Crowe Chat Vol.4/2026

Tax Edition

Welcome to our Crowe Chat Vol.4/2026. In this issue, we will cover the following topics:

Public Ruling (PR) 2/2026 - Tax Treatment of Foreign Nationals Exercising Employment in Malaysia
Income Tax (Labuan Company) (Exemption) Order 2026
Accelerated Capital Allowance (ACA) Rules for the Implementation of e-Invoice
Income Tax (Tour Operator Company) (Exemption) Order 2026
Updated Stamp Duty Audit Framework

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PR 2/2026

Tax Treatment of Foreign Nationals Exercising Employment in Malaysia

Introduction

Generally, the gross income of an employee in respect of having employment or exercising an employment should be taxable in the country where the duties are performed, irrespective of the place where the contract is entered into or where the remuneration is paid. In other words, foreign nationals working in Malaysia may be taxed under Malaysia’s domestic tax laws on employment income derived from Malaysia. This updated PR reflects the realities of increased workforce mobility, remote work arrangements, and international assignments with much needed clarification on the taxation of expatriates and cross-border employees.

Previous PR

The previous PR8/2011 - Tax Treatment of Foreign Nationals Exercising Employment in Malaysia was issued on 16 November 2011.

New PR

The Inland Revenue Board of Malaysia (IRBM) issued an updated PR2/2026 - Tax Treatment of Foreign Nationals Exercising Employment in Malaysia on 27 March 2026.

Details of the Updated PR:

PR 2/2026 replaces and updates PR8/2011 with some changes, including:

The definitions of the terms foreign tax and foreign income have been updated.
The updated PR confirms that employment income is taxed where duties are performed, irrespective of the place where the contract is entered into or where the remuneration is paid. Therefore, foreign nationals working in Malaysia may be taxed under Malaysia’s domestic tax laws on employment income derived from Malaysia.
The updated PR includes the fact that tax exemption for employment period of 60-days is not automatically given. The foreign nationals must make a claim for exemption at the time of submission of the Income Tax Return Form to prove to the Director General that they are entitled to qualify for the exemption.

Labuan

Income Tax (Labuan Company) (Exemption) Order 2026

Introduction

With effect from 1 January 2019, Section 39(1)(r) of the Malaysian Income Tax Act, 1967 (MITA) was enacted to restrict a deduction for payments made by resident taxpayers to Labuan entities as follows:

Type of payment to a Labuan entity	Percentage not deductible
Interest payment	25%
Lease rental	25%
Other payments	97%

Subsequently, the Income Tax (Exemption) (No.11) Order 2021 was gazetted to provide that payments made to Labuan entities under the following circumstances will not be subject to the restriction on deductibility of expenses, subject to meeting the general deductibility test in Section 33(1) of the MITA:

Payer	Recipient	Effective period
Tax resident	Labuan company which has made an irrevocable election to be taxed under the MITA.	1 January 2019 onwards
Tax resident	Labuan company undertaking a qualifying activity under the Global Incentives for Trading (GIFT) programme.	Years of assessment (YA) 2019 to 2025
Labuan entities that are paying tax under the MITA	Labuan entities that are paying tax under the Labuan Business Activity Tax Act 1990 (LBATA).	YAs 2019 to 2025

New Exemption Order

The Income Tax (Labuan Company) (Exemption) Order 2026 was gazetted on 31 March 2026 to extend the exemption on payments to a Labuan company undertaking a qualifying activity under the GIFT programme.

This exemption order is effective from the YA 2026 until the YA 2030.

Crowe's Comments

Whilst the tax exemption is extended to Labuan companies under the GIFT programme, the exemption on payments to Labuan entities that are taxed under the LBATA, which expired in YA 2025, has not been extended. Consequently, Section 39(1)(r) of the MITA will apply, whereby only 75% of interest and lease rental payments, as well as 3% of other payments, are deductible for income tax purposes with effect from YA 2026 onwards.

On the other hand, the exemption on payments to a Labuan company that has made an irrevocable election to be taxed under the MITA remains in effect, as this exemption has been applicable since YA 2019.

