Malaysian corporate tax is not paid once a year. It is paid monthly, in advance, on a number your own company invents — and then penalised if that number turns out to be too low. Form CP204 is the estimate; section 107C of the Income Tax Act 1967 is the machinery around it; and the penalties are automatic, formula-driven and imposed without any allegation of wrongdoing. Foreign-owned subsidiaries lose money here more often than anywhere else in the Malaysian tax system, for a simple reason: nobody told them that a filing due 30 days before the financial year even begins would determine their cash flow for the next fourteen months. This guide sets out who must file, the two-year exemption most new subsidiaries qualify for, the 85% floor, the three revision windows, both penalty formulas with worked numbers — and the instalment overhaul enacted by the Finance Act 2025 that compresses YA 2027 into eleven instalments and moves the first instalment to month one from YA 2028.
CP204 is not the tax return
Two different obligations are constantly confused. Form C is the annual corporate tax return, filed after the financial year ends, reporting what actually happened. Form CP204 is an estimate of tax payable, filed before the financial year begins, which fixes the monthly instalments the company must pay during that year. Form C reconciles; CP204 funds.
Section 107C(1) of the Income Tax Act 1967 requires every company, limited liability partnership, trust body and co-operative society to furnish an estimate of its tax payable for a year of assessment. The estimate is not an opinion the Director General may accept or reject — it is a self-assessed figure that generates a payment schedule automatically. LHDN issues Form CP205, the instalment payment notice, confirming the amount and the schedule.
The deadline is before the year begins
The general rule in section 107C(2) is that the estimate must be furnished not later than 30 days before the beginning of the basis period for that year of assessment. For a company with a 31 December financial year end, that means the CP204 for the year beginning 1 January 2027 is due by 1 December 2026 — before a single transaction of that year has occurred.
A newly incorporated company gets a different rule. It must furnish the estimate within 3 months from the date of commencement of operations, provided that its first basis period is not less than 6 months. Where the first basis period is shorter than six months, no estimate is required for that year of assessment.
| Situation | Form | Deadline |
|---|---|---|
| Existing company, ongoing year of assessment | CP204 | Not later than 30 days before the beginning of the basis period |
| New company, first basis period of 6 months or more | CP204 | Within 3 months from the date operations commence |
| New company, first basis period under 6 months | — | No estimate required for that year of assessment |
| Revision of the estimate | CP204A | In the 6th, 9th or 11th month of the basis period (e-Filing) |
| Change of accounting period | CP204B | 30 days before the end of the new accounting period where it ends earlier; 30 days before the end of the original period where it ends later |
All of these are electronic filings. Section 107C(7A) requires the revision to be furnished by electronic medium, and in practice the whole cycle runs through MyTax / e-Filing, which means the company needs a functioning digital certificate and an authorised signatory before the first deadline — not after it. Setting up MyTax access is a task for week one of the subsidiary's life, not week forty.
The two-year exemption most new subsidiaries qualify for
Section 107C(4A) exempts a qualifying SME from furnishing an estimate and from making instalment payments for a period of two years of assessment, beginning from the year of assessment in which the SME commences operations.
The SME test has two limbs and both must be satisfied:
| Condition | Threshold | Measured |
|---|---|---|
| Paid-up ordinary share capital | Not more than RM2.5 million | At the beginning of the basis period |
| Gross income from business sources | Not more than RM50 million | For the year of assessment |
| Group control | Not controlled by — and not controlling — a company with paid-up ordinary share capital exceeding RM2.5 million | Continuously |
Even where the exemption clearly applies, LHDN's own guidance encourages companies to submit a nil or nominal CP204 anyway. The reason is administrative rather than legal: the system is built around the existence of an estimate, and companies that file nothing occasionally attract automated notices and penalties that then have to be appealed away. Filing a zero estimate costs nothing and removes the argument entirely.
The 85% floor
From the second year of assessment onwards, the estimate is not a free choice. Section 107C(3) requires that the estimate for a year of assessment shall not be less than 85% of the revised estimate for the immediately preceding year of assessment — or, where no revision was made, of the original estimate for that preceding year.
The floor is set by reference to the previous estimate, not the previous year's actual tax. That asymmetry produces a specific trap: a company that over-estimated last year is locked into at least 85% of that inflated number this year, regardless of how badly trading has deteriorated — and its only relief is a revision under section 107C(7), which cannot be made until the sixth month.
Paying: twelve instalments, due on the 15th
Under the current rules, the estimated tax is payable in 12 equal monthly instalments. Each instalment is due not later than the 15th day of the month. Instalments commence in the second month of the basis period, which is why, under the present schedule, the final instalment of a 31 December year end falls in January of the following calendar year — the cross-year spill the Finance Act 2025 was written to eliminate.
Payment channels are the usual LHDN ones — ByrHASiL / FPX, over the counter at appointed banks, and telegraphic transfer for foreign remittances. Use the company instalment payment code shown on your CP205 and the correct year of assessment: misallocated payments are the second most common source of avoidable penalty, after late payment itself, because the instalment shows as unpaid while the money sits against another year or another payment type.
Revisions: the sixth, ninth and eleventh months
Section 107C(7) permits a company to revise its estimate by furnishing Form CP204A. The revision windows are the 6th, 9th and 11th month of the basis period — the eleventh-month window, originally a temporary concession, has been available on a standing basis from YA 2024 onwards. A company may use one, two or all three windows.
