Tax Reliefs in Malaysia 2025 for Employers: Types and How to Apply

Tax season can be stressful for many, but understanding tax reliefs can significantly lighten the burden.

For Malaysian taxpayers, tax reliefs are an excellent way to reduce taxable income and, consequently, the amount of tax payable.

Whether you are an individual, parent, employee, homeowner, or small business owner, Malaysia offers a variety of tax reliefs that can significantly reduce your taxable income.

Let's explore the ins and outs of tax reliefs and how you can make the most of them this year.

What is Tax Relief?

Tax relief refers to specific deductions or allowances granted by the government to reduce your taxable income.

These reliefs are designed to support taxpayers in managing their financial burdens, encourage beneficial practices such as education and investment, and promote overall economic growth.

In Malaysia, tax reliefs work by deducting specific amounts from your total income before calculating your tax liability.

For example, if you earn RM100,000 annually and claim RM20,000 in various tax reliefs, your taxable income would be reduced to RM80,000.

This reduction can lead to substantial savings on your tax bill.

How Tax Reliefs Work

1. Gross Income

This is the total income earned, including salaries, bonuses, allowances, and other forms of income.

2. Approved Deductions

Deductions like EPF contributions and certain tax reliefs are subtracted from the gross income.

3. Taxable Income

After applying tax reliefs and deductions, the resulting figure is the taxable income. The lower the taxable income, the lower the tax bracket you may fall into, leading to reduced tax rates and amounts.

Common Tax Reliefs in Malaysia for Employees

Here’s a list of common tax reliefs available to Malaysian taxpayers:

Category	Relief Amount (RM)	Eligibility/Details
Individual and Dependent Relief	9,000	Automatically given to all resident taxpayers.
EPF Contributions	Up to 4,000	Combined relief with life insurance premiums.
Spouse Relief	4,000	For a non-working spouse or with income below RM4,000.
Child Relief	2,000 per child	Additional relief for disabled children (RM6,000).
Education Fees	Up to 7,000	Courses in technical, vocational, or professional fields.
Medical Expenses	Up to 8,000	Includes serious illnesses and parental care.
Lifestyle Relief	Up to 2,500	For gadgets, books, gym memberships, and internet.
SSPN Contributions	Up to 8,000	Savings in the National Education Savings Scheme.
Zakat or Fitrah	Full amount	Direct deduction for Muslim taxpayers.

10 Types of Business Tax Reliefs in Malaysia Employers Should Know

In Malaysia, businesses can leverage various types of tax reliefs and incentives to reduce their taxable income and overall tax liability.

These tax reliefs are designed to encourage specific activities such as investments, research, and corporate social responsibility while promoting economic growth.

Below is a list of common types of tax relief available to businesses in Malaysia:

1. Pioneer Status (PS)

Businesses in promoted industries (e.g., manufacturing, agriculture, and IT) can apply for Pioneer Status, which grants a 70% to 100% tax exemption on statutory income for 5-10 years.

This incentive encourages investment in strategic sectors vital for Malaysia's economic growth. Companies must obtain approval from agencies like MIDA or other relevant authorities to qualify.

2. Investment Tax Allowance (ITA)

The ITA offers businesses a tax allowance of up to 100% on qualifying capital expenditure incurred for certain projects over 5-10 years.

This incentive targets businesses investing in technology, expansion, or modernizing their operations. It reduces the taxable income and supports long-term growth and productivity improvements.

3. Reinvestment Allowance (RA)

Eligible businesses involved in manufacturing or agriculture can claim the RA, which provides a tax deduction of 60% on qualifying capital expenditure for reinvestment in modernization, automation, or expansion.

This allowance is available for 15 years and encourages companies to reinvest in improving their operations and competitiveness.

4. Accelerated Capital Allowance (ACA)

This incentive allows businesses to claim faster tax deductions on qualifying capital expenditures, such as machinery, IT equipment, or vehicles.

The ACA helps reduce the upfront tax burden and encourages businesses to invest in new assets to enhance productivity.

