The ESG deduction is capped at MYR 50,000 annually and applies from the year of assessment 2024 through to 2027.

Malaysia introduced the Income Tax (Deduction for Expenditure in Relation to Environmental Preservation, Social and Governance) Rules 2025 in the Official Gazette, published on 23 June 2025.

This allows qualifying taxpayers, including financial institutions, companies, Labuan companies, microenterprises, and SMEs, to claim tax deductions for expenses related to environmental preservation, social, and governance (ESG) initiatives.

The ESG deduction is capped at MYR 50,000 annually and is applicable from the year of assessment 2024 through to 2027.

According to the rules, the deduction is exclusively applicable to the following:

Financial institutions

Expenditure for the ESG reporting incurred by a financial institution supervised by the Central Bank or a company listed on Bursa Malaysia for:

  • validation, verification, and certification of the use of ESG practices, calculation and tracking of the greenhouse gas emissions, and ESG exposure;
  • subscription to technology or software systems for data collection, tracking the use of ESG metrics, risk management, scenario analysis, and calculation of greenhouse gas emissions;
  • capacity building, including training, education, and skills development for employees; and
  • services of a consultant, expert, or subject matter expert to perform validation, verification, certification, etc., and capacity building;

Labuan companies

Expenditure incurred by a company or a Labuan company for:

  • preparing the reporting as required under the guidelines for the Tax Corporate Governance Framework issued by the Director General and appointing an independent reviewer to perform a review assessment of compliance with the guidelines for the Tax Corporate Governance Framework; or
  • preparing the contemporaneous transfer pricing documentation;
  • consultation fees incurred by a micro enterprise or small and medium enterprise for the development of customised software for the implementation of electronic invoice in a business, and obtaining services of external service providers, but does not include:
  • any expenditure incurred at the planning stage or preliminary procedures for the provision of the customised software; and
  • any consultation fee relating to the issuance of an electronic invoice through the MyInvois Portal.