BUDGET 2026

BUSINESSES

Tax exemption on foreign sourced income and gains

  • The tax exemption on foreign-sourced dividend income received in Malaysia by certain categories of taxpayers, will be extended to 31 December 2030. In addition, from 1 January 2027 to 31 December 2030, this exemption will also apply to co-operative societies and trust bodies
  • The foreign-sourced income exemption for unit trusts (excluding Real Estate Investment Trusts and Property Trust Funds) will be extended to 31 December 2030.
  • The tax exemption on gains from the disposal of foreign capital assets received in Malaysia by certain categories of taxpayers, will be extended to 31 December 2030.

Deductions

  • Additional 50% tax deduction will be available once in two years for expenses incurred by MSMEs, including those contributing to the Human Resources Development Fund (HRDF), on AI training recognized by MyMahir National AI Council for Industry (NAICI). Applications must be received by TalentCorp from 1 January 2026 to 31 December 2027.
  • Double deductions for companies providing scholarships will be expanded to scholarships for students pursuing Sijil Teknik Vokasional and qualified professional certification courses, including in the fields of information and communications technology (ICT), engineering, accounting and finance. The household income of the student’s parents or guardians should not exceed RM15,000 per month. This applies from the year of assessment (YA) 2026 to YA 2030.
  • Double deductions for companies sponsoring training for persons with disabilities will be expanded to include care workers (who are not employees of the company) to undergo training programs in institutions recognized by the Ministry of Women, Family and Community Development. This applies for YA 2026 and YA 2027.
  • The further deduction for employers hiring senior citizens will be extended to YA 2030.
  • The income tax deduction of up to RM1.5 million for expenses incurred on listing on Bursa Malaysia’s Main Market, Access, Certainty, Efficiency (ACE) Market, and Leading Entrepreneur Accelerator Platform (LEAP) Market by technology-based companies and MSMEs will be expanded to include MSMEs in the energy and utilities sectors. Further, this deduction will be extended to YA 2030.
  • A special deduction equal to 10% of qualifying expenses will be given for renovation and conversion of commercial buildings into residential premises. The deduction is capped at RM10 million.
  • The scope of approved donations will be reviewed to include cash donations to Civil Society Organizations (CSOs) for approved anticorruption education programs. This applies to applications received by the MoF from 1 January 2026 to 31 December 2028.
  • Tax deduction will be available for companies and individuals with business income contributing to Kampung Angkat and Sekolah Angkat MADANI programs under Sejahtera MADANI.
  • Deduction will be given for cash donations made to the Trust Account of the Department of Museums Malaysia.
  • The further deduction given on the remuneration of ex-convicts, attendees and former attendees of the Henry Gurney School, cure and care rehabilitation centers as well as non-government care centers registered under the Department of Social Welfare, will be expanded to include Prisoners Released on License under the Prisons Act 1995 as well as drug / substance dependents and misusers undergoing treatment and rehabilitation provided under the Drug and Substance Dependents and Misusers (Treatment and Rehabilitation) Act 1983. This is effective from YA 2026 to YA 2030.

Accelerated capital allowances (ACA)

  • ACA (20% initial allowance and 40% annual allowance) will be given on qualifying capital expenditure incurred from 11 October 2025 to 31 December 2026 for the purchase of:
    • Heavy machinery from local manufacturers
    • Plant and general machinery acquired from local manufacturers
    • ICT equipment and computer software
    • Consultation, licensing and incidental fees related to customized computer software development
  • ACA (20% initial allowance and 80% annual allowance) will be given on the cost of speed limiters for heavy vehicles, up to RM4,000 per unit, subject to the following conditions:
    • Speed Limitation Device (SLD) retrofit installation must be certified by a Verification Body recognized by the Road Transport Department.
    • Heavy vehicles must be manufactured before 1 January 2015 without existing SLD, limited to the following categories:
      • Goods vehicle > 3,500 kg Gross Vehicle Weight (GVW)
      • Passenger vehicles > 5,000 kg GVW and designed to carry > 8 passengers
  • Not applicable for SLD replacements
  • SLD installations must be carried out from 1 January to 31 December 2026.

