12 Government Tax Incentives in Malaysia to Grow Your SMEs in 2025 + How to Get Them
Malaysia offers a wide range of tax incentives to help small and medium enterprises grow, invest, digitalise and hire.
These incentives range from start-up tax rebates and special deductions for digital transformation to investment allowances and sector-specific exemptions.
In this guide, you’ll learn the key incentives that matter to your SME. You’ll also know which you’re eligible for and practical steps for claiming each incentive so you can reduce tax bills while staying compliant.
Here are 12 government tax incentives for SMEs in Malaysia:
Reduced corporate income tax rate for SMEs (first RM 600,000 of chargeable income at 15%)
Tax rebate for new SMEs (up to RM 20,000 for the first 3 years)
Special reinvestment allowance for manufacturing & agriculture expansion
Double deduction for R&D, training, and export promotion expenses
Accelerated capital allowance (ACA) for ICT, automation, and green technology investments
Investment tax allowance (ITA) for pioneer sectors and promoted activities
Tax deduction for expenses on listing SMEs on ACE & LEAP Markets
Deduction for employing targeted groups (senior citizens, ex-convicts, persons with disabilities)
Digitalisation & e-commerce incentives, grants and assistance (e.g., MDEC, Smart Automation Grant)
HRDF (Human Resources Development Fund) training grants and support for employer training costs
SME matching grants or soft loans (government funds to support capital investment or operational costs)
Government procurement preference or set-asides for certified SMEs
1. Reduced corporate income tax rate for SMEs
In Malaysia, SMEs enjoy a preferential corporate income tax rate designed to ease their financial burden and encourage reinvestment in growth.
According to this incentive, instead of paying a 24% corporate tax rate, qualifying SMEs benefit from a lower tiered rate on their first chunk of taxable income.
Key provisions, benefits, and terms of this incentive
First RM 150,000 of chargeable income → taxed at 15%
Next RM 450,000 (up to RM 600,000) → taxed at 17%
Chargeable income above RM 600,000 → taxed at the standard 24%
Applies to both resident companies and LLPs (limited liability partnerships)
Significant tax savings for SMEs, especially those with income under RM 600,000
Eligibility for this incentive
Must be a resident company in Malaysia
Paid-up capital of not more than RM 2.5 million at the beginning of the basis period
Gross business income must not exceed RM 50 million
Not controlled directly/indirectly by a company with paid-up capital > RM 2.5 million
How do you apply (step by step) for this incentive?
Incorporate and register your SME with the Companies Commission of Malaysia (SSM).
Register for income tax with the Inland Revenue Board of Malaysia (LHDN).
During annual tax filing, submit Form C (companies) or Form PT (LLPs).
Ensure financial statements and tax computations reflect eligibility criteria (capital, income threshold).
LHDN will automatically apply the reduced tax rates when assessing chargeable income. No separate application form is required, but supporting documentation must be available if audited.
2. Tax rebate for new SMEs (up to RM 20,000 for the first 3 years)
To encourage entrepreneurship and help new businesses manage startup costs, Malaysia grants a tax rebate to newly incorporated SMEs. Instead of just reducing tax rates, this incentive directly offsets the amount of tax payable, offering immediate cash flow relief during the early years of operation.
Key provisions, benefits, and terms of this incentive
A full tax rebate is available on the first RM 20,000 of chargeable income per year.
Any excess income above RM 20,000 will be taxed at the normal SME corporate tax rates.
The rebate is only available for the first 3 years of assessment (YA) after incorporation.
Helps SMEs reinvest more capital into operations instead of paying higher taxes upfront.
Eligibility for this incentive
Newly incorporated SME in Malaysia, registered with SSM.
Paid-up capital of not more than RM 2.5 million.
Annual gross income must not exceed RM 50 million.
Must be a resident company or LLP.
How do you apply (step by step) for this incentive?
Incorporate your business with the Companies Commission of Malaysia (SSM).
Register for tax with LHDN as a new taxpayer.
Prepare and submit your annual tax return (Form C/PT).
If eligible, the rebate will be applied directly against your tax payable — no separate application is required.
Maintain supporting documents (certificate of incorporation, financial statements, tax computations) in case LHDN requests verification.
