Finance Bill 2023 had its first reading in Parliament recently. If it passes the second reading and becomes law, these corporate tax rates will apply:
a. The statutory tax rate for companies will remain at 24%.
b. Companies that meet the definition of micro, small and medium enterprises (MSME) or commonly known as SMEs would enjoy the following preferential tax rates (effective for the year of assessment 2023):
Tax Rate (%)
From RM150,001 to RM600,000
To enjoy the preferential tax rate, the MSME/ SME must meet the following requirements:
The company has a paid-up capital (in respect of ordinary shares) of not more than RM2.5 million at the beginning of the year of assessment 1 ;
The gross income from business sources does not exceed RM50 million for that year of assessment;
# This additional requirement will be effective from Year of Assessment 2024:
At the start of the year of assessment, no more than 20% of the company's ordinary shares can be owned by foreign companies or non-Malaysian citizens. [In other words, MSMEs/SMEs with 20% or more in foreign shareholding will not qualify for preferential tax rates]
1 Besides the requirement that the MSME company's paid-up capital must not exceed RM2.5 million, it has to fulfil these requirements too:
a. No more than 50% of the company's ordinary shares can be owned directly or indirectly by a related company;
b. No more than 50% of the related company's ordinary shares can be owned directly or indirectly by the first company; or
c. No more than 50% of the ordinary shares of both the first company and the related company can be owned directly or indirectly by another company.
A “related company” in this context means a company that has a paid-up capital in respect of ordinary shares of more than RM2.5 million at the beginning of the basis period.
The 15% reduced rate for the first RM150,000 of taxable income starting in YA 2023 is welcome. While SME companies with foreign ownership must check if they qualify for preferential rates from YA2024. If affected, the SME company should plan to adjust its tax payable estimate for YA 2024.