Key Tax Updates for 2026

As we extend our New Year Greetings, we also share a snapshot of tax updates that tax and finance professionals should take note for the year.

e-Invoicing

  1. Taxpayers with annual revenue not exceeding RM5 million are required to comply with e-Invoicing effective from 1 January 2026. The concession to perform consolidated e-Invoice instead of e-Invoice for each transaction was initially granted up to 30 June 2026. The Prime Minister’s announcement yesterday extended such concession up to 31 December 2026. Amid the concession, businesses must observe the requirement to submit consolidated e-Invoice by 7 February 2026 for transactions during the month of January. The same applies for the subsequent months of the year. In addition, the requirement to issue credit notes validated by the Inland Revenue Board of Malaysia (“IRBM”) and to issue Self-Billed e-Invoice (“SBeI”) on prescribed cross-border and domestic transactions must be observed.
  2. Companies with revenue below RM1 million for FY 2022 are required to implement e-Invoicing by 1 July 2026 if the revenue for any of the years FY 2023 to 2025 is RM 1 million or above. Reference: Item 11 of IRBM’s General FAQ.
  3. Exemption from e-Invoicing implementation applies to businesses with annual turnover below RM1 million. However, corporate taxpayers must be mindful that the exemption does not apply if they have a related company (as per definition in the Promotion of Investments Act 1986) with annual revenue of at least RM 1 million. Hence, entities with annual revenue below RM1 million but that are part of a larger group are required to implement e-Invoicing by 1 July 2026. Reference: Items 11 and 90 of IRBM’s General FAQ.
  4. Effective from 1 January 2026, consolidated e-Invoice is not permitted for any single transaction with value exceeding RM10,000. Hence, in such cases, the vendor must collect the customers particulars such as TIN and/or identification number (NRIC or company registration number) to issue e-Invoice for the transaction.
  5. Effective from 1 January 2026, wholesalers and retailers of construction materials (such as hardware shops) are permitted to issue consolidated e-Invoice, save for circumstances where the value of the respective transaction is in excess of RM10,000 or when requested by buyers.
  6. In accordance with IRBM’s e-Invoice Compliance Review Framework published on 15 December 2025, voluntary disclosure is allowed for e-Invoicing non-compliance matters. While the framework is silent on the treatment of penalties for voluntary disclosure matters, it is expected that applications to waive these penalties, which range from RM200 to RM20,000, would be considered favourably for voluntary disclosures to correct technicalities and gaps despite best efforts.

Stamp Duty

  1. Stamping via the STAMPS portal has been discontinued from 31 December 2025 and, in line with implementation of self-assessment system, stamping is required to be performed via MyTax system effective from 1 January 2026. Under the self-assessment system, IRBM retains the power to audit and raise additional assessments in relation to stamp duty for a period of five (5) years.
  2. Under the self-assessment system, duty payers are required to submit a stamp duty return for each stamping effective from 1 January 2026. Submission of an incorrect return attracts a penalty amounting to 100% of the duty undercharged, but there is waiver of such penalty for submissions made throughout calendar year 2026. Kindly note there is no waiver announced in relation to failure to submit the stamp duty return within the prescribed time (i.e., late filing penalty). Hence, it is vital for industry players to ensure stamp duty returns are submitted within the prescribed time (30 days) for each instrument.
  3. Another common issue in stamp duty is failure to pay duty within the prescribed time. For this, the penalty applicable is 20% of the unpaid duty (subject to a minimum of RM100) (for cases beyond 3 months). Pursuant to the Stamp Duty Audit Framework published on 1 January 2025, half of such penalty is waived for voluntary disclosure cases, resulting in a reduced penalty of 10% of the unpaid duty, subject to a minimum of RM50 per non-compliance. The Prime Minister’s announcement yesterday includes a remark on voluntary disclosure for stamp duty until 30 June 2026. It remains to be seen if the announcement refers to continuation of the existing voluntary disclosure or launch of a new program.
  4. Effective from 1 January 2026, stamp duty exemption applies to employment contracts with remuneration up to RM3,000 per month. Notwithstanding the exemption, employers can make a submission via MyTax to obtain stamp duty exemption certificate.
  5. The stamp duty rate for sale of residential property to foreigners has increased from 4% to 8% effective from 1 January 2026. Industrial Foreign Direct Investments (“FDIs”) are not affected by this measure as the stamp duty rate applicable for commercial and industrial properties remain at 4%.

