Malaysia: Direct and indirect tax proposals in 2026 budget
Introduces tax proposals focusing on governance and tax base expansion without new taxes
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october 14, 2025
The Ministry of Finance of Malaysia issued the 2026 budget on October 10, 2025, focusing on improving governance and broadening the tax base without introducing new taxes to achieve equitable taxation for high-income earners and foreign entities.
Significant tax proposals include:
- Review of tax exemption for foreign-sourced income:
- Extension of tax exemption on foreign-sourced dividend income for Malaysian resident companies and LLPs from January 1, 2027, to December 31, 2030
- Extension of tax exemption on foreign-sourced capital gains from January 1, 2027, to December 31, 2030
- Stamp duty exemption on employment contracts: Increase in the wage threshold for stamp duty exemption from RM300 to RM3,000 per month, effective January 1, 2026
- Accelerated capital allowance (ACA): ACA for capital expenditure on heavy machinery, plant, and information and communication technology (ICT) equipment from October 11, 2025, to December 31, 2026
- Tax on profit distributions for LLP partners: Introduction of a 2% tax on profit distributions exceeding RM100,000 for both resident and nonresident individual partners, effective year of assessment (YA) 2026
- Sustainable and responsible investment (SRI) sukuk and bond grant scheme: Increase in grant allocation for external review expenses from 90% to 100%, capped at RM300,000
- Tax incentive for venture capital: 5% corporate income tax on venture capital company income, with certain conditions, extended to LLPs and Labuan LPs/LLPs
- Review of tax deduction on listing expenses: Extension of existing tax deduction from YA 2026 to YA 2030
- Environmental, social, and governance (ESG) initiatives: Green Technology Financing Scheme 5.0 and green investment tax allowance for companies using locally manufactured green technology products
- Excise duty rate on cigarettes: Phased increase in excise duty rate on cigarettes effective from November 1, 2025
- Stamp duty on property ownership by foreigners: Flat stamp duty rate of 4% applied on instruments of transfer of residential homes executed by non-citizen individuals and foreign companies, effective from January 1, 2026
- Individual tax reliefs: Expansion of tax reliefs for childcare, environmental sustainability, life insurance premiums, and medical expenses
- Introduction of carbon tax: Focus on the iron, steel, and energy sectors, effective in 2026
- Digital tax stamp: Introduction by the Royal Malaysian Customs Department to curb counterfeits
Read an October 2025 report prepared by the KPMG member firm in Malaysia