3. Special reinvestment allowance for manufacturing & agriculture expansion
The Reinvestment Allowance (RA) is designed to support manufacturing and agricultural SMEs that want to expand, modernise, or automate their existing operations.
Instead of taxing all profits, RA allows businesses to reinvest earnings into productive assets while enjoying significant tax relief.
Key provisions, benefits, and terms of this incentive
Eligible companies can claim 60% of qualifying capital expenditure (QCE) incurred on reinvestments.
This allowance is applied against up to 70% of statutory income for each year of assessment.
Can be claimed for 15 consecutive years of assessment from the year of first eligibility.
QCE includes costs for machinery, factory buildings, and improvements directly linked to expansion, automation, modernisation, or diversification of existing operations.
Eligibility for this incentive
SMEs engaged in manufacturing or agriculture in Malaysia.
Must have been in operation for at least 36 months before claiming.
Reinvestments must be for the same business activity (e.g., expanding a factory, upgrading machinery).
Only resident companies incorporated in Malaysia qualify.
How do you apply (step by step) for this incentive?
Identify qualifying reinvestment activities (e.g., new machinery, expansion of factory space).
Keep proper documentation of capital expenditure (invoices, contracts, proof of payment).
Submit your company’s annual tax return (Form C) and include the RA claim.
Provide supporting schedules to LHDN showing the calculation of QCE and RA amount.
RA will be offset against statutory income as per LHDN assessment.
4. Double deduction for R&D, training, and export promotion expenses
The Double Deduction incentive allows SMEs in Malaysia to deduct twice the value of qualifying expenses from their taxable income when those expenses are spent on research & development (R&D), employee training, or export promotion.
This double deduction encourages innovation, workforce development, and global market expansion by reducing overall tax liability.
Key provisions, benefits, and terms for this incentive
Expenses incurred on approved R&D projects qualify for double deduction.
Approved employee training programs (endorsed by HRD Corp or other authorities) are eligible.
Export promotion activities (participation in international trade fairs, overseas marketing, advertising for exports) can be claimed.
Effectively lowers taxable income and corporate tax bills by more than the actual cost of the activity.
Deduction is claimable in the year the expense is incurred.
Eligibility for this incentive
SMEs incorporated and tax-resident in Malaysia.
Must be engaged in industries approved for R&D, training, or export activities.
Expenses must be directly linked to business operations and not personal.
For R&D, projects must usually be approved by MIDA or the Ministry of Science, Technology and Innovation (MOSTI).
How do you apply (step by step) for this incentive?
Identify qualifying expenses for R&D, training, or export promotion.
Obtain approval where required (e.g., R&D certification by MIDA, training program approval by HRD Corp).
Maintain detailed documentation (invoices, receipts, contracts, training records, trade fair participation proof).
Claim the double deduction in your annual tax return (Form C) under the relevant expense category.
Be ready to provide documents during an LHDN tax audit to verify claims.
5. Accelerated capital allowance (ACA) for ICT, automation, and green technology investments
The Accelerated Capital Allowance (ACA) helps SMEs recover the cost of capital assets more quickly by allowing higher depreciation (capital allowance) claims within a shorter time.
This is especially useful for businesses that invest in technology, machinery, or energy-efficient equipment, as it improves cash flow and reduces taxable income faster.
Key provisions, benefits, and terms for this incentive
Normal capital allowance spread is 8 years, but ACA lets businesses claim the full deduction in 2 years (initial allowance of 20%, annual allowance of 40%).
Applies to qualifying assets like ICT equipment, computers, environmental protection/green tech equipment, and automation machinery.
Improves tax efficiency by reducing chargeable income in the early years of investment.
Eligibility for this incentive
SMEs incorporated and tax-resident in Malaysia.
Must have purchased qualifying capital assets certified under ACA guidelines.
Applies across industries but is particularly common in manufacturing, ICT, and energy-related sectors.
How do you apply (step by step) for this incentive?
Purchase qualifying assets (e.g., computers, software, green machinery).
Keep invoices, receipts, and certification documents from approved authorities (if required).
Include ACA claims in your annual tax return (Form C) with supporting schedules.
LHDN will assess and allow accelerated depreciation based on eligibility.
Retain records for tax audit purposes.
