On October 18, the Malaysian government presented its 2025 national budget – the largest in its history – to strengthen the competitiveness of the economy by introducing new tax incentives, reducing subsidies and developing new economic hubs.

With an unprecedented 421 billion ringgit ($96 billion) allocated for 2025, an increase of 6.4% from 2024. Of this total, the government allocated 335 billion ringgit ($76.4 billion of dollars) to operating expenses and 86 billion ringgit ($19.6 billion). ) for development projects.

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Additionally, the government says it is on track to reduce the deficit to 3.8 percent of GDP, from 4.3 percent in 2024. The economy is expected to grow between 4.5 and 5.5 percent. in 2025.

What will impact businesses?

The new investment incentive framework

The Malaysian government introduced the New Investment Incentive Framework (NIIF) as part of Budget 2025 and allocated 1 billion ringgit ($228 million) for the initiative. The framework is a set of incentives aimed at attracting foreign investment in high value-added activities. This is expected to be implemented in the third quarter of 2025.

Tax incentives to increase integrated circuit exports

Under the NIIF, the Malaysian government will expand export incentives provided to companies exporting integrated circuits. This is an income tax exemption amounting to 70 percent of legal income from increased exports. Furthermore, this initiative also supports efforts to increase the economic complexity of Malaysia’s electrical and electronics sector.

Incentivizing Supply Chain Resilience

To improve the resilience of the local supply chain and strengthen the primary sector ecosystem, the following incentives will be offered:

• Double tax deductions for multinational enterprises (MNEs) on eligible supply chain resilience expenses, capped at 2 million ringgit (US$456,000) per year for three consecutive years;
• Tax deductions on investment amounts for multinationals and their suppliers engaging in joint venture projects with local suppliers;
• A results-based tax incentive program designed for participating local suppliers;
• A matching investment fund of 100 million ringgit (US$22.8 million) to support the development of local suppliers, particularly in the electronics and electrical (E&E), chemicals sectors specialists and medical devices; And
• Special tax incentives for investments in 21 designated economic sectors in specific states of Malaysia.

Incentives for carbon capture, use and storage activities

To promote investments aligned with environmental, social and governance (ESG) standards, investment tax reliefs or income tax exemptions will be offered for carbon capture, utilization and storage activities (CCUS).

Johor-Singapore Special Economic Zone

The government is introducing incentives for the new Johor-Singapore special economic zone at the end of 2024.

Forest City Special Economic Zone

Forest town refers to a section of the larger Forest City Development Project (FCSFZ), which is a massive smart city initiative located in Johor, Malaysia, near the Singapore border. Forest City is designed to be a futuristic urban development integrating cutting-edge technology, green spaces and sustainable infrastructure. It aims to attract international businesses, investors and residents, with a focus on environmental sustainability.

Incentives include:

• Forest City will be the first location in Malaysia to offer a zero percent tax rate to family offices established under the Single-Family Office Scheme;
• The FCSFZ will implement a corporate tax rate of between zero and five percent, particularly for companies engaged in financial technology and global business services;
• Qualified professionals can pay a reduced income tax rate of 15 percent;
• Banking entities and financial institutions operating in the FCSFZ will benefit from incentives such as relocation expense deductions, withholding tax exemptions and industrial construction allowances; And
• Locally incorporated foreign banks will be given greater flexibility to open additional branches within the SFZ and take advantage of foreign exchange flexibility for overseas borrowing and investment in foreign currency assets, supported by Bank Negara Malaysia.

Tax incentives for implementing e-invoicing

The government will offer an accelerated rebate for the purchase of ICT equipment, IT software packages and consultation fees for for electronic invoicing purposes. The accelerated capital deduction claim is in effect from YA 2024 to YA2025.

Tax incentive for the smart logistics complex

To promote businesses using cutting-edge technologies for logistics, eligible Smart Logistics Complexes (SLCs) will benefit from an investment tax allowance of 60% of eligible expenses for a period of five years.

Tax incentive for automation

Businesses in the manufacturing, services, agriculture and raw materials sectors can benefit from an accelerated capital deduction on capital expenditures incurred for automation.

Dividend tax

Individual shareholders whose annual dividend income exceeds 100,000 ringgit (US$22,800) will be subject to a 2% dividend tax. on taxable income.

Certain dividend income is exempt from tax, including:

• Dividend received from abroad;
• Dividends distributed from the profits of companies with pioneer status;
• Dividends received by residents of Labuan entities; Or
• Dividends are distributed, paid or credited to the profits of shipping companies exempt from this tax.

Sales and service tax

The sales and services tax on non-essential items will increase from May 1, 2025. The scope of the service tax will also be extended to certain commercial services, such as paid financial services.

Carbon tax

Malaysia will introduce a carbon tax on steel, iron and energy industries by 2026.

Minimum wage increase

The government has committed to raising the minimum wage in February 2025 from 1,700 ringgit (US$388) to 1,500 ringgit (US$342), with an implementation deadline of six months for companies less than five employees.