Malaysia: Income tax treaty with Russia enters into force; other tax developments (June 2026)

The KPMG member firm in Malaysia has prepared its June 2026 tax developments report, focusing on expanded direct and indirect tax incentives.

• Entry into force of Malaysia-Russia income tax treaty: The treaty entered into force on September 3, 2025. The provisions for the exchange of information became effective on that date, with all other articles, including new withholding tax rates, applicable from January 1, 2026. Key withholding tax rates under the treaty are:
  • Interest: 0% or 10%
  • Royalties: 10%
  • Technical services: 10%
• Expansion of principal hub 2.0 tax incentive: The government removed the requirement for new companies applying for the principal hub 2.0 tax incentive (which provides for a 0% or 5% concessionary tax rate) of having an existing related entity in Malaysia, effective from year of assessment (YA) 2025. Rather, applicants must meet other conditions, such as minimum operating expenditure and employee headcount.
• Extension of accelerated capital allowance for TRX: The accelerated capital allowance incentive for renovation costs incurred by marquee status companies located in the Tun Razak Exchange (TRX) was extended for another five years. The incentive, which was set to expire on December 31, 2025, will now be available until December 31, 2030.

• Sales tax exemption for vessels: Effective July 1, 2026, all vessels classified under tariff codes HS 8901 to HS 8908 will be exempt from sales tax. The exemption applies to the manufacture, purchase, or import of these vessels, including for repair and maintenance purposes. No refunds will be issued for sales tax already paid.
• Service tax exemption for healthcare consultation fees: Consultation fees charged by registered medical professionals, traditional and complementary medicine practitioners, and allied health service providers are now exempt from service tax.
• Amendments to customs and excise duty orders: Several customs and excise duty orders have been amended as of June 1, 2026, including updates related to the ASEAN-Australia-New Zealand Free Trade Area agreement and changes to duty exemptions for goods used on AirAsia X Berhad international flights.