6. Investment tax allowance (ITA) for pioneer sectors and promoted activities
To encourage SMEs to enter promoted industries (like high-tech manufacturing, green technology, or specialised services), Malaysia offers two powerful incentives: Pioneer Status (PS) and Investment Tax Allowance (ITA).
Both reduce tax burdens significantly, but they work differently. PS exempts a portion of income from tax, while ITA allows deductions based on capital investment.
Key provisions, benefits, and terms
Pioneer Status (PS): 70% exemption on statutory income for 5 years (extendable to 10 years in some cases).
Investment Tax Allowance (ITA): 60% allowance on qualifying capital expenditure (factory, plant, machinery) within 5 years, which can offset up to 70% of statutory income.
Companies can usually choose between PS and ITA depending on what’s more beneficial.
Promoted industries and activities are listed by MIDA (Malaysian Investment Development Authority).
Eligibility for this incentive
SMEs in promoted sectors: e.g., green tech, advanced manufacturing, biotechnology, ICT, renewable energy, and other high-value services.
Resident companies incorporated in Malaysia.
Must receive approval from MIDA before starting the promoted activity.
How do you apply (step by step) for this incentive?
Identify if your SME’s business falls under a promoted product or activity listed by MIDA.
Submit an application to MIDA, including a detailed project proposal, business plan, and financial projections.
Await MIDA’s approval and Pioneer Certificate (for PS) or ITA Certificate.
Once approved, file your annual tax return (Form C) and claim the incentive accordingly.
Maintain proper records of business activities and capital expenditure for verification.
7. Tax deduction for expenses on listing SMEs on ACE & LEAP Markets
To encourage SMEs to raise capital and grow through the stock market, Malaysia allows a special tax deduction on expenses incurred for listing on Bursa Malaysia’s ACE Market (for growth companies) and LEAP Market (for SMEs).
This reduces the financial burden of going public and helps smaller businesses access funding more easily.
Key provisions, benefits, and terms for this incentive
A full tax deduction is given on listing-related expenses.
Qualifying expenses include:
Fees to authorities (SC, Bursa Malaysia)
Professional fees (advisors, accountants, lawyers)
Underwriting and placement fees
Prospectus preparation and advertising costs
Deduction applies only for the year of assessment in which the listing occurs.
Aims to reduce IPO and compliance costs for SMEs.
Eligibility for this incentive
SMEs incorporated in Malaysia.
Companies applying to be listed on the ACE Market or LEAP Market of Bursa Malaysia.
Expenses must be directly related to the listing process and verified by supporting documents.
How do you apply (step by step) for this incentive?
Engage professional advisors and start the listing process with Bursa Malaysia.
Keep detailed records of all listing-related expenses.
Once listed, file your annual tax return (Form C) and include the deduction for eligible costs.
Attach supporting schedules detailing listing expenses to your tax computation.
Retain invoices and approval letters for verification during LHDN audits.
8. Deduction for employing targeted groups (senior citizens, ex-convicts, persons with disabilities)
To promote inclusivity and improve employment opportunities for vulnerable groups, Malaysia provides a double tax deduction for employers who hire senior citizens (aged 60+), ex-convicts, and persons with disabilities (PWDs).
This incentive reduces overall tax liability while encouraging businesses to diversify their workforce and support social development.
Key provisions, benefits, and terms for this incentive
Employers can claim a double deduction on the remuneration paid to:
Senior citizens (aged 60 and above, resident in Malaysia).
Ex-convicts certified fit to work.
Persons with disabilities (registered with the Department of Social Welfare).
Applies to basic salary and approved employment costs.
Encourages SMEs and larger businesses to adopt inclusive hiring practices.
Helps businesses reduce taxable income while addressing social needs.
Eligibility for this incentive
Employers must be registered in Malaysia.
Employees must fall into one of the targeted categories:
Senior citizens (60+)
Ex-convicts certified by the relevant authorities
Registered PWDs
Employment must be formalised with contracts and proper records.
Deduction claimable only if remuneration is actually paid and verifiable.
How do you apply (step by step) for this incentive?
Hire eligible individuals under proper employment contracts.
Obtain proof of eligibility:
IC for senior citizens
Certification from the Department of Social Welfare for PWDs
Documentation from the prison/parole authority for ex-convicts
Maintain accurate payroll and contribution records (EPF, SOCSO, EIS).
