The 2025 Global Minimum Tax Framework: A Guide for Malaysia MNEs
On 12 September 2025, the Inland Revenue Board of Malaysia (LHDN) published an updated guideline titled "The Implementation of Global Minimum Tax in Malaysia," effectively replacing the earlier version issued on 2 December 2024.
This updated framework aligns Malaysia with Pillar Two of the OECD/G20 Inclusive Framework on Base Erosion and Profit Shifting (BEPS). The Global Minimum Tax (GMT) establishes a baseline corporate tax rate internationally agreed upon to curb tax competition and profit shifting.
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Core Mechanisms & Effective Date
The GMT is implemented in Malaysia through two distinct mechanisms introduced via the Finance (No. 2) Act 2023 under a new Part XI of the Income Tax Act 1967 (ITA):
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Domestic Top-up Tax (DTT)
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Multinational Top-up Tax (MTT)
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Effective Date: Both DTT and MTT take effect in Malaysia for Financial Years (FY) beginning on or after 1 January 2025.
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Who is in Scope? (The Scope Test)
To be subject to the GMT legislation, an enterprise must fulfill a dual criteria:
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MNE Group Status: The group must operate in more than one jurisdiction (i.e., having at least one foreign subsidiary, branch, or permanent establishment). Purely domestic groups are excluded. The rules also explicitly apply to Labuan entities and petroleum-related operations.
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Consolidated Revenue Threshold: The MNE Group must have a consolidated annual revenue of EUR 750 million or more in at least two of the four previous Financial Years immediately preceding the tested FY.
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Excluded Entities
Certain entities are excluded from GMT liabilities, including Governmental Entities (such as Sovereign Wealth Funds), International Organisations, Non-profit Organisations, Pension Funds, and specific Investment/Real Estate vehicles. However, their revenues must still be counted when evaluating the overall EUR 750 million threshold if consolidated.
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Filing Obligations & Transitional Relief
MNE Groups must annually file a GloBE Information Return (GIR), which contains comprehensive financial data and Effective Tax Rate (ETR) calculations.
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Penalties & Transitional Penalty Relief
LHDN enforces stringent penalties for non-compliance, such as omitting or understating top-up tax information:
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Incomplete or incorrect info returns can lead to fines ranging from RM 20,000 to RM 100,000, imprisonment up to six months, or both.
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Incorrect Top-up Tax returns can attract penalties of double the undercharged tax amount.
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Penalty Relief Window
Recognizing the complexity of the new law, LHDN will waive fines and penalties during a specific Transition Period (covering FYs beginning on or before 31 December 2026, and ending before 30 June 2028). Taxpayers must demonstrate they have taken "reasonable measures" and acted in good faith to comply.
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Safe Harbours: Simplifying Compliance
To lower administrative burdens, the guideline highlights three crucial safe harbours that deem Top-up Tax liabilities to be zero under specific conditions:
A.
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The QDMTT Safe Harbour
If an MNE operates in a jurisdiction that imposes a Qualified Domestic Minimum Top-up Tax (QDMTT) that meets safe harbour standards, the Top-up Tax payable in other jurisdictions is deemed zero.
The Switch-off Rule: This safe harbour can be "switched off" for specific entities if a jurisdiction refuses to tax certain structures (e.g., flow-through entities or specific joint ventures), forcing the MNE to revert to standard credit methods.
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B.
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The Transitional CbCR Safe Harbour
Applicable for FYs starting on or before 31 December 2026, this temporary relief relies on a Qualified CbC Report. A jurisdiction's Top-up Tax is reduced to zero if it passes any one of the following tests:
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De Minimis Test: Total revenue is less than EUR 10M and profit before tax is less than EUR 1M.
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Simplified ETR Test: The Simplified ETR meets or exceeds 16% (for FY2025) or 17% (for FY2026).
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Routine Profits Test: The Substance-Based Income Exclusion (SBIE) amount equals or exceeds the group's profit before income tax.
Crucial Rule: This follows a "once out, always out" approach. If an MNE chooses not to apply the Transitional CbCR Safe Harbour in a year it qualifies, it cannot claim it in a subsequent year.
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C.
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The Permanent Safe Harbour
For long-term simplification, groups can leverage permanent safe harbours utilizing Simplified Calculations (once fully developed by the Inclusive Framework) to prove their ETR is at least 15% or that they meet permanent routine profit or de minimis rules. Special simplified election rules also apply on an entity-by-entity basis for Non-Material Constituent Entities (NMCEs).
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Conclusion
The introduction of GMT marks a massive structural shift in Malaysian corporate taxation. While safe harbours offer practical paths to minimize tedious calculations, compliance transparency remains mandatory. Affected MNEs should closely review their consolidated revenues and prepare their financial data accounting structures to leverage the transitional reliefs effectively.
For further information, please visit the official website of the Inland Revenue Board of Malaysia at
https://www.hasil.gov.my/en/
KAIZEN Group, together with its associate firms in Malaysia, can help the clients to perform these compliances formalities so as to maintain the Malaysia company in good standing. Please call and talk to our professional accountants in Kaizen for further clarification.
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