Guidelines on the Implementation of Global Minimum Tax (GMT) in Malaysia

On 2 December 2024, the Inland Revenue Board of Malaysia (“IRB”) published guidelines regarding the implementation of the GMT legislation. The GMT legislation is enacted under Section 157 to 239 of the Income Tax Act 1967 (“ITA”) and aligned with the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (“BEPS”) under Pillar Two.

Introduction and mechanisms

The legislation applies to Multinational Enterprise (“MNE”) Groups which have had an annual revenue of EUR 750 million or more in at least two of the four previous financial years. The GMT is implemented through two mechanisms: Domestic Top-up Tax (“DTT”) and Multinational Top-up Tax (“MTT”). The DTT and MTT will be applicable in Malaysia for the Financial Year (“FY”) beginning on or after 1 January 2025 and subsequent FYs.

Excluded entity

An Excluded Entity is not subject to the GMT legislation, however it is still considered as a Group Entity to determine the revenue threshold to the extent its income is consolidated with the rest of the Group. In this case, the Excluded Entity's revenue must be considered when applying the consolidated revenue threshold.

Filing Obligations

The GloBE Information Return (‘GIR’) is a comprehensive reporting document that multinational enterprises (MNEs) are required to file annually to disclose detailed information on the income, taxes, and effective tax rate calculation of the MNE group in all jurisdictions in which the MNE group operates or has a business presence. It is generally filed within fifteen months of the last day of the reporting financial year in the jurisdiction of the ultimate parent company.

For the foreign multinational group's sub-company in Malaysia, where the ultimate parent or designated filing entity (‘DFE’) of the foreign multinational group is located in a country that has an agreement with a competent authority (‘QCAA’) to exchange the GIR with Malaysia, the information return does not need to be submitted to the IRB and vice versa.

The GloBE rules provide a transitional relief that allows for the filing of GIR and returns within 18 months of the reporting financial year for the first transitional year of filing. In Malaysia, this refers to the first financial year in which the multinational enterprise group falls under Part XI of the ITA. The relief also applies to additional tax returns.

Penalties for Non-Compliance

Under Section 226(1) of the ITA, incomplete or incorrect tax returns may result in penalties of between RM 20,000 and RM 100,000 or imprisonment for a maximum of six months, or both. Pursuant to subsection 227(1) of the ITA, the IRB may impose a fine of not less than RM 20,000 and not more than RM 100,000, and a special penalty equal to twice the amount of tax underpaid by reason of an incorrect return for the tax in which the tax liability was omitted or understated.

Qualified Domestic Minimum Top-up Tax (“QDMTT”) Safe Harbour

The QDMTT Safe Harbour provision is a specific provision in the GloBE rules that allows MNCs to avail of simplified compliance measures under certain circumstances to reduce the administrative burden and compliance costs by providing a lighter approach to meeting tax obligations.

Transitional Country-by-Country Reporting (“CbCR”) Safe Harbour

The temporary CbC safe harbour will temporarily exempt multinational enterprises from performing the computations required under the GloBE rules in the early years of implementation, in order to alleviate the compliance burden on a multinational enterprise while it updates its internal processes and systems to meet the new reporting requirements. The temporary CbCR regime applies to both MTT and DTT and only to financial years beginning on or before 31 December 2026, excluding financial years ending after 30 June 2028.

Permanent Safe Harbour

The Permanent Safe Harbour allows multinational corporations to avoid certain complex calculations to estimate whether they are likely to have to pay additional tax under the GloBE rules. The Permanent Safe Harbour aims to simplify compliance, reduce administrative burdens, provide tax certainty and ensure consistent application of the GloBE rules across different jurisdictions.