When filing your tax return (Form C), claim the double deduction under employment expenses.
Retain employee documents and payroll evidence for LHDN verification or audit.
9. Digitalisation & e-commerce incentives, grants and assistance (e.g., MDEC, Smart Automation Grant)
To help SMEs embrace digital transformation, the Malaysian government offers several grants and incentives for adopting technology, e-commerce, and automation.
These programs, such as the MDEC Smart Automation Grant (SAG), the SME Digitalisation Grant, and other initiatives under MDEC and Bank Negara, are designed to reduce costs and risks of digital adoption while boosting productivity and competitiveness.
Key provisions, benefits, and terms for this incentive
SME Digitalisation Grant: Up to 50% matching grant (capped at RM 5,000) for adopting digital solutions such as e-commerce, payroll/HR software, CRM, or accounting tools.
Smart Automation Grant (SAG) (MDEC): Up to RM 1 million per company to automate business processes and reduce dependency on manual labour.
MDEC eCommerce Campaigns: Support for SMEs to onboard digital marketplaces and boost online sales.
Grants focus on: Digital marketing, cloud solutions, HR/payroll systems, e-commerce platforms, and automation tech.
Encourages SMEs to modernise while staying competitive in a rapidly digitised economy.
Eligibility for this incentive
Registered SME in Malaysia (with SSM).
Meets SME Corp Malaysia’s SME definition (based on revenue and employee size).
Must not have received the same digitalisation grant before (for some schemes).
For SAG: Priority given to businesses in the manufacturing and services sectors that can demonstrate measurable productivity gains.
Must apply through authorised Technology Service Providers (TSPs) for certain grants.
How do you apply (step by step) for this incentive?
Identify the right grant (e.g., SME Digitalisation Grant via BSN/SME Bank, or SAG via MDEC).
Ensure eligibility (registered SME, financial records, etc.).
Select an authorised Technology Service Provider (TSP) or vendor listed by MDEC/Bank Negara for the chosen grant.
Prepare required documents (SSM certificate, audited accounts/management accounts, directors’ IC copies, application form).
Submit the application via the respective platform (BSN portal, SME Bank, or MDEC).
Await approval and disbursement, which may be a matching grant (company pays first, reimbursed later) or direct assistance.
Implement the digital solution and maintain proper receipts, contracts, and records for audit.
10. HRDF (Human Resources Development Fund) training grants and support for employer training costs
The Human Resources Development Fund (HRDF), governed by HRD Corp, requires certain employers to contribute a levy that is later claimable for staff training and upskilling.
This incentive ensures SMEs can build a skilled workforce without bearing the full cost of training. Instead of being just a statutory obligation, SMEs can turn it into a major benefit by claiming grants for employee development.
Key provisions, benefits, and terms for this incentive
Employers contribute 1% of employees’ monthly wages (for companies with ≥10 employees in covered industries).
SMEs with 5–9 employees contribute at a reduced 0.5% rate.
Employers can claim the levy back to cover 100% or partial costs of training, depending on program type.
Covers a wide range of training: in-house, external workshops, certifications, apprenticeships, and digital learning.
Helps SMEs reduce talent development costs and improve retention.
Eligibility for this incentive
SMEs registered under the Pembangunan Sumber Manusia Berhad Act 2001.
Must be in industries gazetted under HRDF (manufacturing, services, mining & quarrying, etc.).
Have at least 5 employees to qualify.
How do you apply (step by step) for this incentive?
Register your company with HRD Corp as a levy contributor.
Start paying the monthly levy via HRD Corp’s online system.
Select approved training programs or submit in-house training for approval.
Apply for training grants through HRD Corp’s portal before training begins.
After training, submit claims with attendance records, invoices, and certificates for reimbursement.
SME matching grants or soft loans (government funds to support capital investment or operational costs)
To ease financial constraints, the Malaysian government provides matching grants and soft loans to SMEs for capital investment, operational costs, and business expansion.
These funds are typically offered through SME Corp Malaysia, Bank Negara Malaysia (BNM), and other agencies.
Matching grants reduce the burden by co-funding eligible expenses, while soft loans give SMEs access to financing with lower interest rates and flexible repayment terms.
