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Different business structures are taxed differently.
Here is a simple comparison between a Sdn. Bhd.,
sole proprietorship and partnership in Malaysia.
A Sdn. Bhd. is taxed separately from its shareholders.
A sole proprietorship does not have its own separate
corporate tax rate.
A normal partnership does not simply pay one fixed
partnership tax rate.
Let's use RM100,000 as a very simple illustration
and see how the tax treatment may look under
different business structures.
Don't choose a business structure based on this
example alone.
A Sdn. Bhd. pays tax as a separate company.
A sole proprietor pays tax personally
on the business income.
In a partnership, the income is generally
divided among the partners and each partner is taxed on
their respective share.
Having problems managing
your tax affairs?
I need to file my
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How Are Different Business
Structures Taxed?
Chargeable Income
Sdn. Bhd.
Eligible SME Rate
Sole Proprietor
Individual Tax Rate
Partnership
Individual Partner's Rate
First RM5,000
15%
0%
0%
RM5,001 to RM20,000
15%
1%
1%
RM20,001 to RM35,000
15%
3%
3%
RM35,001 to RM50,000
15%
6%
6%
RM50,001 to RM70,000
15%
11%
11%
RM70,001 to RM100,000
15%
19%
19%
RM100,001 to RM150,000
15%
25%
25%
RM150,001 to RM400,000
17%
25%
25%
RM400,001 to RM600,000
17%
26%
26%
RM600,001 to RM2,000,000
24%
28%
28%
Above RM2,000,000
24%
30%
30%
Sdn. Bhd.
The Company Pays The Tax
If the company qualifies for the SME tax rates,
the first RM150,000 of chargeable income is taxed at
15%, the next RM450,000 at 17%, and anything above
RM600,000 at 24%.
Companies that do not qualify for the SME rates are
generally subject to the standard corporate tax rate.
Sole Proprietor
The Owner Pays The Tax
The business profit forms part of the owner's personal
income.
The owner is then taxed based on the applicable
individual progressive income tax rates.
Partnership
The Partners Pay The Tax
The partnership income is allocated among the partners
according to their respective share.
Each individual partner is then taxed on their own
income using the applicable individual tax rates.
Same RM100,000,
Different Tax Treatment
For ease of comparison, the figures below assume
the RM100,000 is the relevant chargeable amount
and no other income, reliefs, rebates or adjustments
apply.
The company itself pays the corporate tax.
The owner pays the tax personally.
÷ 2 equal partners
= RM50,000 each
Combined illustration:
RM3,000
Tax is only one consideration. The actual amount payable
may change depending on other income, personal tax reliefs,
allowable business expenses, capital allowances,
incentives, deductions and the company's eligibility
for SME tax rates.
So, what's the main difference?
FAQS
1) When does the company needs to register employer file? (E.g. KWSP, SOCSO, EIS and PCB)
Note: E file number (PCB) is automatically registered with Inland Revenue Board (LHDN) upon incorporation since 2020.
2) What is the rate of employer and employee portion?
| Employer | Employee | |
|---|---|---|
| KWSP | 13% for ≥ RM5,000
12% for ≤ RM5,001 |
11%: Year 2022 |
| SOCSO | 1.75% | 0.5% |
| EIS | 0.2% | 0.2% |
| PCB | N/A | 0.% to 30% |
| HRD Corp | N/A | 0.5% for 5-9 Malaysian employees
1 % for 10 or more Malaysian employees |
3) Is it compulsory to register with HRD Corp?
It is OPTIONAL for Company should it only hired between 5 to 9 Malaysian employees.
4) When the Company has no longer has employee, can the employer file be closed?
Company needs to cease its operation in order to close E file.
Note: Form E is compulsory to be submitted in yearly basis regardless the company has staff or not.
5) When is the due date to pay salary to staff?
6) When is the due date for contribution payment?
For example, contributions for June 2022 must pay to the relevant government department before/on 15th July 2022.
7) Any penalty of contributions late payment?
| KWSP | Calculate by KWSP |
| SOCSO | RM5 per month |
| EIS | RM5 per month |
| LHDN: PCB |
|
| HRD CORP |
|
8) How to submit the form and payment for contribution?
| KWSP | i-Akauan Portal |
| SOCSO & EIS | Perkeso Assist Portal |
| LHDN: PCB | e-PCB or e-Data PCB Portal |
| HRD Corp | HRD Corp Portal |