Malaysia tax rules in 2026 introduce a series of changes affecting corporate tax, payroll, individual reliefs, and compliance obligations. While many updates appear incremental, together they influence how companies plan cash flow, manage risk, and prepare for audits.
At Battchoo & Yong, we see 2026 as a planning year rather than a reaction year. Below is a practical breakdown of key tax and compliance updates for 2026 and what businesses should be thinking about early.
Corporate Tax Changes to Watch
E-Invoice Requirements for 2026
Previously, businesses with annual revenue of RM1 million and above were expected to move into active enforcement starting 1 January 2026. Under the latest updates, this timeline has been pushed back.
For businesses in the RM1 million to RM5 million revenue band, 2026 is now treated as a transition year, with full enforcement deferred to 1 January 2027. During 2026, adoption is expected, but penalties are generally not imposed if businesses are actively preparing and issuing e-Invoices.
What did tighten is transaction level reporting. From 1 January 2026, transactions exceeding RM10,000 must be issued as individual e-Invoices, with no consolidation allowed.
In short, businesses now have an extra year to stabilize systems, but higher value transactions face stricter reporting expectations.
Dividend and LLP Profit Tax Changes
- Dividend income exceeding RM100,000 is subject to a 2 percent tax.
- LLP profit distributions above RM100,000 per year are also taxed at 2 percent.
What to consider:
- Distribution decisions now carry clearer tax consequences.
- Timing and structure matter more than headline profit figures.
- Poor planning can result in unnecessary tax exposure for shareholders and partners.
This change primarily affects profit extraction rather than day-to-day operations.
Capital Allowance Incentives in 2026
Qualifying machinery, ICT equipment, and software acquired from late 2025 through 2026 continue to enjoy:
- 20 percent initial allowance
- 40 percent annual allowance
How this fits into tax planning:
- Capital expenditure timing can improve both tax efficiency and cash flow.
- Particularly relevant for system upgrades, automation, and digital investments.
- Planning ahead matters more than asset value alone.
Employment Contract Stamp Duty Updates
From January 2026:
- RM10 stamp duty applies to all employment contracts.
- Exemption applies where monthly salaries are RM3,000 or below.
Practical implications:
- HR templates and onboarding processes should be reviewed.
- Small documentation gaps often create avoidable compliance noise.
- Easy to fix early, harder to clean up during audits.
Individual Tax Reliefs for 2026
Key individual tax updates include:
- Housing loan interest relief:
- Homes up to RM500,000: RM7,000 per year
- Homes RM500,000 to RM700,000: RM5,000 per year
- Increased disability relief for taxpayers, spouses, and children
- SSPN savings relief extended through YA 2027
Why this still matters to companies:
- These reliefs affect employee tax planning conversations.
- Compensation and benefits are often discussed without tax context.
- Clear guidance helps reduce confusion internally.
Payroll and HR Compliance Updates for 2026
Several payroll-related changes:
- Mandatory 2 percent EPF contributions for non-Malaysians from October 2025 wages
- HRD Corp fund usage expanded, up to 50 percent for skills and facility improvements
- Updated Professional Visit Pass rules, including documentation requirements and cooling-off periods
Where issues usually arise:
- Payroll systems updated too late
- Expatriate compliance handled manually
- Training budgets not aligned with new HRD flexibility
These are common friction points during tax and labour audits.
Transfer Pricing and Indirect Tax Developments
Malaysia transfer pricing updates include:
- New thresholds and safe harbour rules
- Narrower arm’s length ranges
- Penalties for late documentation ranging from RM20,000 to RM100,000 per year
Indirect tax scope in Malaysia has expanded to cover more activity in:
- Financial services
- Healthcare
- Construction
- Rental and education sectors
What this signals going into 2026:
- Documentation readiness is now as important as pricing itself.
- Sector exposure can trigger indirect tax obligations unexpectedly.
- Reactive reviews are significantly more costly than early assessments.
Why 2026 Tax Planning Should Start Early
Individually, each Malaysia tax 2026 update may seem manageable. Taken together, they affect reporting accuracy, payroll operations, profit distributions, and audit readiness.
Early planning helps organizations:
- Reduce penalties and compliance risks
- Improve cash flow predictability
- Align finance, HR, and operational processes with Malaysia tax requirements
If your organization is affected by any of the above Malaysia tax changes for 2026, a structured review now can prevent expensive rework later. A short planning discussion today often saves months of correction and clean-up down the line.