Malaysia published the Finance Act 2023 (Act No. 845) in the Official Gazette on 31 May 2023, which includes measures of the revised Budget for 2023 and others. The main income tax measures of the Act include:

• An increase in the personal deduction limits for certain medical expenses from MYR 8,000 to MYR 10,000, as well as the introduction of a personal deduction for diagnosis, early intervention, and treatment of learning disabilities in children subject to an MYR 4,000 limit and a deduction for voluntary contributions to the Employees Provident Fund;
• The introduction of electronic filing requirements for:
  • tax returns filed by persons other than a company, limited liability partnership, trust body, or cooperative society (i.e., individuals);
  • tax returns filed by trust bodies and cooperative societies, in addition to companies and limited liability partnerships, which are already required to file electronically;
  • amended tax returns filed by companies, limited liability partnerships, trust bodies, and cooperative societies;
  • employer returns filed by limited liability partnerships, trust bodies, and cooperative societies, in addition to companies, which are already required to file electronically; and
  • partnership returns filed by responsible persons;
• The amendment of the requirement to withhold 2% tax on payments to agents, dealers, and distributors, including that tax withheld must be remitted by the end of the month following the month of the relevant payment instead of within 30 days of the relevant payment;
• The amendment of Schedule 1 of the Income Tax Act (ITA) to provide revised individual income tax brackets as follows:
  • MYR 0 - 5,000 - 0%
  • MYR 5,001 - 20,000 - 1%
  • MYR 20,001 - 35,000 - 3%
  • MYR 35,001 - 50,000 - 6%
  • MYR 50,001 - 70,000 - 11%
  • MYR 70,001 - 100,000 - 19%
  • MYR 100,001 - 400,000 - 25%
  • MYR 400,001 - 600,000 - 26%
  • MYR 600,001 - 2,000,000 - 28%
  • over MYR 2,000,000 - 30%
• The amendment of Schedule 1 of the ITA to provide a further reduced tax rate of 15% for qualifying SMEs and limited liability partnerships with paid-up capital not exceeding MYR 2.5 million and gross income not exceeding MYR 50 million:
  • first MYR 150,000 in taxable income - 15% (new rate)
  • taxable income of MYR 150,001 to 600,000 - 17% (prior reduced rate)
  • taxable income exceeding MYR 600,000 - 24% (standard rate)
• The amendment of the capital ownership restrictions for the reduced rates for SMEs, providing that the reduced rates will not apply if more than:
  • 50% of the paid-up capital of the company is directly or indirectly owned by a related company (existing restriction);
  • 50% of the paid-up capital of the related company is directly or indirectly owned by the first-mentioned company (existing restriction);
  • 50% of the paid-up capital of the first-mentioned company and the related company is directly or indirectly owned by another company (existing restriction); or
  • 20% of the paid-up capital of the company at the beginning of the basis period for a year of assessment is directly or indirectly owned by one or more companies incorporated outside Malaysia or by one or more individuals who are not citizens of Malaysia (new restriction);
• The amendment of the capital contribution restrictions for the reduced rates for limited liability partnerships, which are similar to those for SMEs.

The measures generally apply from the year of assessment 2023, although the 2% withholding tax change is specifically effective from 1 January 2023 and the electronic return requirement changes and the additional restrictions for the preferential rate for SMEs and limited liability partnerships apply from the year of assessment 2024.