Crowe Chat Vol.5/2025

Deduction of ESG Expenses

Income Tax (Deduction for Expenditure in relation to Environmental Preservation, Social and Governance) Rules 2025

Introduction

A new incentive was proposed during the tabling of the 2024 Budget on 13 October 2023 for corporations involved in Environmental, Social and Governance (ESG) initiatives.

New Income Tax Rules - Gazetted on 23 June 2025

Income Tax (Deduction for Expenditure in relation to Environmental Preservation, Social and Governance) Rules 2025

The Rules take effect from the YA 2024 to YA 2027.
These Rules provide for a deduction of up to RM50,000 per annum for ESG-related expenditure incurred by eligible taxpayers.

“ESG” means a set of criteria to assess the sustainability practice and ethics of a financial institution, company, Labuan company, micro enterprise or small and medium enterprise, which encompasses environmental impact, social responsibility and governance effectiveness.

Details of the Income Tax Rules

Eligible Taxpayer	Qualifying Expenses
Companies listed on Bursa Malaysia Financial institutions supervised by Bank Negara Malaysia	Costs of ESG certification or verification, such as for greenhouse gas (GHG) emissions. Subscriptions to ESG technology or software used for tracking carbon emissions, compliance and sustainability data. Training and upskilling of staff in ESG knowledge and practices. Consultant fees for ESG experts to assist with technical or regulatory compliance.
Companies (resident in Malaysia) Labuan companies (resident in Malaysia)	Preparation of the Tax Corporate Governance Framework (TCGF) guidelines issued by the Inland Revenue Board of Malaysia (IRBM) and appointing an independent reviewer to perform review assessment of compliance with the guidelines for the TCGF. Preparation of the contemporaneous transfer pricing documentation (CTPD).
Micro enterprises Small and medium enterprises	Consultation fees for the development of customised software for the implementation of electronic invoicing (e-invoicing) and fees paid to external service providers but excludes: expenses incurred at the planning stage or preliminary procedures for customised software consultation fees related to issuance of e-invoice via MyInvois Portal

Tax Compliance Certificate (TCC)

Operational Guideline 1/2025: Implementation of TCC for Government Procurement

Introduction

In Budget 2022, the Government announced that obtaining the Tax Compliance Certificate will be a prerequisite for taxpayers when applying for government procurements effective from 1 January 2023.

Previous Operational Guidelines

Operational Guideline 1/2023 – Issuance of the Tax Compliance Certificate for Government Procurement Application dated 22 November 2023.
Operational Guideline 4/2024 – Implementation of the Tax Compliance Certificate on a pilot basis for Application for Government Procurement for the Procurement of Work and Consulting Services (Physical) (Effective from 1 October 2024 to 31 March 2025) dated 30 September 2024.

Updated Operational Guideline

The IRBM issued Operational Guideline 1/2025 - Implementation of the Tax Compliance Certificate for Government Procurement on 25 June 2025.

Details of the Updated Operational Guideline

The transition from a pilot phase to full implementation of the Tax Compliance Certificate requirement for all government procurements.
Tax Compliance Certificate requirement will be fully expanded to cover all categories of government tenders including supplies, services (consulting and non-consulting) and works effective from 1 July 2025.

Withholding Tax (WHT)

Media Release: WHT in the Case of Deceased Agents, Dealers and Distributors

Introduction

Section 107D of the Malaysian Income Tax Act, 1967 (MITA) requires companies to deduct 2% tax from cash payments made to resident individuals who act as agents, dealers, or distributors (ADDs).

Media Release

The IRBM issued a Media Release – Withholding Tax in the Case of Deceased Agents, Dealers and Distributors on 30 June 2025.

Details of the Media Release

The Media Release spells out that the definition of “individual” in the context of an ADD under Section 107D of the MITA refers to a living person or a natural person as defined in Section 2 of the MITA. Hence, a deceased ADD will not be considered as an individual for purposes of the MITA.
With effect from 1 August 2025, the 2% withholding tax will not be applicable for payments made to deceased ADDs.
Any such income received after the date of the ADD’s death shall be managed by the executor, administrator, heir of legal representative of the deceased and be reported under the deceased person’s Estate file (Form TP).

Labuan Tax Filing

Filing Programme: Return of Profits by a Labuan Entity for the YA 2025 under the Self Assessment System

Introduction

A Labuan entity is taxed on a preceding year basis (PYB), where the basis period in relation to a YA for tax purposes is the accounting period or periods ending in the calendar year immediately preceding that YA.

Beginning from the YA 2025, the Self Assessment System is introduced to Labuan entities undertaking Labuan business activities, in line with the amendment to the Labuan Business Activity Tax Act 1990 (LBATA 1990).

Filing Programme

The IRBM has issued a Filing Programme for Return of Profits by a Labuan Entity for the YA 2025 under the Self Assessment System to outline the deadline and provide guide notes for a Labuan entity to furnish the return of profits for the YA 2025.

Details of the Filing Programme

The salient points are as follows:

In 2025, there will be two (2) YAs which are:
- YA 2025 based on a basis period ending in 2024 (PYB); and
- YA 2025 based on a basis period ending in 2025 [current year basis (CYB)].