New Investment Incentive Framework (NIIF)

  • The NIIF was initially announced in Budget 2025. The pilot phase is currently being implemented until the end of 2025, with full implementation for the manufacturing sector in Q1 2026 and for the services sector in Q2 2026.

Green Technology Investment

  • 100% Green Investment Tax Allowance will be given to companies using green technology products which are certified by MyHIJAU Mark. The budget speech suggests that these products must be sourced locally. Further details are expected in relation to this incentive.

Sustainable and Responsible Investment (SRI) Sukuk and Bond Grant Scheme

  • The SRI Sukuk and Bond Grant Scheme will be revised as follows:
    • The grant allocation received from the Securities Commission (SC) for external review expenditure will be increased from 90% to 100% of the grant, subject to the existing cap of RM300,000.
    • The income tax exemption on the grant will be extended for an additional three YAs, from 1 January 2026 to 31 December 2028.
    • Expansion of eligible instruments to include sukuk and bonds that conform to the ASEAN Taxonomy for Sustainable Finance.
  • The above applies for new applications received by SC from 1 January 2026 to 31 December 2028.

Venture Capital

For Venture Capital Company (VCC)

  • A corporate tax rate of 5% will be imposed on statutory income from all sources, excluding interest income from savings or fixed deposits, or profits from Shariah-compliant deposits. The VCC must invest a minimum of 20% of its funds in local venture companies.
  • The tax incentive will be granted for a maximum period of 10 years or for the remaining life of the fund starting from the year the VCC obtains its first certification from SC. The VCC fund’s first certification by SC must be obtained no later than 31 December 2035.
  • The incentive will also apply to entities established under the Limited Liability Partnerships Act 2012, and entities established under the Labuan Limited Partnerships and Limited Liability Partnerships Act 2010 which have elected to be taxed under the Income Tax Act 1967 (ITA).

For Venture Capital Management Company (VCMC)

  • From YA 2018 to YA 2026, VCMCs enjoy 100% income tax exemption on income derived from the share of profits, management fees and performance fees. An appendix to the Budget speech states that from YA 2025 to YA 2035, such income will be subject to a 10% tax rate. It is unclear whether VCMCs which currently qualify for the full income tax exemption will instead be subject to this 10% tax rate for YA 2025 and YA 2026.
  • For individual shareholders of VCC:
    • Dividends paid, credited, or distributed by VCCs to individual shareholders will be exempted from income tax from YA 2025 to YA 2035.
    • This exemption does not apply to individuals who hold shares through nominees.

Other Incentives

  • The existing 100% ACA (on the first RM10 million of qualifying capital expenditure) and income tax exemption on qualifying capital expenditure for automation in the agriculture sector will be expanded to include closed-house chicken rearing systems. This applies to applications received by the Ministry of Agriculture and Food Security from 1 January 2026 to 31 December 2027.
  • The tax deduction application period for companies investing in subsidiary companies that commercialize non-resource-based R&D findings by public research institutions, public institutes of higher learning and private higher education institutions will be extended for five years. Applications must be received by the Malaysia Investment Development Authority (MIDA) from 1 January 2026 to 31 December 2030.
  • 100% income tax exemption on incremental income of tour operators from inbound tourism packages in YA 2026 and YA 2027, subject to certain conditions.
  • Tax deductions of up to RM500,000 will be allowed for renovation and refurbishment expenses of business premises by tourism operators registered with the Ministry of Tourism, Arts and Culture (MOTAC). Deductions apply for qualifying expenses incurred from 11 October 2025 to 31 December 2027.