Capital Gains Tax (“CGT”)

  1. The statutory definitions of ‘shares’ and ‘disposal’ have been amended effective from 1 January 2026 to reaffirm IRBM’s position that CGT applies to, among others, the winding up and dissolution (liquidation) of companies as well as redemption or conversion of preference shares. The requirement to submit CGT Return Form applies even if there is no gain arising from disposal. Also, parties undertaking corporate exercise must be diligent about the statutory provisions that deem transactions at market value under specific circumstances. 
  2. Effective from 1 January 2026, it is expressly provided that disposals made by a nominee shall be regarded as disposals made by the beneficial owner. Also, disposals/acquisitions between nominee and the beneficial owner are disregarded for the purpose of CGT.
  3. Losses arising from the disposal of foreign capital assets are not allowable for CGT purposes, following the clarification that Chapter 9 on the Income Tax Act does not apply to disposal of foreign capital asset with effect from 1 January 2026.

Labuan Business Activity Tax

  1. A Labuan entity that carries on a Labuan trading activity is required to comply with substance requirements (i.e., maintaining a minimum number of full-time employees in Labuan and an adequate amount of annual operating expenditure in Labuan). Effective from 2025, any employee counted for the purpose of meeting the substance requirement must be a ‘fit and proper’ person. IRBM’s recently published guideline expressly states that employees with general duties such as receptionist and dispatch clerk do not qualify as being “fit and proper”, and emphasises that the minimum number of full time employees (usually, 1 to 4 employees per entity depending on the type of activity) must perform the work physically in Labuan, possess sufficient and appropriate competence and capability in performing the duties, and be free from conflict of interest. Outsourcing the works to a service provider does not count towards meeting the substance requirements. Failure to meet the ‘fit and proper’ employee criteria or other substance requirements would result in taxation at the rate of 24%, instead of the 3% tax rate.
  2. With effect from YA 2025, the Labuan Business Activity Tax regime operates on a self-assessment regime and on a current-year basis. For a December year-end entity, the filing of tax return for YA 2025 would be due on 31 July 2026 (instead of the 31 March due date in the previous years). The Income Tax Filing Program published recently by IRBM confirms that the one-month grace period would apply (hence, 31 August 2026 being the extended due date for filing of tax return for Labuan entities with FYE 31 December 2025). The new system and dates are in line that of Income Tax Act.

Tax Incentives

  1. It is expected that the New Investment Incentive Framework (“NIIF”) would be fully implemented for the manufacturing sector from the first quarter of 2026, with the framework subsequently extended to the services sector from the second quarter of 2026. The NIIF adopts an outcome-based and performance-driven approach, focusing on high-value activities that generate economic spillover effects, thereby requiring investors to meet prescribed value-creation outcomes in order to qualify for and retain tax incentives.
  2. Malaysia has implemented Global Minimum Tax (GloBE/Pillar Two) for multinational enterprise groups with financial years beginning on or after 1 January 2025. The first filing is due by 30 June 2027 (for December year-end entities), which necessitates significant preparatory and data-gathering work to be undertaken during 2026.
  3. Accelerated capital allowance for plant and machinery procured from a local manufacturer by 31 December 2026, offering a cash flow advantage to Malaysian businesses. Further details are pending announcement.

Transfer Pricing

  1. Following the publication of Malaysian Transfer Pricing Guidelines 2024, it is expected that a separate guideline to address specific transfer pricing requirements in relation to intra-group financial transactions would be published in 2026.
  2. Updates to the OECD’s Commentary to Model Tax Convention in November 2025 offer additional clarification in relation to the intricacy of between accurate delineation of financial transactions for transfer pricing purposes and corporate income tax aspects such as earnings stripping rules. In the domestic tax space, the tax treatment of hybrid instruments for transfer pricing, corporate tax, withholding tax and capital gains tax purposes is an aspect that require harmonisation and it is hoped that there would be further updates with this regard during the year 2026.

