The Inland Revenue Board of Malaysia (LHDN) has published comprehensive guidelines, dated 3 February 2026, on the implementation of the Domestic Top-up Tax (DTT). Effective for financial years beginning on or after 1 January 2025, this mechanism is designed to ensure that income earned by entities within large multinational enterprises (MNEs) in Malaysia is subject to a minimum effective tax rate of 15%.
Scope and Applicability
- Revenue Threshold: Constituent Entities of an MNE Group located in Malaysia are subject to the DTT if the MNE Group’s consolidated annual revenue meets or exceeds EUR 750 million in at least two out of the four preceding financial years.
- Excluded Entities: The DTT scope excludes specific entity types, including Government Entities, International Organisations, Non-Profit Organisations, Pension Funds, Investment Funds acting as an Ultimate Parent Entity, and Real Estate Investment Vehicles acting as an Ultimate Parent Entity.
Accounting Standards and Currency Rules
- Local Financial Standards: DTT computations must be based on financial statements using local financial accounting standards, which refers to the Malaysian Financial Reporting Standards (MFRS) and/or the Malaysian Private Entities Reporting Standards (MPERS).
- Prerequisites for Local Standards: The use of MFRS or MPERS requires all Constituent Entities of the MNE Group in Malaysia to have the same financial year as their Ultimate Parent Entity. Furthermore, each entity must prepare its own financial statements that are either required by Malaysian law or audited by an approved company auditor.
- Currency Requirements: The Malaysian Ringgit (MYR) must be used for DTT computation if the entities meet the local standard criteria and use MYR as their functional currency.
- Currency Election: If one or more Constituent Entities do not use MYR functionally, a Five-Year Election allows computations using either the presentation currency of the Ultimate Parent Entity’s Consolidated Financial Statements or the Malaysian Ringgit.
Computation and Exclusions
- Minimum Rate: The Minimum Rate for DTT purposes is set at 15%.
- De Minimis Exclusion: An Annual Election allows the DTT to be deemed zero for a financial year if the Average GloBE Revenue of all Malaysian Constituent Entities is less than EUR 10 million for the current and two preceding financial years. Additionally, the Average GloBE Income or Loss must be less than EUR 1 million for the same period.
Filing Obligations
- Submission Format: Constituent Entities must furnish a DTT Top-up Tax Return electronically to the Inland Revenue Board of Malaysia.
- Standard Timeline: The return is due no later than 15 months after the end of the financial year.
- Transition Timeline: For the first filing transition year, the due date is extended to no later than 18 months after the last day of the corresponding Reporting Financial Year.
- Filing Currency: The Top-up Tax Return must be submitted in Malaysian Ringgit. If calculations rely on a different presentation currency, the DTT liability must be converted into MYR using the average Bank Negara Malaysia monthly exchange rate for the financial year.
- Safe Harbours: To reduce compliance burdens, MNE Groups can apply for the Transitional Country-by-Country Reporting (CbCR) Safe Harbour or the Permanent Safe Harbour.