5. Double Deductions

Certain expenses, such as R&D costs, export promotion expenses, and employee training costs, qualify for double deductions.

This means businesses can claim twice the expense amount against their taxable income, promoting innovation, market expansion, and workforce upskilling.

6. Green Technology Tax Incentives

Businesses involved in renewable energy, energy efficiency, or green buildings can benefit from tax incentives, such as Green Investment Tax Allowance (GITA) and Green Income Tax Exemption (GITE).

These incentives support sustainable development by providing tax exemptions or allowances for investing in green technology solutions.

7. SME Income Tax Reduction

Small and Medium Enterprises (SMEs) enjoy a reduced tax rate of 15% on the first RM150,000 of taxable income and the standard corporate tax rate of 24% on the remaining income.

This relief aims to support the growth of smaller businesses and reduce their tax burden.

8. Tax Incentives for Export-Oriented Businesses

Businesses focusing on exports can claim tax exemptions on statutory income derived from increased exports.

Incentives like the Export Promotion Grant further support businesses in expanding to international markets by reducing costs associated with overseas market penetration.

9. Special Relief for Digital Transformation

Companies investing in Industry 4.0 technologies, such as automation, robotics, and digitalization, can benefit from specific tax incentives, including allowances on software, cloud services, and IT equipment.

These incentives help businesses transition to more innovative and efficient operations.

10. Startup and Venture Capital Incentives

Startups and venture capital funds may qualify for tax deductions or exemptions, such as income tax exemptions on qualifying investments.

These reliefs aim to encourage innovation and entrepreneurship by reducing the financial strain during the early growth stages.

How to Apply for Tax Reliefs for Business in Malaysia

Applying for tax reliefs for your business in Malaysia involves understanding the specific types of tax incentives and deductions provided by the government, meeting eligibility criteria, and following the proper application process. Here's a step-by-step guide:

1. Identify Applicable Tax Reliefs

The Malaysian government provides various tax incentives and reliefs for businesses, such as:

Pioneer Status (PS): Tax exemption for promoted industries.
Investment Tax Allowance (ITA): For eligible capital expenditures.
Reinvestment Allowance (RA): For businesses expanding or modernizing production.
Special Industry Incentives: E.g., for SMEs, digital businesses, and green technology projects.
Double Deductions: For certain expenses like R&D, training, and export promotion.
Tax Deductions for Start-ups and SMEs:
- Reduced income tax rates.
- Deduction for operational expenses.

Refer to the Malaysian Investment Development Authority (MIDA) or the Inland Revenue Board of Malaysia (LHDN) for detailed information on specific tax reliefs.

2. Determine Eligibility

Check the eligibility criteria for the tax reliefs or incentives. For instance:

Pioneer Status may require participation in specific promoted industries.
Reinvestment Allowance is applicable only if reinvestment is for expansion, automation, or modernization.
SMEs enjoy certain deductions if their paid-up capital does not exceed RM2.5 million.

3. Prepare Necessary Documentation

Typical documents needed for applying for tax reliefs include:

Financial Statements and Tax Returns.
Detailed records of eligible expenses (e.g., R&D costs, capital investments).
Business Licenses or sector-specific approvals.
Evidence of compliance with industry regulations.

For industry-specific incentives (like those under MIDA), you may need additional certifications or project proposals.

4. Submit the Application

Follow the respective processes for tax reliefs:

MIDA Incentives: Submit your application through the MIDA portal. Attach all supporting documents, such as project details, financials, and business plans.
LHDN Tax Reliefs: Claim during your annual tax filing. Some reliefs require pre-approval (e.g., R&D incentives), while others (like operational expense deductions) can be claimed directly.

For more complex incentives, consult MyTax Portal or contact LHDN.

5. Stay Compliant

Ensure you adhere to regulations:

File accurate annual tax returns.
Maintain proper documentation for audit purposes.
Keep up-to-date with changes in Malaysia’s tax policies and incentives.

