The Implementation of Global Minimum Tax (GMT) In Malaysia

In a significant move to reform the international tax landscape, Malaysia joined the OECD Inclusive Framework (IF) as an associate member of Base Erosion and Profit Shifting (BEPS) in 2017. As part of this endeavour, about 140 jurisdictions have come together to introduce a two-pillar solution to ensure that multinational enterprises (MNEs) pay a fair share of tax wherever they operate and generate profits.

A key facet of this global tax reform is the implementation of the Global Anti-Base Erosion (GloBE) Rules, which set out the scope and mechanism of the new global minimum effective tax rate (ETR) of 15%. This means that multinational companies will be required to pay a top-up tax when their effective tax rate in a specific jurisdiction falls below the 15% level. The aim is to discourage profit shifting and tax avoidance strategies. This implementation will apply to multinational enterprise (MNE) groups with an annual consolidated revenue of 750 million euros or more in at least two out of the four years before the tested year.

Looking ahead, the Government of Malaysia has announced its plans to implement the Global Minimum Tax (GMT) based on the GloBE Rules in 2025. To facilitate this implementation, the Malaysian Government has enacted the Finance (No. 2) Bill 2023, incorporating the legislative provisions of the OECD BEPS Pillar 2 Model Rules, which will take effect for financial years beginning 1 January 2025. This will involve the implementation of Qualified Domestic Minimum Top-up Tax (QDMTT) and Income Inclusion Rule (IIR) starting from the same date.

The introduction of GMT in Malaysia marks a significant phase in the context of international tax regulations. By embracing GMT, Malaysia is poised to uphold global tax equity and transparency while safeguarding the interests of businesses operating within its borders. The proactive strategies and collaborative efforts undertaken by the government and relevant authorities underscore a commitment to effective policymaking and strategic planning in response to evolving global tax standards. Through sustained engagement and informed decision-making, Malaysia is set to navigate the complexities of the GMT implementation, ensuring a seamless transition for all stakeholders involved.

From an investment standpoint, the implementation of GMT may reshape investor choices. This can have an impact on countries that rely on foreign direct investment (FDI), particularly those that compete through tax policies. Given the vital role of FDI in driving economic development, it is timely for Malaysia to undertake a comprehensive review of its tax incentive framework in light of the GMT implementation.

The Ministry of Finance, in collaboration with other relevant ministries and agencies, including MIDA, is currently looking at reviewing the tax incentive framework, which aims to make it more flexible and adaptable to align with the latest international tax policies. Additionally, the aim is to ensure that the tax incentives provided to investors are relevant to the current business landscape while maintaining the country’s competitiveness in attracting high-quality investments.

As Malaysia strides forward in global tax reform, it integrates with the MADANI Economy framework and the New Industrial Master Plan (NIMP) 2030, emphasising fairness, transparency, and sustainable growth. Through collaboration and informed policymaking, Malaysia proactively adeptly manages the challenges of global tax standards, setting an example for equitable and prosperous international tax systems.