Malaysia Budget 2027 for Foreign-Owned Companies: SME Tax Cut to 14% and 16%, the 20% Foreign Shareholding Rule, RM2,000 Minimum Wage and the RM3,000 Small-Asset Allowance

Malaysia's Budget 2027 was tabled on 9 October 2026. The headline for business is a one-point cut to SME income tax: 14% on the first RM150,000 and 16% up to RM600,000, from YA 2027. Foreign-owned companies should read the eligibility rules before budgeting for it. Since YA 2024, a company that is more than 20% owned by foreign companies or non-Malaysian citizens is not an SME for these rates, and Budget 2027 does not change that. This guide covers what the Budget actually proposes for foreign-owned Sdn Bhds, using the Ministry of Finance's official tax-measures document and LHDN's rulings only: the SME rates, the RM2,000 minimum wage, the RM3,000 small-asset allowance, the extended Accelerated Capital Allowance, and the items that matter to expatriate staff.

Budget 2027 at a glance for foreign-owned companies

All figures below come from the Ministry of Finance's Budget 2027 Tax Measures appendices and the Budget speech of 9 October 2026.

The SME tax cut: 14% and 16% from YA 2027

Appendix 11 of the tax-measures document proposes cutting the two lower SME bands by one percentage point each, from the year of assessment 2027. The top band does not change:

The Prime Minister put the benefit at up to RM6,000 a year for more than 300,000 MSMEs. That is the maximum: on RM600,000 of chargeable income, tax falls from RM99,000 to RM93,000.

Who qualifies: three tests, and the one foreign investors fail

The Budget document describes the SME as a company with paid-up ordinary share capital of RM2.5 million or less and annual sales of no more than RM50 million. LHDN's Public Ruling No. 8/2025 (22 December 2025) sets out the full test for the reduced rates. The company must be:

1. resident and incorporated in Malaysia;
2. holding paid-up ordinary share capital of RM2.5 million or less at the beginning of the basis period, with related-company rules that look through to the ultimate holding company; and
3. earning gross business income of RM50 million or less in the basis period.

From YA 2024, the ruling adds a shareholding restriction: a company with more than 20% of its paid-up ordinary share capital owned, directly or indirectly, by one or more companies incorporated outside Malaysia, or by one or more individuals who are not Malaysian citizens, is not eligible for the special rate. The same 20% test, added by the Finance (No. 2) Act 2023, also removes the unlimited small-asset claim and the two-year CP204 flexibility for new companies.

Three ownership structures, same RM600,000 profit (YA 2027)

The gap is RM51,000 a year at this profit level, so structure matters more than the rate cut itself. The test counts indirect holdings and is applied at the start of each basis period. Any structure has to be genuine and match the beneficial-ownership information filed with SSM. Get advice before you incorporate or change your shareholding, not after LHDN raises an assessment. Our corporate tax filing team can model your structure, and our guide to Malaysia corporate tax filing, MITRS and the NIF covers the annual cycle.

Small value assets: RM3,000 per item from YA 2027

Appendix 12 raises the value of each small value asset that can be written off in full in one year from RM2,000 to RM3,000. For companies other than MSMEs, the yearly total rises from RM20,000 to RM30,000. MSMEs keep their unlimited claim, but that unlimited claim is again subject to the 20% foreign-ownership test (PR 8/2025, paragraph 6.3.2). In practice a typical foreign-owned subsidiary can write off laptops, phones and office furniture up to RM3,000 each, within a RM30,000 annual cap. For how capital allowances work generally, see our guide to deductible expenses and capital allowances.

Accelerated Capital Allowance extended to 2030

Budget 2026 introduced an Accelerated Capital Allowance, an initial allowance of 20% and an annual allowance of 40% so the cost is claimed in two years, for expenditure from 11 October 2025 to 31 December 2026. Appendix 28 extends it by four years, to expenditure incurred from 1 January 2027 to 31 December 2030. It covers:

• heavy machinery, and plant and general machinery, bought from local manufacturers;
• ICT equipment and computer software packages; and
• consultation, licensing and incidental fees for developing customised software.