Key provisions, benefits, and terms for this incentive
SME Matching Grants: The government co-funds part of the project cost (e.g., 50% of digitalisation adoption capped at RM 5,000 under the SME Digitalisation Grant).
Soft Loans (e.g., BNM’s All-Economic Sectors Facility, PENJANA SME Financing, etc.):
Below-market interest rates (as low as 3.5% p.a.).
Financing amounts range from RM 50,000 to RM 5 million, depending on the program.
Grace periods and flexible repayment tenures (up to 7 years).
Targeted for capital investment (machinery, technology adoption) and operational needs (working capital, payroll, inventory).
Helps SMEs maintain liquidity, invest in technology, and expand capacity.
Eligibility for this incentive
Registered SME in Malaysia under SSM, cooperative, or relevant authorities.
Meets SME Corp’s official definition (by revenue or employee size).
Must have a viable business plan/project proposal.
Credit assessment may be required (for soft loans).
Certain grants/loans prioritise sectors like manufacturing, services, technology, and export-oriented businesses.
How do you apply (step by step) for this incentive?
Identify the grant/loan scheme relevant to your need (e.g., BNM’s Soft Loan Schemes, SME Digitalisation Grant, SME Corp Matching Grants).
Prepare eligibility documents: SSM registration, audited accounts/management accounts, bank statements, directors’ ICs, and business plan.
For soft loans: Apply through participating financial institutions (e.g., SME Bank, BSN, Maybank) under BNM’s refinancing programs.
For matching grants: Apply directly via SME Corp Malaysia or agencies administering the program.
Submit required forms and supporting documents.
If approved:
For grants: The Company pays first, then is reimbursed by the government after verification.
For soft loans: The Loan is disbursed upfront, and repayment follows the agreed schedule.
Keep proper records and submit periodic progress/impact reports as required.
Government procurement preference or set-asides for certified SMEs
The Malaysian government provides procurement preferences and set-asides for certified SMEs to encourage local participation in public sector projects.
Through programs managed by SME Corp, the Ministry of Finance (MOF), and related agencies, SMEs gain prioritised access to government contracts, ensuring they can compete fairly against larger firms.
This initiative supports SME growth, strengthens local supply chains, and stimulates domestic economic development.
Key provisions, benefits, and terms for this incentive
Reserved quotas: Certain contracts are reserved exclusively for SMEs (e.g., works and supply contracts below a specific value).
Price preference: SMEs may receive price margin advantages during tender evaluations.
Certification-based: SMEs must be registered and certified under the MOF or SME Corp databases (e.g., ePerolehan system).
Encourages sectoral growth: Especially supports SMEs in construction, ICT, logistics, and professional services.
Promotes inclusivity: Some set-asides target Bumiputera SMEs or businesses in strategic development sectors.
Eligibility for this incentive
Must be registered as an SME under SSM and classified by SME Corp (based on revenue and employee size).
Must be certified and registered in the MOF ePerolehan system.
Companies must meet contract requirements (technical capability, financial capacity, and past performance).
Some categories prioritise Bumiputera-owned SMEs.
How do you apply (step by step) for this incentive?
Register your business with SSM and ensure compliance with SME Corp definitions.
Apply for certification with MOF and register in the ePerolehan system (mandatory for government tenders).
Prepare required documents: company profile, audited financial statements, director/shareholder details, and supporting certificates.
Monitor government tender announcements via the ePerolehan portal.
Submit bids/proposals according to tender specifications, highlighting SME certification to qualify for preferences.
If awarded, fulfil contract obligations and maintain compliance for future opportunities.
Renew certification and update company details periodically to remain eligible.
Closing thoughts
If you run an SME in Malaysia, you have more support than ever through tax incentives, grants, soft loans, and procurement preferences designed to ease financial burdens, encourage innovation, and drive growth.
Whether it’s reducing your tax bill through double deductions, funding digitalisation with matching grants, or gaining an edge in government tenders, these programs are meant to help your business thrive.
The key is knowing which incentives apply to you and taking the right steps to apply before deadlines pass. With the right strategy, these incentives can free up cash flow, expand your capabilities, and keep you competitive in today’s fast-changing economy.
Disclaimer.
The information we provided in this guide is for general informational purposes only. While we strived for accuracy and timeliness, readers are advised to independently verify any critical information and should not solely rely on the content provided here to make decisions.
