Taxation of Sole Proprietorships in Malaysia
Updated on Tuesday 02nd October 2018
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Malaysia offers plenty of possibilities for business ventures. Individuals can operate as sole traders, in a form of business called sole proprietorship. It represents the most traditional form of business available, is very easy to set up and has low maintenance costs. Taxation of sole proprietorships in Malaysia is made according to a specific financial and legal framework. A detailed presentation on the requirements of sole proprietorship taxation can be provided to you by our company formation representatives in Malaysia.
Taxation of sole proprietorships in Malaysia
A sole proprietorship in Malaysia makes no difference between the natural person who owns it and the business. Sole proprietorships are pass-through entities; all profits and losses go directly to the business owner. Thereby, no separate tax return file is needed. Sole proprietorships in Malaysia are charged the income tax on a gradual scale applied to individual income (from 2% to 26%).
Other taxes paid by a sole proprietorship comprise of self-employment taxes, social security taxes and property taxes. A number of expenses are eligible for tax deductions, such as accounting fees, rental for the premises of the company, legal fees or sales advertisements. Our company formation specialists in Malaysia are can provide you with complete information on taxation of sole proprietorships.
In Malaysia, the gains or profits that are obtained through trade or through a vocational activity are liable to taxation. Thus, sole traders have to register for tax purposes as taxpayers and to obtain an Income Tax Return Form. Sole traders are also required to keep any business documents attesting the transactions concluded by the businessman - the receipts and other similar documents.
A sole trader has to submit a special form designed for this type of business entity, the Form B, which has to be filed no later than 30 June of each financial year, a date at which the company’s owner should also pay his or her taxes due with the local tax authorities.
How can a businessman register a Malaysian sole trader?
The registration of a sole trader starts with the Companies Commission of Malaysia (SSM), which represents the main institution that handles the registration of any business set up in this country. Sole traders in Malaysia can only be registered by persons who are citizens of the country and who need to provide several documents required for incorporation. This business entity is also available for natural persons who are foreigners, but have received permanent residence in Malaysia.
For example, it is necessary to provide a Malaysian identity card (a photocopy), the proposed names for the company’s trading name, information regarding the activities that will be developed by the company and a business address. Sole traders can be registered with the name of the owners (the one stated in the person’s identity card) or it can have a trading name that designates the activities of the business.
Sole proprietorships in Malaysia
Once you have decided to open a company in Malaysia that operates as a sole trader there are certain features of this business form that you need to consider. Our specialists in company formation in Malaysia can offer an in-depth presentation regarding the advantages and disadvantages of the sole trader, which are mentioned below:
- you are personally liable for all business profits and losses, due to the fact that there is no legal distinction between the owner and the company;
- your personal assets can be taken in order to settle all the liabilities incurred by a business fail;
- higher revenues allow you to turn the sole proprietorship into a limited liability company (Sdn Bhd);
- • the business can be ended and closed by the unexpected death of the owner;
- rely on your personal savings for funding a sole proprietorship in Malaysia; financial support or cash investment can be obtained by introducing partners into the business and transforming the sole proprietorship into a partnership;
- small grants from Government Departments can be applied for; you need a good credit record with banks in order to be eligible.
The registration procedure of a sole trader in Malaysia
In order to register a sole trader in Malaysia, it is necessary to submit the Business Registration Form (Form A). This procedure can be completed at the nearest SSM office or through the online portal of the institution. Following the submission of the form, the businessman will receive a Business Registration Certificate, which can be issued in the same day in which the application was made.
At the same time, businessmen are advised to open a corporate bank account for their company, even though a personal bank account can be used in this case. However, this is recommended in order to separate personal transactions from the ones concluded through the sole trader.
The next step is to register with the Social Security Organization for employment related matters; this can be done by submitting specific forms required by the institution and the procedure can vary depending on whether the sole trader has additional employees, besides the owner of the company.
An in-depth presentation on other advantages of a sole proprietorship in Malaysia can be offered to you by our local company incorporation specialists. Our team of consultants in company registration in Malaysia can also provide in-depth information regarding the taxation scheme available for local sole traders.