6. Seek Professional Help

If the process seems complex:

Hire a Tax Consultant: They can guide you through eligibility, application, and compliance.
Engage LHDN or MIDA Experts: Both offer guidance services.

While e-Filing is the most convenient and efficient method, taxpayers who prefer manual submissions can visit LHDN branches and submit physical forms with the necessary supporting documents.

Example: Tax Relief for Business

These tax reliefs help businesses reduce their chargeable income, thereby lowering the amount of tax payable.

Here's an example to illustrate how tax relief works for a business.

Scenario

Company Name: TechWave Solutions Sdn Bhd
Industry: Technology Services
Annual Revenue: RM1,000,000
Operating Expenses: RM500,000
Net Profit (Before Tax): RM500,000

TechWave Solutions wants to reduce its tax liability by leveraging tax reliefs and incentives available in Malaysia.

Step 1: Calculate Initial Taxable Income

Net Profit (Before Tax): RM500,000

Step 2: Apply Tax Reliefs

The company identifies eligible tax reliefs and incentives:

Tax Relief/Incentive	Amount (RM)	Details
Reinvestment Allowance	150,000	60% of qualifying capital expenditure on automation and R&D.
Green Technology Incentive	50,000	Tax relief for investment in energy-efficient equipment.
Double Deduction for R&D Expenses	40,000 (extra claim)	R&D expenses eligible for double deduction under LHDN guidelines.
Deduction for Employee Training Costs	30,000	Skills training programs for employees in technology and management fields.
Tax Deduction for Donations	20,000	Donations made to approved organizations.

Total Tax Reliefs = RM290,000

Step 3: Calculate Reduced Taxable Income

Initial Taxable Income = RM500,000
Total Tax Reliefs = RM290,000

Reduced Taxable Income = RM500,000 - RM290,000 = RM210,000

Step 4: Apply Corporate Tax Rate

Corporate tax rate for SMEs (with paid-up capital ≤ RM2.5 million):

17% on the first RM150,000: RM25,500
24% on the remaining RM60,000: RM14,400

Total Tax Payable = RM25,500 + RM14,400 = RM39,900

Step 5: Compare with Initial Tax Liability

Without tax reliefs:

Taxable Income = RM500,000
Tax Payable = (RM150,000 × 17%) + (RM350,000 × 24%)
Tax Payable = RM25,500 + RM84,000 = RM109,500

With tax reliefs:

Taxable Income = RM210,000
Tax Payable = RM39,900

Tax Savings = RM109,500 - RM39,900 = RM69,600

Benefits of Tax Reliefs on Employers

Lower Tax Liability: Helps free up capital for reinvestment or other business needs.
Encourages Growth: Incentives like reinvestment allowance and R&D relief foster innovation and expansion.
Supports Corporate Social Responsibility: Donations and training costs are deductible, promoting sustainable business practices.

Common FAQs about Tax Reliefs in Malaysia

Q: What happens if a relief claim is rejected?

A: If your claim is rejected, you will receive a notice from LHDN explaining why. You can then provide additional documentation or appeal the decision if you believe it is incorrect.

Q: How can I keep track of my tax relief claims?

A: Use a digital or physical folder system to organize receipts and documents throughout the year. Many taxpayers find it helpful to use spreadsheets or personal finance apps to track expenses eligible for tax relief.

Q: Are tax reliefs automatically applied or do they need to be manually claimed?

A: Most tax reliefs need to be manually claimed when you file your tax return. However, some reliefs, like the basic personal relief, are automatically applied to all eligible taxpayers.

Final Thoughts

In conclusion, understanding and utilizing tax reliefs can significantly reduce your tax burden and improve your financial health.

Stay informed about the latest changes, keep detailed records, and do not hesitate to seek professional advice if you are unsure about any aspects of your tax situation.

By making the most of available tax reliefs, you are not just saving money, you are investing in your financial future.

Prepare early, stay informed, and ensure a stress-free tax season!

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