Tax Instalments and Tax Refunds

  1. While not a legislative change, IRBM processed a significant volume of outstanding income tax refunds in December 2025. Taxpayers are advised to review their tax ledgers and statements of tax position in the MyTax portal to ensure consistency with their records and to engage IRBM where there is discrepancy or outstanding refund.
  2. Companies are encouraged to prepare tax estimates as accurately as possible and to utilise the flexibility to make a final revision to the tax estimate on the 11th month to minimise refunds while avoiding under-estimation penalties.
  3. In order to streamline the tax instalments payable by a company to be within its financial year, YA 2027 will be a transitional year whereby the estimated tax is required to be paid via 11 instalments (instead of 12). For companies with financial year-end other than 31 December, this change will affect CP204 submission and payments due during calendar year 2026.

Global Mobility & Personal Income Tax

  1. The OECD has provided updated guidance on the application of Permanent Establishment (“PE”) rules in the context of cross-border remote working arrangements, clarifying that an employee’s home office in another jurisdiction does not automatically give rise to a PE. The guidance introduces a two-part test, comprising a 50% working-time threshold and, where this threshold is exceeded, an assessment of whether the employee’s presence in the foreign jurisdiction is driven by a commercial reason of the enterprise, rather than personal convenience or general flexible work policies. Malaysia has reserved rights to bilaterally agree the percentage (instead of the 50% proposed by OECD). While this is a step in the right direction to offer clarity on cross-border work arrangements and digital nomads, companies should take into account the personal income tax implications and associated employer responsibilities.
  2. Individuals who received dividend income during the calendar year 2025 are required to declare such dividend income accordingly in the personal income tax returns for YA 2025 due either on 30 April 2026 or 30 June 2026. Any non-exempt income is subject to tax at the rate of 2%.
  3. Individuals receiving distributions from LLPs from 1 January 2026 are subject to 2% tax (conceptually similar to the 2% dividend tax).
  4. IRBM issues CP500 for bi-monthly tax instalments. While this has been the practice for individuals carrying on a business, IRBM has now intensified the efforts to issue CP500 to individuals with a combination of employment income and other sources of income (for example, rental and/or casual income from gig economy). In addition to the option to revise the tax estimate anytime by 30 June by submitting CP502, the IRBM has allowed penalty waiver for non-payment of CP500 for YA 2026. At this juncture, it is unclear if the penalty waiver would also be applicable for individuals who are carrying on a business. In any case, individuals who have not received CP500 should access and check MyTax to be sure about the tax position.

Tax Exemption for NGOs, Approved Funds and Religious Institutions

  1. Governance of NGOs, approved funds and religious institutions in relation to Section 44(6) or related tax exemption status has been in spotlight in recent years. Key conditions include requirement for at least 50% of the preceding year’s income be spent in the present year exclusively on activities to attain organisation’s/fund’s objectives. Operational and administrative expenses (such as rental and remuneration of administrative staff) spent during a year cannot exceed 20% of the preceding year’s total income. There is also requirement to provide services/benefits free-of-charge on unconditional basis. Where fee or charge is imposed, the Financial Assistance Policy must be approved by IRBM, and the charges/fees must be at least 20% lower than the market rate. Further, IRBM’s approval is required prior to purchase of capital asset.
  2. Amid implementation of e-Invoicing, administration of tax-exempt institutions and funds are expected to be an important area of scrutiny during 2026.
  3. The Prime Minister’s announcement yesterday stipulates that Section 44(6) exemptions that end prior to 31 December 2025 would be automatically extended by ten (10) years on the condition that the audit reports are submitted.

Sales and Service Tax (“SST”)

