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For Sole Proprietors

The Sole Proprietor’s Guide to Income Tax in Malaysia

Introduction

While a Sdn Bhd is the most popular type of business structure in Malaysia, many entrepreneurs choose Sole Proprietorships due to lower startup costs and simpler compliance requirements.

For those reasons, a Sole Proprietor is more likely to handle their own tax obligations. While hiring a qualified tax agent may not be as expensive as you think, independence is an important characteristic in entrepreneurs and hey, we’re here to help however we can.

If you are new to the world of income tax as a Sole Proprietor, this post covers essential information for you to meet your tax obligations.

Here’s how we’ll break it down:

  1. Key terms
  2. Malaysia’s income tax brackets and marginal tax rate
  3. Required documents
  4. Tax deductions
  5. Filing options and deadlines

Let’s start!

Key Takeaways:

  • As a Sole Proprietor handling their own income tax, four key terms to understand are: Chargeable income, marginal tax rates, progressive tax system, and tax deductions.

  • Marginal tax rates spread your total chargeable income across lower and higher tax brackets based on their respective limits, resulting in lower total taxes owed.

  • Sole Proprietors need to fill in a specific form called Form B. Here’s a link to the 2022 Form B in English and 2022 Form B in Bahasa Melayu.

  • The deadline to submit Form B is by 30th June every year. Be careful to make sure you have the latest version of the document!

  • To submit online, register for an account on MyTax

  • To submit physically, fill out and print the Bahasa Melayu version of Form B according to LHDN printing guidelines and deliver it to their address (find it at the end of the guide).

  • Taxes suck – so good luck!

Understanding Key Terms

Not to overload you, but we know how annoying it is to come across an unfamiliar term and have to proceed with an educated (or blind) guess. To clearly understand the rest of this guide, here are four terms you should get familiar with:

  1. Chargeable income
    The portion of your income deducting allowable deductions, exemptions, and allowances. This is the part that actually gets taxed.
  2. Tax deductions
    Various expenses that can be subtracted from your taxable income, reducing the amount of tax owed.
  3. Progressive tax system
    Higher amounts of chargeable income are subject to a progressive higher tax rate.
  4. Marginal tax rate
    In a progressive tax system, marginal tax rates allow your total chargeable income to be spread across lower and higher tax brackets based on their respective limits. This means you pay less than you would if your entire chargeable income was taxed in a single higher bracket.

With that out of the way, let’s take a look at how income tax gets calculated in Malaysia.

Malaysia’s Income Tax Brackets and Rates

The following table shows income tax brackets and rates in Malaysia for chargeable income from 2022.

CategoryChargeable IncomeCalculations (RM)Rate %Tax (RM)
A0 – 5,000On the First 5,00000

B

5,001 – 20,000
On the First 5,000
Next 15,000

1
0
150

C

20,001 – 35,000
On the First 20,000
Next 15,000

3
150
450

D

35,001 – 50,000
On the First 35,000
Next 15,000

8
600
1,200

E

50,001 – 70,000
On the First 50,000
Next 20,000

13
1,800
2,600

F

70,001 – 100,000
On the First 70,000
Next 30,000

21
4,400
6,300

G

100,001 – 250,000
On the First 100,000
Next 150,000

24
10,700
36,000

H

250,001 – 400,000
On the First 250,000
Next 150,000

24.5
46,700
36,750

I

400,001 – 600,000
On the First 400,000
Next 200,000

25
83,450
50,000

J

600,001 – 1,000,000
On the First 600,000
Next 400,000

26
133,450
104,000

K

1,000,001 – 2,000,000
On the First 1,000,000
Next 1,000,000

28
237,450
280,000

L

Exceeding 2,000,000
On the First 2,000,000
Next ringgit

30
517,450
……….

Let’s look at marginal tax rates in action with a fictional example: meet Ah Keong, a highly successful barber who one day hopes to be a Grand Prix motorcycle champion.

Kapcai
Red lights are just a suggestion to him.

After relevant deductions, let’s say Ah Keong earns chargeable income of RM150,000 in 2022. This means his income spans across Categories A – G, and the calculation works out like this:

  • Category A: The first RM5,000 is not taxed – Abu pays nothing.
  • Category B: The next RM15,000 is taxed at 1% which comes to RM150. (we’re now at RM20,000)
  • Category C: The next R 15,000 is taxed at 3% which comes to RM450. (we’re now at RM35,000)
  • Category D: The next RM15,000 is taxed at 8% which comes to RM1,200. (we’re now at RM50,000)
  • Category E: The next RM20,000 is taxed at 13% which comes to RM2,600. (we’re now at RM70,000)
  • Category F: The next RM30,000 is taxed at 21% which comes to RM6,300. (we’re now at RM100,000)
  • Category G: The final RM50,000 is taxed at 24% which comes to RM12,000. (we’re now at RM150,000)

Add them all together and Ah Keong owes LHDN RM22,700 in income tax.

Without marginal tax rates, Ah Keong’s RM150,000 would be subject to a flat 24% coming to RM36,000. There goes his dream of getting a neon green Kawasaki Ninja!

Now let’s look at income tax documents specific to Sole Proprietors.

By the way, if your sole proprietorship is bumping you into tax brackets above 17%, consider converting your business into a Sdn Bhd to enjoy lower overall tax burdens. Download our free checklist for a complete self-assessment!

enterprise to sdn bhd checklist

    Required Documents

    Sole proprietors must annually file Form B before 30 June, which is a document specific for residents in Malaysia with business income.

    Here’s a link to the 2022 Form B in English and 2022 Form B in Bahasa Melayu.

    Here are official LHDN guides to navigating Form B and properly enter information.