For a manufacturing or tech subsidiary planning its fit-out, the window is no longer a 2026 rush. Our earlier explainer on Budget 2026 and the outcome-based incentive framework covers how this sits next to MIDA incentives.

Minimum wage RM2,000 from June 2027

The Budget speech announces that the minimum wage rises from RM1,700 to RM2,000 a month, effective June 2027. The speech says MSMEs with annual sales below RM50 million will be exempted to give them room to adjust their business models. It also announces a reform of the workers' income framework, starting with a minimum wage of RM2,500 a month for semi-skilled workers and graduates.

The detail sits in the Minimum Wages Order, which had not been published when we checked. In particular, the speech does not say whether the MSME exemption uses the same 20% foreign-ownership test as income tax, or how long it lasts. Until the Order is out:

• budget for RM2,000 per full-time employee from June 2027 unless your exemption is confirmed;
• remember that EPF, SOCSO and EIS contributions rise with wages (see our payroll and statutory contributions guide); and
• check pay scales of staff just above RM1,700, since raising the floor squeezes the gap to supervisors.

Salary must go through the bank from YA 2028

Appendix 14 proposes that, from YA 2028, companies other than MSMEs can deduct salary only if it is paid through a financial institution or a cashless payment instrument allowed under the Employment Act 1955. Other expenses stay deductible however they are paid. A foreign-owned company that is not an SME should move every employee, including part-timers and foreign workers, onto bank transfer or another approved cashless payroll method before 2028. Our Employment Act guide for foreign employers covers the wage-payment rules.

Expatriate and regional-hub measures

Three items in the Budget speech matter to groups that bring in foreign talent or run regional functions from Malaysia:

• Working spouses: from 1 January 2027, spouses of Category I Employment Pass holders who hold a Dependant Pass will be allowed to work in Malaysia, subject to conditions. See our Dependant Pass guide.
• Global Services Hub: from 1 January 2027 the GSH incentive is improved, including a 5% preferential rate for new companies, incentive periods extendable in five-year steps up to 30 years, and withholding-tax and stamp-duty exemptions for treasury and fund activities. Our GSH guide explains the current conditions.
• DE Rantau Nomad Pass: holders who reached the two-year limit get two more years, subject to conditions.

e-Invoice: nothing new in Budget 2027

The Budget tax measures and speech contain no new e-Invoice measure. The rules that apply are the ones LHDN issued in August and September 2026: the exemption threshold is RM3 million from 1 September 2026, it does not apply where a corporate shareholder or group company turns over RM3 million or more, and the Phase 4 relaxation period runs to 31 December 2027. See our e-Invoice guide for foreign-owned companies.

What to do before YA 2027

1. Check your SME status on all three tests, including direct and indirect foreign ownership at the start of your basis period, before you assume 14%.
2. Re-forecast CP204 for YA 2027. If you qualify, the lower rates reduce your estimate; if you do not, nothing changes. Our CP204 guide covers revisions.
3. Plan capex timing around the ACA (2027–2030) and the RM3,000 small-asset limit.
4. Budget payroll for RM2,000 from June 2027 and move all salaries to bank or cashless payment before YA 2028.
5. Set the structure right at incorporation. If you are still setting up, decide your shareholding with the 20% rule in mind. Our Sdn Bhd incorporation service covers that with the tax view included.

ONEKEY BIZ handles company secretarial work, accounting, tax and payroll for foreign-owned companies in one team, with Mandarin and English support. Book a Budget 2027 review and we will check your SME status, CP204 and payroll against the new rules.

This article is general information only, not legal, tax or immigration advice. Policies, thresholds and official fees are set by the relevant Malaysian authorities and may change. Talk to our consultants about your specific situation.