Malaysia Sole Proprietor & Partnership Tax: Basis Period, CP500 & Penalties

Introduction

If you run a sole proprietorship or partnership in Malaysia, you must understand how the Malaysia Sole Proprietor Partnership Tax works, including the basis period, CP500 instalments, and possible penalties under Section 107B of the Income Tax Act.

1. Basis Period for Sole Proprietors & Partnerships

In Malaysia, the basis period for sole proprietorships and partnerships always follows the calendar year, ending on 31 December.

• Tax return deadline → 30 June of the following year (Section 77 ITA).

Example:

• Accounting period: 1 Jan 2020 – 31 Dec 2020
  
• Tax return due date: 30 June 2021

2. Tax Estimate for Individual Businesses (CP500)

The Inland Revenue Board (IRB) issues Form CP500 to sole proprietors and partnerships to estimate their tax liability.

• Based on previous year’s income and tax payable.
  
• Paid in bi-monthly instalments, due within 30 days from payment date.
  
  

👉 Revisions are allowed using Form CP502:

• First revision deadline: 30 June
  
• Second revision deadline: 31 October

3. Penalties for Underestimation [Section 107B(4)]

Failing to estimate or pay correctly can result in:

• Late Payment Penalty – 10% (if CP500 instalments not paid on time).
• Underestimation Penalty – 10% (if actual tax payable exceeds revised estimate by more than 30%).

Formula:

[(AT-ET) – (30% x AT)] x 10%

Where:

• • AT = Actual Tax
    
  • ET = Estimated Tax

4. Key Takeaways

• Basis period → Always ends 31 Dec for sole proprietors/partnerships.
• Tax return deadline → 30 June of the following year.
• CP500 instalments → Bi-monthly, based on prior year income.
• Revisions (CP502) → Submit by 30 June & 31 October.
• Penalties → Late payment (10%) & underestimation (10%).

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.

Our tax consulting services include business tax, transaction tax, personal tax, and corporate income tax. We don’t just guide you in interpreting and applying complicated taxation rules, but to explore new opportunities and business trends.

ANC Group keep you abreast with Malaysia tax updates and any changes in the local regulations.

We work closely with industry specialists, authorities, and associated professionals within ANC Group to provide the best-in-class integrated tax planning solutions. ANC specialists coordinate the accounting and taxation services to bring your business to success.

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.