    ⚠️ NOTE: We’ve seen multiple online sources hyperlinking to outdated LHDN forms. We’re not saying this to point fingers, we’re just reminding you to always verify dates for time-sensitive documents, including on MISHU’s hyperlinks. Can’t be too careful!

    As the official guides are quite lengthy, we recommend reading our guide first, so you’ll go in with some prior knowledge.

    Let’s finish up by explaining tax deductions, tax refunds, and how to file your taxes with LHDN.

    Tax Deductions

    Collectively, deductions are the various mechanisms that reduce the overall amount of income tax owed. Here are the different types of deductions you’ll want to take note of.

    We don’t think it would do much good to list out all allowable items here, but we’ll provide official links where we can.

    Business expenses

    Business expenses refer to costs directly incurred in the operation of your Sole Proprietorship. This includes items such as rent, utilities, office supplies, employee salaries, advertising and promotion expenses, insurance premiums, travel expenses, and professional fees.

    Donations

    Donations made to approved charitable organisations or institutions in cash or approved assets are eligible for tax deductions. You can find an official list of tax deductible donations on LHDN’s portal here.

    Personal reliefs

    Just like ordinary residents, you are entitled to personal reliefs which are considered a separate entry from business-related deductions. Here is the official LHDN list of personal tax reliefs.

    Reminder: allowable deductions change

    This isn’t really something you can memorise overnight, and as the list is ever-evolving, best practice is to visit the official links above or speak to a tax advisor annually.

    Your final chargeable income is the amount left over after taking away the various tax deductions and it should go without saying but be sure to maintain proper documentation including receipts, invoices, and payment vouchers to support your claims.

    Now on to the last part.

    Form B Filing Options and Deadlines

    This is something you should memorise overnight: the deadline to submit Form B to LHDN is June 30th every year.

    kristian angelo xyJZvUL4 TY unsplash
    Here’s one way to never forget.

    Submission can be made online or physically.

    For online submission:

    1. Register for an account on MyTax.
    2. Visit LHDN : e-Filing and select e-B.
    3. Fill in the form and submit.

    For physical submission:

    1. Fill out and print the Bahasa Melayu version of Form B according to LHDN printing guidelines.
    2. Deliver it to LHDN premises at the following address:

    Lembaga Hasil Dalam Negeri Malaysia
    Seksyen Pengurusan Rekod & Maklumat Percukaian
    Jabatan Operasi Cukai
    Karung Berkunci 00222
    43650 Bandar Baru Bangi
    Selangor, Malaysia.

    Consider Hiring a Qualified Tax Agent

    CTA for Malay site Ayu min

    Don’t get us wrong, we think getting first-hand experience with calculating and filing your taxes will come in handy when you’re ready to hire your first tax agent or accountant – imagine if they knew less than you did.

    That said, if you are convinced your time would be better spent on other areas of your business, or you simply hate doing taxes that much, MISHU’s qualified tax agents and accountants are here to assist you. We provide professional services at affordable prices, with various plans to suit your business needs. Don’t wait for June 30th to get dangerously close – talk to us now!

    FAQs about the Companies Act 2016

    • Why does MISHU recommend Sdn Bhd over Limited Liability Partnerships?
      💡MISHU recommends Sdn Bhds over LLPs due to the significantly better growth opportunities of the former, better promising long-term success.

    • Are there any disadvantages to a Sdn Bhd over an LLP?
      💡Sdn Bhds cost more to form and maintain, and are subject to stricter compliance requirements from SSM.

    • What are professional firms and why do they use LLPs?
      💡AProfessional firms are businesses, such as accountancy firms, that offer professional services. They use LLPs because they are not allowed to operate as a Sdn Bhd. LLPs provide partial protection against liabilities, and this is appealing to professional firms that require limited liability protection.

    • What is the tax form used for Sole Proprietorship?
      💡Sole Proprietors file Form B 30 June on a yearly basis which is for residents earning income from business activities.

    • Can LLP partners be held personally liable in certain situations?
      💡Yes, LLP partners can be held personally liable in tort without limit, for example, in cases of professional negligence. However, the other LLP partners are not personally liable.

    • What are the advantages of Sdn Bhds over LLPs in terms of growth opportunities?
      💡Sdn Bhds have more credibility because they are required to prepare annual audited accounts which makes it easier to secure business loans and government grants. Additionally, Sdn Bhds can raise funds by selling shares, something LLPs cannot do.

    7 thoughts on “The Sole Proprietor’s Guide to Income Tax in Malaysia

    1. This is such a well-written article. I understand the tax implications now and am more confident setting up my sole proprietorship!

      1. Hi Elie,

        You just made my day.

        All the best with going into business!

        By the way, do you have any questions or need assistance with that? Our team is always here, and I’d be happy to forward your requests.

        The MISHU Editorial Team

    2. Thank you. Very helpful indeed esp because I have never bother to read up. This is simple, straight to the point and very easy to absorb.

      1. Hi Zalina,

        Happy to help, and it’s important that we never forget tax obligations, because LHDN will certainly always remember!

        Sincerely,
        The MISHU Editorial Team

    3. How to file for year 2023 as i just open up Sole Proprietorship on Nov 2023 but just operated on Jan 2024.. Means no income for Nov to Dec 2023.. How to do my income tax, still need to submit Form B or Form BE?

      1. Hi Natasya,

        Thank you for the question, we forwarded it to our in-house tax consultant, and here’s their reply:

        1. Even with no business income, you are still required to submit Form B for YA 2023.

        2. You can declare your usual employment income with this form and submit a NIL submission (zero declaration) for business income.

        3. If this is your first time, you may find our guide to online Form B submission helpful: https://mishu.my/blog/accounting/e-filing/

        Hope this answers your question and all the best with your new business!

        Sincerely,
        The MISHU Editorial Team

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