The 2026 income tax measures introduce new taxes, extended exemptions, and expanded incentives across sectors covering LLP profit distributions, foreign-sourced income, MSME listings, social enterprises, sustainable finance, carbon emissions, agriculture, AI training, tourism, venture capital, green technology, and workforce development.

Malaysia’s Prime Minister and Finance Minister have presented the 2026 Budget on 10 October 2025, outlining measures for tourism, MSMEs, green technology, expanded personal tax reliefs, a new carbon tax, and full rollout of the outcome-based incentive framework.

Income tax updates

Tax on LLP profit distributions

Starting from the year of assessment 2026, individual partners in Limited Liability Partnerships (LLPs) will face a 2% tax on profit distributions exceeding MYR 100,000 annually.

Foreign-sourced income (FSI) exemption

The tax exemption on foreign-sourced income, including dividends and capital gains, is extended to cooperative societies and trust bodies. This exemption will apply from 1 January 2027 to 31 December 2030.

Tax deduction for listing costs 

Micro, Small, and Medium Enterprises (MSMEs) in the energy and utilities sectors can now claim a tax deduction of up to MYR 1.5 million for listing expenses. This benefit is extended for five years, covering the years of assessment 2026 to 2030.

Social and environmental tax incentives

Tax exemption for social enterprises (SEs)

Accredited social enterprises will continue to enjoy income tax exemptions for three additional years, applicable for applications submitted between 1 January 2026 and 31 December 2028.

SRI sukuk and bond grant scheme

The grant for external review expenses related to SRI Sukuk and bonds is increased to 100% (up to MYR 300,000). The scope now includes bonds aligned with the ASEAN Taxonomy for Sustainable Finance, with the exemption extended until 31 December 2028.

Carbon tax introduction

A carbon tax will be introduced in 2026, initially targeting the iron, steel, and energy sectors.

Agriculture and food security incentives

Food security projects

New food security projects will receive a 100% income tax exemption on statutory income for 10 years, while expansion projects will enjoy a 5-year exemption. Applications are open from 1 January 2026 to 31 December 2030.

Automation in agriculture

Tax incentives for automation in agriculture now include chicken rearing using the closed-house system. Applications are accepted from 1 January 2026 to 31 December 2027.

Business and workforce development

AI training for MSMEs

MSMEs can claim an additional 50% tax deduction (once every two years) for AI training expenses recognised by the MyMahir National AI Council for Industry (NAICI). This applies to applications submitted between 1 January 2026 and 31 December 2027.

R&D commercialisation incentive

Tax deductions for companies investing in subsidiaries that commercialise non-resource-based R&D findings are extended for five years, covering applications received from 1 January 2026 to 31 December 2030.

Tourism and cultural incentives

Inbound tourism tax exemption

Tour operators will enjoy a 100% tax exemption on incremental income from inbound tourism packages for the years of assessment 2026 and 2027.

Renovation costs for tourism projects

Tourism operators can claim a tax deduction of up to MYR 500,000 for renovation and refurbishment expenses incurred between 11 October 2025 and 31 December 2027.

MICE activities incentive

Organisers of international MICE (Meetings, Incentives, Conferences, and Exhibitions) activities will continue to receive a 100% income tax exemption on statutory income for two years. New minimum participant thresholds apply: 1,500 for incentive trips, 2,000 for conferences, and 3,000 for trade exhibitions.

Arts, cultural, and recreational activities

The 50% income tax exemption on statutory income is extended for two years and now includes tourism activities, excluding concerts, for the years of assessment 2026 and 2027.

Venture capital and green initiatives

Venture capital tax revisions

  • Venture Capital Companies (VCCs) will be taxed at 5% on all income (excluding interest/profit from savings) if they invest at least 20% of their funds in local ventures. This applies for 10 years or the fund’s remaining life, starting no later than 31 December 2035.
  • Venture Capital Management Companies (VCMCs) will face a 10% tax rate on income from profits, management fees, and performance fees from 2025 to 2035.
  • Dividends distributed to individual shareholders by VCCs will be tax-exempt from 2025 to 2035.

Additional measures

Tax deduction for building conversion

A special tax deduction of 10% of qualifying expenditure (up to MYR 10 million) is available for converting commercial buildings into residential units.

Green investment tax allowance (GITA)

Companies investing in green technology products certified under the MyHIJAU Mark will receive a 100% GITA for assets used for their own consumption.

Tax Incentive for training costs

Companies can claim a double tax deduction for sponsoring training programs for care workers and persons with disabilities.