INDIVIDUAL TAX

Partnership distributions from Limited Liability Partnership (LLP)

  • Income in the form of partnership distributions from LLP(s) received by individual partners exceeding RM100,000 per annum will be subject to tax, effective from YA 2026. This will apply to resident and non-resident individuals.
  • The applicable tax rate is 2% on chargeable income from LLP partnership distributions after allowing for deductions and reliefs.
  • If the individual also receives other types of income, the chargeable income from LLP partnership distributions shall be determined based on the following formula:
    • A / B x C = D, whereby
      • A = Partnership distributions received from LLP(s) (deemed as statutory income of the partner)
      • B = Aggregate income of the partner
      • C = Chargeable income of the partner
      • D = Chargeable income from LLP partnership distributions

Deductions and Reliefs

  • The following are all effective from YA 2026, unless stated otherwise.
  • A new tax relief of up to RM1,000 will be introduced for entrance fees to tourist attractions, and cultural and art programs. This relief will be applicable for YA 2026 only.
  • The annual tax relief of RM3,000 for fees paid to registered childcare centers or kindergartens for children up to six years of age, will be reviewed as follows:
    • The scope of the tax relief will be expanded to include fees for daily care centers and after-school transit facilities registered with the Department of Social Welfare.
    • The scope of the tax relief will also be expanded to include children up to 12 years of age.
    • The annual tax relief on medical treatment expenses for taxpayer, spouse and children will be reviewed as follows:
      • The scope of the tax relief for expenses incurred for specific vaccinations, limited to RM1,000, will be expanded to cover all vaccines registered and approved for use by the National Pharmaceutical Regulatory Agency, Ministry of Health.
      • The RM6,000 annual tax relief for expenses incurred for screening and detection, early intervention programs and ongoing rehabilitation treatment for children with disabilities aged 18 and below, will be increased to RM10,000.
  • The annual tax relief on life insurance premiums or takaful contributions of RM3,000 will be reviewed as follows:
    • The scope of the tax relief will be expanded to include children who are:
      • Aged below 18 and unmarried;
      • Aged 18 and above, unmarried and pursuing tertiary education; or
      • No age limit for unmarried children with disabilities.
        • The above eligibility criteria will also be applied to the annual tax relief on education and medical insurance premiums for children.
    • The annual tax relief for purchase, installation, rental and subscription fees for electric vehicle (EV) charging facilities and purchase of household food waste composting machines of RM2,500 will be reviewed as follows:
      • The scope of the tax relief will be expanded to include household food waste grinders and CCTV for home use.
      • The tax relief can be claimed on the above items once in either YA 2026 or YA 2027.
    • The scope of approved donations made by individuals to the Trust Account of the Department of Museums Malaysia will be expanded to include cash donations equivalent to the amount of the contribution.
    • The scope of approved donations eligible for income tax deduction equivalent to the amount contributed, up to 10% of aggregate income will be reviewed to include:
      • Cash donations to approved anti-corruption education programs organized by CSOs.
      • Cash contributions to the endowment funds established by public university teaching hospitals.

Employees Provident Fund (EPF)

  • The EPF withdrawal limit for the purpose of performing Hajj is increased from RM3,000 to RM10,000.

Stamp Duty

  • Monthly wage threshold for stamp duty exemption on employment contracts will be increased from RM300 to RM3,000. This applies to employment contracts executed from 1 January 2026.
  • Stamp duty exemption on instruments of transfer and loan agreements for the purchase of first residential home valued up to RM500,000 by Malaysian citizens will be extended for two years. This applies to sales and purchase agreements executed from 1 January 2026 to 31 December 2027.
  • Stamp duty exemption on insurance policies or takaful certificates with low annual premium or contribution purchased by individuals or MSMEs will be extended for three years. This applies to insurance policies or takaful certificates issued from 1 January 2026 to 31 December 2028.
  • Stamp duty exemption on insurance policies or takaful certificates for Perlindungan Tenang products will be extended for three years. This applies to Perlindungan Tenang insurance policies or takaful certificates issued from 1 January 2026 to 31 December 2028.
  • Stamp duty exemption on contract notes for exchange-traded funds transactions will be extended for three years. This applies to contract notes executed from 1 January 2026 to 31 December 2028.
  • Stamp duty exemption on contract notes for buy-side structured warrant transactions will be extended for three years. This applies to buy-side structured warrants executed from 1 January 2026 to 31 December 2028.
  • Stamp duty on instruments of transfer of residential property to non-citizen individuals (except Malaysian permanent residents) and foreign companies will be increased from 4% to 8%. This applies to instruments of transfer executed from 1 January 2026.
By tancheah_admin | 13/10/2025 | Taxation |