On 10 October 2025, Malaysia’s Prime Minister presented the 2026 Budget in Parliament. With the aim of driving good governance, raising the ceiling of national growth and raising the floor of living standards, the budget contains various tax measures that will impact businesses in the country (for a detailed analysis of the budget measures, see the alert prepared by BDO in Malaysia).
Noteworthy budget measures include:
David Lai
BDO in Malaysia
Noteworthy budget measures include:
- Tax on profit distributions by a limited liability partnership (LLP). From 2026, a 2% tax will be imposed on distributions exceeding MYR 100,000 received by LLP partners who are individuals (wherever residing). This is to align the tax treatment of partners in an LLP with the 2% tax on dividends received by shareholders of a company, which was introduced in 2025.
- Extension of foreign-source income (FSI) tax exemption period. To encourage the repatriation of profits to Malaysia and enhance the country’s appeal as a regional holding hub:
- The tax exemption on foreign dividend income received in Malaysia by resident companies or LLPs, which expires on 31 December 2026, will be extended to 31 December 2030. Additionally, this tax exemption will be given to resident cooperative societies and trust bodies.
- The tax exemption on gains from the disposal of foreign capital assets received in Malaysia by resident companies, LLPs, cooperative societies and trust bodies, which expires on 31 December 2026, will be extended to 31 December 2030.
- Accelerated capital allowance (ACA) on capital expenditure. To stimulate domestic investments and accelerate the adoption of digital technology in businesses, it is proposed that the ACA, comprising a 20% initial allowance and 40% annual allowances, be given on qualifying capital expenditure incurred during the period 11 October 2025 to 31 December 2026. Qualifying capital expenditure are:
- Heavy machinery purchased from local manufacturers;
- Plant and general machinery purchased from local manufacturers;
- Information and communications technology equipment and computer software; and
- Consultation, licensing and incidental fees in relation to customised computer software development.
- Extension of the tax incentive for commercialisation of research and development (R&D) findings. The application period for the tax deduction given to companies on investments in projects for the commercialisation of R&D findings, which expires on 31 December 2025, will be extended to 31 December 2030.
- Tax incentive for training in artificial intelligence (AI). To encourage the adoption of AI in the business operations of micro, small and medium-sized enterprises, a further 50% tax deduction will be given once in two years for expenses incurred on accredited AI training. This incentive will apply to applications received during the period 1 January 2026 to 31 December 2027.
- Restructuring of the tax incentive for venture capital companies (VCCs) and venture capital management companies (VCMCs).
- A VCC’s income (except for certain interest income) will be taxed at a rate of 5% for up to 10 years, provided at least 20% of its funds are invested in local venture companies.
- A VCMC’s income from the share of profits, management fees and performance fees will be taxed at a rate of 10% from year of assessment 2025 to 2035.
- Increased stamp duty rate on purchase of property by foreigners. To reduce speculation in the Malaysian property market, effective from 1 January 2026, the stamp duty rate on the purchase of residential properties by non-citizens (excluding permanent residents) and foreign companies will be increased from 4% to 8%. The new rate will apply to instruments for the transfer of residential homes executed as from 1 January 2026.
- Green investment tax allowance (GITA) on certified green technology products. The GITA at a rate of 100% will be given to companies acquiring for own use such products that are manufactured locally. The effective date of this incentive is to be determined.
David Lai
BDO in Malaysia