysia, they should be produced at the registered office or the business premises when requested by the IRB.  

The records and books of account are to be retained for at least seven (7) years from the date the latest tax return is submitted to the IRB. These books and records, in manual or electronic form, must be sufficient and adequate in explaining the transactions of the person’s financial affairs. It is an offence if insufficient records are kept for such purposes. For the purpose of a tax audit by the IRB, any person is also required to maintain a tax file where the original copies of computation and worksheets are kept for inspection.

Duty to Furnish Particulars of Payments Made to Agents, Dealers or Distributors

All companies are required to prepare and provide a Form CP 58 to each of their agent, dealer or distributor not later than 31 March in the year immediately following the year as required under Section 83A of the Act. 

Under Section 83A of the Act, “agent”, “dealer” or “distributor” means any person who is authorised by a company to act as its agent, dealer or distributor, and who receives payment (whether in monetary form or otherwise) from the company arising from sales, transactions or schemes carried out by him as an agent, dealer or distributor.

Failure to comply would render each company liable to be charged as an offence and it shall, on conviction, be liable to a fine of not less than two hundred ringgit and not more than twenty thousand ringgit; or to imprisonment for a term not exceeding six months or to both under Subsection 120(1) of the same Act.

The company shall keep and retain the prescribed form in safe custody and shall make it readily accessible to the Director General.

Common Tax Compliance Challenges for Businesses

Despite increased awareness of tax obligations, many businesses continue to face recurring challenges in managing corporate income tax compliance effectively.

Missed Deadlines

Failure to meet statutory filing and payment deadlines remains one of the most common compliance issues. Late submissions may result in penalties, interest charges, and enforcement actions, particularly as tax authorities increasingly rely on automated systems to monitor compliance timelines.

Inaccurate Tax Computations

Errors in tax calculations such as incorrect application of tax rates, misinterpretation of allowable deductions, or improper treatment of exemptions and incentives can significantly increase audit exposure. These inaccuracies often stem from frequent regulatory changes or inadequate technical review processes.

Poor Documentation

Incomplete or poorly maintained records undermine a company’s ability to support its tax positions during audits or reviews. Weak documentation not only increases the likelihood of tax adjustments but also prolongs audit timelines and diverts internal resources away from core business activities.

Lack of Coordination Across Functions

Tax compliance often depends on accurate and timely information from multiple departments, including finance, operations, and legal. Disconnected processes and limited coordination between these functions can lead to inconsistent reporting, data gaps, and increased compliance risks.

Preparing for Tax Audits in Malaysia

Tax audits in Malaysia are increasingly data-driven and technology-enabled. To minimise disruption and improve audit outcomes, businesses should:

• Maintain contemporaneous and well-organised documentation
• Regularly reconcile tax returns with financial statements
• Identify and address potential issues proactively
• Respond promptly and accurately to queries from tax authorities

Effective preparation not only reduces audit duration and disruption but also strengthens credibility with regulators.

Governance and Board Oversight of Tax Compliance

Boards and senior management are increasingly expected to:

• Oversee tax risk management frameworks
• Ensure tax compliance policies and controls are effective
• Monitor exposure to financial penalties and reputational risk

Tax compliance is now a governance issue not merely an operational or finance function requiring strategic oversight and accountability at the highest levels of the organisation.

How Grant Thornton Malaysia Supports Tax Compliance

Grant Thornton Malaysia supports businesses by:

• Advising on tax 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 controls

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.