Malaysia plans to introduce global minimum tax and QDMTT in 2024

During the Budget 2023 tabling session on 7 October 2022, the Malaysian Minister of Finance announced that the government will introduce global minimum effective tax rate as recommended under Pillar Two and plans to implement qualified domestic minimum top up tax (QDMTT) in 2024.

We expect that Malaysia’s position on this international tax reform to remain steadfast regardless of the political environment. In a nutshell, this means that multinational corporations (MNCs) with consolidated revenues of €750 million and above will be subject to global mimimum tax (GMT) at the effective tax rate of 15% from financial periods beginning 1 January 2024 onwards.

Essentially, GMT and QDMTT are tax-collection mechanisms which apply in the following order:

1. QDMTT, which imposes GMT top up tax on local entities and applies in priority. This serves to protect a jurisdiction’s taxing rights, and we foresee most countries would seek to implement a QDMTT or similar minimum tax due to this. Nonetheless, it remains to be seen whether the Malaysian QDMTT would also apply to large corporate groups which operate solely in Malaysia but that which meet the revenue threshold.
2. Income inclusion rule (IIR), which allows the parent company’s jurisdiction to collect GMT top up tax on foreign subsidiaries which has not been otherwise collected under QDMTT.
3. Undertaxed payments rule (UTPR), which acts as a backstop rule to distribute GMT top up tax amongst jurisdictions adopting UTPR.

In our view, the announcement comes as no surprise given the larger global trend in GMT implementation to ensure tax revenues are not ceded to other countries. The QDMTT, in particular, is a crucial element in protecting tax revenues generated in Malaysia. However, MNCs would need to begin preparations to ensure early understanding of the impact of GMT and QDMTT on operations, cash flow management as well as disclosures to relevant stakeholders.

For further information on how affected MNCs may prepare for an effective and efficient implementation, please contact Tan Hooi Beng.