  1. Since July 2025, the scope of sales tax on locally manufactured and imported goods has expanded significantly, alongside the expansion of service tax to cover five new service categories. In line with continuous policy enhancement, further guidance is being issued intermittently. As such, 2026 is anticipated to be a year of continued policy refinement while Customs embark on tax audit for the sectors that are newly included in the scope of SST.
  2. Since 1 July 2025, Micro, Small and Medium Enterprises (“MSME”) tenants and lessees are exempted from having to pay service tax on the rental/lease costs. For this purpose, MSME was defined as entities with annual sales not exceeding RM1 million. The annual sales threshold is increased to RM 1.5 million effective from 1 January 2026. (For avoidance of doubt, the lessor’s registration threshold remains at RM 1 million).
  3. Newly incorporated MSME businesses are granted service tax exemption on rental and lease costs for a period of 1-year from the registration date.
  4. The service tax rate on rental and lease services is reduced from 8% to 6% effective from 1 January 2026. This 2% reduction in service tax rate is not confined to MSME tenants. Instead, it benefits tenants and lessees of all sizes. Based on the announcement so far, it appears that the reduction would apply both in respect of immovable and movable properties, but businesses should await gazetting of the amendment of the relevant Service Tax Order for certainty. Businesses that enjoy the cost savings from the reduction in service tax rate should carefully assess whether adjustment to selling price of its goods or services is necessary in line with the provisions of the Price Control and Anti-Profiteering (Mechanism to Determine Unreasonably High Profit) Regulations 2018.
  5. In relation to construction services provided pursuant to non-reviewable contract signed before 1 July 2025 and stamped before 31 December 2025, the service tax exemption is now granted up to 30 June 2027 (previously exemption granted only for services provided up to 30 June 2026). Note that the said exemption does not apply to new construction contracts entered into in 2026.
  6. Service tax exemption is granted on construction works for places of worship, and renovation of non-residential building into places of worship. Approval from Customs or MOF is not required for this exemption, but parties shall self-administer adherence to the conditions stipulated in Lampiran D and E of Service Tax Policy No. 3/2025 (Amendment No. 2).
  7. Sales tax exemption is given on the inputs used by sales tax registered manufacturers for production of animal feed, fertiliser, and insecticide. This exemption effective from 1 January 2026 is intended to contain the price of agricultural produce.
  8. On 29 December 2025, Customs has issued new guidelines on brokerage and underwriting services, which extend beyond financial sector. Businesses should assess the cost and compliance impact, particularly where payments are made to foreign entities for such services.

Excise Duty & Carbon Tax

  1. Implementation of revised excise duty valuation rules for completely knocked down (“CKD”) vehicles is deferred until 30 June 2026.
  2. The import duty and excise duty exemptions for completely built-up (“CBU”) electric vehicles (“EVs”) have expired on 31 December 2025. For passenger motorcars, the applicable import duty and excise duty rates are 30% and 10% respectively (with the import duty potentially reduced in accordance with Free Trade Agreements). As for locally assembled (CKD) EVs, the import duty exemption on components as well as the exemptions from excise duty and sales tax is available until the end of 2027.
  3. Excise duty, import duty and sales tax exemption for motor vehicles imported into Labuan and Langkawi is limited to vehicles with value not exceeding RM300,000 effective from 1 January 2026.
  4. Carbon tax on iron, steel and energy sectors was announced to be implemented in 2026. The exact date and mechanism are yet to be announced or legislated.

Real Property Gains Tax (“RPGT”)

  1. An acquirer is required to retain and remit a portion of the purchase consideration to the IRBM within 60 days from the date of disposal. The retention sum is the lower of the total consideration or 3%, 5% or 7% of the purchase price (the % differs based on the disposer category and holding period). In an attempt to reduce refunds and ease cash flow of taxpayers, a legislation change is made effective from 1 January 2026. Where the disposer submits the RPGT Return Form and the amount of RPGT assessed is lower than the otherwise retention sum, the acquirer shall retain only the RPGT amount and remit the same to IRBM. Given that the due date for the disposer to submit RPGT Return Form is the same as the due date for the acquirer to remit the retention sum to IRBM, coordination between parties is vital to avoid cash flow issues and resultant disputes between parties. Parties may mutually agree on key timeline (within the 60-day period) and state the same within Sale and Purchase Agreements (“SPAs”) for certainty in relation to remittance of retention sum with regards to RPGT.
  2. Where the RPGT amount is higher than the retention sum, the disposer would have to pay the excess to IRBM. The RPGT Act is amended effective from 1 January 2026 to empower IRBM to allow payment of the final tax amount by instalments.
  3. With effect from YA 2026, unabsorbed allowable losses arising from the disposal of RPGT chargeable assets may only be carried forward for up to ten (10) years. Any unutilised losses arising from disposal of real property prior to 1 January 2026 is allowed to be used to offset gains from disposal of real property by 31 December 2035.

For more insights on the tax developments beyond compliance, join our tax conference on 22 January 2026 at KLCC Convention Centre. Registration closes on 14 January 2026. Click here for details of TRATAX Tax Conference 2026.

Disclaimer: The information in this write-up is meant to be generic and non-exhaustive. Strictly no liability assumed. For case-specific professional support, kindly reach out to your contact person at TRATAX or email corp@tratax.my. The write-up is a copyright of TRATAX Sdn Bhd, strictly no reproduction or citation without adequate attribution.