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Foreign-Owned Companies to Face New Conditions in Year of Assessment 2024

As background information, a company that qualifies as a Micro, Small, and Medium Enterprise (MSME) is subject to taxation at these preferential rates:co

​Chargeable Income

Tax Rate

First RM150,000

15%

RM 150,001 to RM 600,000

17%

RM 600,001 and above

24%

Beginning in the assessment year 2024, the criteria for MSME classification will be updated. Companies or LLPs with more than 20% of their paid-up capital or capital contribution owned by a foreign company or non-Malaysian individuals at the start of the basis period will no longer be considered MSMEs. As a result, these entities will not qualify for the preferential tax rates that we discussed above.



The criteria for MSME

A micro, small, and medium enterprise (MSME) is defined as a resident company or LLP

  • with paid-up capital of 2.5 million Malaysian ringgit (MYR) or less, and gross income from business of not more than MYR 50 million

  • that does not control, directly or indirectly, another company that has paid-up capital of more than MYR 2.5 million

  • is not controlled, directly or indirectly, by another company that has paid-up capital of more than MYR 2.5 million, and

  • with no more than 20% of its paid-up capital being owned, directly or indirectly, by a foreign company or non-Malaysian citizen (with effect from Year of Assessment 2024).


Commentary: This policy adjustment was announced in 2022 (as part of Budget 2023). It aims to ensure that the benefits intended for MSMEs, such as preferential tax rates, are precisely targeted towards local, smaller-scale enterprises while maintaining a fair and competitive economic environment. Companies and LLPs must now carefully assess their ownership structures and prepare for the implications of these changes on their tax obligations and business strategies.

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