Introduction
The Inland Revenue Board of Malaysia (LHDN) has updated the guidelines for Group Relief for Companies Malaysia through Public Ruling No. 2/2025. This tax incentive allows a surrendering company to transfer a portion of its current year adjusted losses to a related claimant company. By mastering these rules, groups of companies can significantly optimize their tax positions and improve overall cash flow efficiency within the corporate structure.
Eligibility Criteria for Surrendering and Claimant Companies
To qualify for Group Relief for Companies Malaysia, both the surrendering company and the claimant company must meet specific criteria throughout the basis period and the preceding year. Both entities must be incorporated in Malaysia and resident in Malaysia for the relevant year of assessment.
Furthermore, both companies must have a paid-up capital of ordinary shares exceeding RM2.5 million at the beginning of the basis period. Companies enjoying certain incentives, such as Pioneer Status or Investment Tax Allowance (ITA), are generally disqualified from surrendering or claiming losses under this scheme.
The 70% Loss Transfer Limit under PR 2/2025
Under the current framework of Group Relief for Companies Malaysia, the amount of loss that can be transferred is capped. A surrendering company can only transfer up to 70% of its adjusted loss for the current year of assessment.
The claimant company can then utilize this amount to offset its own total income. Any remaining adjusted loss that cannot be transferred (the remaining 30% or any excess) must be carried forward by the surrendering company to be utilized against its own future statutory income from business sources.
Defining Related Companies: The 70% Shareholding Test
For the purpose of Group Relief for Companies Malaysia, two companies are considered “related” if at least 70% of their paid-up ordinary share capital is owned, directly or indirectly, by the other company or by a third Malaysian company.
LHDN applies two levels of testing to determine relationship status:
- First Level Test: Direct or indirect ownership of at least 70% of ordinary shares.
- Second Level Test: Ownership of at least 70% of the residual profits and 70% of the assets available for distribution upon winding up.
Basis Periods and Compliance Requirements
A critical administrative requirement for Group Relief for Companies Malaysia is the alignment of basis periods. Both the surrendering and claimant companies must have the same accounting year-end.
If a company changes its accounting period, it may lose eligibility for group relief for that specific year of assessment. The claim must be made in the respective Income Tax Return Forms (Form C) for both companies. It is also mandatory to keep a record of the consent given by the surrendering company to the claimant company for the transfer of loss.
Key Takeaways from PR 2/2025
- Loss Cap: Only 70% of the current year’s adjusted loss is transferable.
- Residency: Both entities must be incorporated and resident in Malaysia.
- Shareholding: A minimum 70% shareholding (direct or indirect) is required.
- Incentive Restrictions: Companies with active tax holidays (e.g., Pioneer Status) are typically excluded.
- Documentation: Written consent and Form C disclosure are mandatory for a valid claim.
Frequently Asked Questions (FAQ)
Q1: Can a company claim group relief if it has a paid-up capital of RM1 million?
No. Under PR 2/2025, both companies must have paid-up capital of ordinary shares exceeding RM2.5 million at the start of the basis period.
Q2: Is the group relief applicable to brought-forward losses?
No. Group Relief for Companies Malaysia only applies to the adjusted loss of the current year of assessment. Losses from previous years cannot be transferred.
Q3: What happens if the companies have different accounting year-ends?
If the basis periods do not coincide, the companies do not qualify for group relief. They must synchronize their accounting year-ends to become eligible.
ANC Group – Your Personal Tax Advisor
Tax consulting is the core service of ANC Group. Our tax professionals provide clients with comprehensive tax support and guidance. We offer tax consulting and compliance services for expatriates, entrepreneurs, and listed and non-listed companies.
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If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