The filing programme is as follows:

Basis period	Due date for submission of return of profits	Grace period
YA 2025 with basis period ending in 2025 (CYB)	Within seven (7) months from the date following the close of the accounting period which constitutes the basis period for the YA	One (1) month

In April 2025, the IRBM had granted an extension of time to 31 July 2025 for the submission of income tax return form for YA 2025 (PYB), i.e. for basis periods ending in 2024.

Crowe’s Comments

Labuan entities may encounter a situation where the tax payments for the two (2) YAs in 2025 will coincide within the same calendar year. An illustration of an example is as follows:

Basis period	YA	Submission due date (based on the grace period)
1 April 2023 – 31 March 2024	2025 (PYB)	31 July 2025
1 April 2024 – 31 March 2025	2025 (CYB)	30 November 2025

Taxpayers are advised to plan their cash flow ahead of time to ensure that the tax payments can be made accordingly in the year 2025.

Stamp Duty

FAQ on Stamping of Employment Contract

Introduction

On 6 June 2025, the IRBM announced the following exemptions from stamp duty and waiver of penalty in relation to non-stamping or late stamping of employment contracts in Malaysia:

Employment Contract Finalisation Date	Stamp Duty	Penalty Waiver
Before 1 January 2025	Exempted	Yes
1 January 2025 - 31 December 2025	Applicable	Yes (if stamped before 31 December 2025)
From 1 January 2026 onwards	Applicable	No

FAQ

The IRBM has issued the FAQ on Stamping of Employment Contract in Malaysia dated 3 July 2025 to provide further clarification on the issues arising from the levy of stamp duty on employment contracts.

IRBM’s Clarifications

Below are the essential takeaways from the IRBM's FAQ:

1.	What are the characteristics of an employment contract?	An employment contract is defined by the formal relationship between the employer and employee, regular wage payments, specified working hours and location, compliance with company policies, entitlement to statutory benefits (such as EPF, SOCSO, and annual leave), performance of duties under supervision and direction, and a restriction against engaging in work with third parties.
2.	Are temporary, short-term, part-time, or fixed-term employment contracts subject to stamping?	All types of employment contracts including temporary, short-term, part-time and fixed-term contracts are subject to stamping.
3.	Does stamping need to be done each time an employment contract is renewed?	Every new employment agreement is treated as a separate instrument and must be stamped.
4.	A letter of offer has been issued which outlines the employment terms. It is signed by both the employer and employee. Is it considered as an employment contract for stamp duty purposes?	If the offer letter is the only document that binds the relationship between the employer and the employee, it is an employment contract instrument that is subject to stamp duty.
5.	Is an offer letter for a trainee considered an employment contract? (i.e. 3–6 months practical training, paid only allowances)	Internship or industrial training offer letters that only include allowances is also subject to stamp duty if it establishes an employer-employee relationship.
6.	Are addendums or supplemental documents signed by both parties dutiable? (i.e. IT usage policy or benefits clarification letter)	Yes, addendums are instruments and are subject to duty if they are binding agreements.
7.	Can an employment contract be written in languages other than Malay or English?	Employment contracts written in languages other than Bahasa Melayu or English must be accompanied by a certified line-by-line translation from authorised bodies such as Institut Terjemahan dan Buku Malaysia (ITBM) or the Malaysian Translators Association, in order to be eligible for stamping.
8.	Who is responsible for paying the stamp duty – the employer or the employee?”	The person responsible for paying stamp duty is typically the first signatory of the instrument, which in the case of employment contracts, usually refers to the employer
9.	What is the time frame for stamping an employment contract after it is signed?	Within 30 days if signed in Malaysia Within 30 days of receipt in Malaysia if signed overseas Stamp duty must be paid within 14 days of assessment.
10.	What is the rate of stamp duty imposed for an employment contract?	The stamp duty for employment contracts is RM10 per original copy.
11.	Do employment contracts signed before 1 January 2025 that qualify for exemption need to be submitted to the IRBM for endorsement?	Yes, such contracts should still be submitted to the IRBM for endorsement to obtain the exemption certificate.
12.	Will the penalty remission for employment contracts executed from 1 January 2025 to 31 December 2025 be processed automatically in STAMPS?	Yes, remission of stamp duty penalties for contracts executed from 1 January 2025 to 31 December 2025 will be processed automatically in STAMPS.

Sale and Services Tax (SST)

Exemption from Compound, Prosecution and Penalty by the RMCD

Introduction

To support compliance with the revised Sales Tax provisions and the expanded Service Tax requirements, the RMCD has granted exemption from compound, prosecution and penalty for the following offences until 31 December 2025:

Late registration of Sales Tax and Service Tax (SST)
Late submission of SST returns
Late payment of SST
Incorrect declaration leading to under-declaration and under-payment of SST
Any errors related to invoices, credit notes or debit notes

The exemption will be granted subject to the following conditions:

The offence must be detected by the RMCD or voluntarily disclosed by the Company.
This exemption does not apply to fraudulent or intentionally committed offences.
An application for penalty remission must be submitted to the RMCD in accordance with the prescribed procedures.