ACA Rules

Implementation of e-Invoice

Introduction

Malaysia is implementing e-Invoicing in phases, with taxpayers progressively brought into the system. The initiative supports business digitalisation and enhances the efficiency of Malaysia’s tax administration. Over time, e-Invoicing will replace traditional paper-based invoices with a digital format, improving transaction recording and enabling real-time data collection.

To encourage the adoption, the Government has introduced tax incentives, including special deductions and accelerated capital allowances on implementation costs.

New income Tax Rules

The following subsidiary legislation were gazetted on 7 April 2026:

Income Tax (Accelerated Capital Allowance) (Information and Communication Technology Equipment for the Implementation of Electronic Invoice) Rules 2026 (“ICT Equipment Rules”); and
Income Tax (Accelerated Capital Allowance) (Development Cost for Customised Computer Software for the Implementation of Electronic Invoice) Rules 2026 (“Development Cost Rules”).

Details of the Income Tax Rules

The salient points are as follows:

Eligible Person

is a tax resident in Malaysia;
must have a business registered with the Companies Commission of Malaysia, a business registration body, a local authority, or a statutory body;
complies with the timeline for the implementation of electronic invoice as prescribed in the Income Tax (Issuance of Electronic Invoice) Rules 2024;
has not been granted any flexibility in relation to the e-Invoice issuance under the IRBM’s e-Invoice Guidelines; and
complies with the e-Invoice issuance requirements as specified under the IRBM’s e-Invoice Guidelines.

Effective Period & ACA Rates

Both the ICT Equipment Rules and Development Cost Rules qualify for the same effective period and ACA rates:

Effective Period	YA 2024 until YA 2027
ACA Rates	Initial Allowance: 20%
ACA Rates	Annual Allowance: 40%

Effective Period & ACA Rates

ICT Equipment Rules	purchase and installation of ICT equipment for the implementation of e-invoice such as computers, central processing units (CPUs), storage devices, printers, scanners, bar code equipment, communication and network equipment and software systems or packages.
Development Cost Rules	any consultation fee, payment for rights of software ownership and incidental fee relating to the development of customised computer software for the purposes of development of an e-invoice system.

Exemption Order

Income Tax (Tour Operator Company) (Exemption) Order 2026

Introduction

In Budget 2026, it was proposed that a 100% income tax exemption be given on the incremental income derived from inbound tourism packages.

Exemption Order

To legislate the above proposals, the Income Tax (Tour Operator Company) (Exemption) Order 2026 was gazetted on 16 March 2026.

Details of the Exemption Order

A company must meet all the following conditions to be treated as a “qualifying person”:

Be a resident in Malaysia and incorporated under the Companies Act 2016.
Hold a valid licence as a tour operator under the Tourism Industry Act 1992.
Actively carry out a defined qualifying tourism activity.

100% exemption is applicable on statutory income equivalent to the value of increase in income derived from a tour operating business on tour packages within Malaysia utilised by foreign tourists, including transportation by air, land or sea and accommodation.
The total number of foreign tourists must not be less than 1,000 for a YA.
The Order is effective for YA 2026 and YA 2027.

Stamp Duty

Updated Stamp Duty Audit Framework

Introduction

The IRBM has activated the Stamp Duty Audit Framework from 1 January 2025 which covered instruments executed in the preceding three (3) years, with penalties and assessments extending further in cases of fraud or negligence. Historically, enforcement was limited, leading many businesses to assume that only court-admissible documents required stamping.

Updated Stamp Duty Audit Framework

The IRBM issued the Updated Stamp Duty Audit Framework on 20 April 2026.

Highlights of the Updated Stamp Duty Audit Framework

Stamp duty audits on instruments, whether general or comprehensive will now cover four (4) years, consisting of the current year and the preceding three (3) years.
The selection of stamp duty audit cases is carried out either through digital analysis based on risk assessment criteria or based on various sources of information received.

The following new penalty provisions have been included:

Offences	Penalty / Fine
Failure to keep proper records	Not exceeding RM10,000
Failure to furnish a return with the instrument that is chargeable to duty	Not exceeding RM10,000
Furnishing of incorrect stamp duty returns or information	Minimum of RM1,000 but not exceeding RM10,000