Malaysia · Proposed legislation
Malaysia proposes SME rate cuts and higher small-asset allowances
On 9 October 2026, Malaysia’s Ministry of Finance published Budget 2027 proposals to reduce qualifying smaller businesses’ income tax rates and raise the capital-allowance limits for low-cost assets from year of assessment 2027.
- Official document:
- Budget 2027 Tax Measures, Appendices 11–12; Income Tax Act 1967 (Act 53), Schedule 1 Part I paragraphs 2A–2F and Schedule 3 paragraph 19A
- Development date:
- 2026-10-09
Lower rates for qualifying smaller businesses
Appendix 11 would reduce the rate on the first RM150,000 of qualifying chargeable income from 15% to 14%, and on the next RM450,000 from 17% to 16%. Income above RM600,000 would remain taxed at 24%. This is not a general corporate-rate cut: the existing framework is in Part I of Schedule 1 to the Income Tax Act 1967, including paragraphs 2A–2F for qualifying companies and limited liability partnerships.[1][2]
Size alone does not establish eligibility
The current reduced-rate rules require Malaysian residence, local incorporation or registration, capital not exceeding RM2.5 million at the start of the basis period and business gross income not exceeding RM50 million. Ownership or contributions above 20%, directly or indirectly, by foreign-incorporated companies or non-Malaysian-citizen individuals block the preferential bands. Separate related-company exclusions also apply. A small Malaysian subsidiary of an overseas group can therefore fail despite satisfying the size tests. Appendix 11 announces rate changes, not repeal of those exclusions.[1][2][3]
Higher small-asset ceilings
Appendix 12 proposes raising the per-asset ceiling from RM2,000 to RM3,000 and the annual ceiling for companies outside the qualifying MSME category from RM20,000 to RM30,000. Schedule 3 paragraph 19A currently permits an allowance equal to qualifying plant expenditure instead of normal capital allowances, provided the asset is owned and used for the business at the period end. Qualifying smaller companies can claim without the annual ceiling, subject to the statutory size, activity and ownership tests.[1][2][4]
Separate checks for group entities
A foreign-owned operating company may be excluded from both the lower rates and uncapped asset treatment yet benefit from the proposed larger capped allowance. Public Ruling No. 4/2026 confirms that non-qualifying companies can use the existing capped regime when the asset conditions are met. The Budget wording specifically describes the higher annual cap for companies; it does not establish the same increase for limited liability partnerships. Groups should assess entity and asset eligibility separately. Both measures remain proposals pending implementing legislation.[1][2][4]
Official sources
- [1] Budget 2027 Tax Measures
Malaysian Ministry of Finance · Document date: 2026-10-09
Appendices 11–12, printed pages 17–18 (PDF pages 17–18): existing and proposed MSME tax bands, small-asset ceilings and proposed YA 2027 application.
- [2] Income Tax Act 1967 (Act 53), updated text as at 21 May 2024
Attorney General’s Chambers of Malaysia · Document date: 2024-05-21
Schedule 1 Part I paragraphs 2A–2F, printed pages 571–573; Schedule 3 paragraph 19A, printed pages 593–594. Updated non-authentic text; current operation corroborated against IRBM Public Rulings 8/2025 and 4/2026 and later Finance Acts.
- [3] Public Ruling No. 8/2025 — Tax Treatment for Micro, Small and Medium Companies
Inland Revenue Board of Malaysia · Document date: 2025-12-22
Paragraphs 5.3.3 and 6.2, internal pages 13–18 (PDF pages 16–21): direct/indirect ownership restrictions, qualifying residence/capital/income criteria and current 15%/17%/24% bands.
- [4] Public Ruling No. 4/2026 — Special Allowances for Small Value Assets
Inland Revenue Board of Malaysia · Document date: 2026-09-30
Paragraphs 2.1–2.2, 5–6, 8 and 11 (PDF pages 4–8 and 11–12): law in force at publication, 100% election, current thresholds, ownership restrictions and non-MSME capped treatment.