When a revision is filed, the remaining instalments are recomputed so that the revised total is collected across the balance of the year. Two consequences follow that catch companies out:
Revising upwards late in the year is expensive in cash terms. An increase filed in the eleventh month must be absorbed by the remaining instalments, which can make a single month's payment several times the size of the previous ones.
Revising downwards does not produce an immediate refund. Where instalments already paid exceed the revised estimate, the excess is not repaid on request during the year; it is dealt with on assessment after Form C is filed. Reducing an estimate is therefore a way to stop future outflows, not to recover past ones.
A revision outside the three statutory windows requires an application to LHDN with supporting reasons and is granted at the Director General's discretion. It is not a right, and it should not be built into a cash-flow plan.
The two penalties, with the numbers
Section 107C carries two separate automatic penalties. They can both apply in the same year.
Section 107C(9) — late instalment. Where an instalment due is not paid by the due date, a penalty of 10% of the unpaid instalment is imposed. No notice is required, and the penalty attaches to each unpaid instalment separately.
Section 107C(10) — under-estimation. Where the actual tax payable for the year exceeds the estimate (original or revised, whichever is the last one filed) by more than 30% of the actual tax payable, a penalty of 10% of that excess is imposed. The test is a threshold, not a taper: at 30.0% the penalty applies to the whole difference, not to the part above the threshold.
| Scenario | Actual tax | Last estimate filed | Difference | Difference as % of actual | Penalty under s.107C(10) |
|---|---|---|---|---|---|
| Conservative but adequate | RM400,000 | RM300,000 | RM100,000 | 25% | Nil — 30% threshold not exceeded |
| Just over the line | RM400,000 | RM270,000 | RM130,000 | 32.5% | RM13,000 (10% of RM130,000) |
| Badly under-estimated | RM400,000 | RM120,000 | RM280,000 | 70% | RM28,000 (10% of RM280,000) |
| Over-estimated | RM400,000 | RM520,000 | — | — | Nil — but RM120,000 of cash was locked up all year |
What changes: Finance Act 2025, YA 2027 and YA 2028
The Finance Act 2025, gazetted on 31 December 2025, restructures the instalment schedule so that all instalments for a year of assessment fall within the same basis period, ending the practice of the last instalment spilling into the following calendar year. The change is phased.
| Up to YA 2026 (current) | YA 2027 (transitional) | YA 2028 onwards | |
|---|---|---|---|
| First instalment | Month 2 of the basis period | Month 2 of the basis period | Month 1 of the basis period |
| Number of instalments | 12 | 11 | 12 |
| Last instalment falls | Month 1 of the following year | Month 12 of the same year | Month 12 of the same year |
| Effect on each instalment | — | Same total spread over 11 months — each instalment is roughly 9% larger | Normalised |
The CP204 submission deadline in section 107C(2) — 30 days before the basis period begins — is unchanged. What moves is the payment schedule. Two practical consequences deserve to be in next year's budget rather than discovered in it:
YA 2027 is a compression year. A company that budgets its monthly tax outflow by copying last year's instalment figure will be underfunded every month, because the same estimated tax is being collected over eleven months instead of twelve.
The YA 2027/2028 boundary is a cash-flow cliff. In the transition, a company with a 31 December year end pays its final YA 2026 instalment in January 2027 while YA 2027 instalments have also begun, and by YA 2028 the first instalment arrives a month earlier than the treasury function is used to. Model the twenty-four months across the boundary, not each year in isolation.
Where CP204 meets the rest of the tax file
The estimate does not exist in isolation. Three connections matter for a foreign-owned subsidiary.
The SME rate ladder. A qualifying SME pays 15% on the first RM150,000 of chargeable income, 17% on the next RM150,001 to RM600,000, and 24% on the balance — but only where paid-up ordinary share capital is not more than RM2.5 million and gross business income does not exceed RM50 million, subject to the same related-company control test described above. Get the SME question wrong in the CP204 and the estimate is wrong by a wide margin from the start. See our guide to corporate tax filing and the MITRS regime.
Change of financial year end. Moving the FYE is a company-law decision with a tax consequence: Form CP204B must be lodged within the statutory window, and Public Ruling No. 4/2025 sets out how the basis periods are apportioned. Companies that change their FYE to align with a parent's reporting calendar routinely remember the SSM side and forget the LHDN side.
The audit and accounts timetable. A CP204 revision in the ninth or eleventh month is only as good as the management accounts behind it. Companies that close their books quarterly can revise intelligently; companies that first look at the numbers when the auditor arrives cannot. If your subsidiary qualifies for audit exemption, that is a reason to strengthen management reporting, not to relax it — the tax estimate still has to be right.
A practical playbook
Six habits remove almost all of the avoidable cost in section 107C:
1. Diarise the CP204 date as "FYE minus 13 months". For a December year end the estimate is due at the start of December in the preceding year. Put it in the compliance calendar next to the annual return, not next to Form C.
2. Settle the SME question in writing, once. Document the paid-up capital, the group control position and the gross business income test, and revisit it whenever the parent's capital or the group structure changes.
3. Build the estimate from a forecast, not from last year plus a margin. The 85% floor already handles the downside; what protects you on the upside is a real profit forecast.
4. Calendar the three revision windows. The 6th, 9th and 11th months of your own basis period — not generic dates — with a management-accounts review scheduled a fortnight before each.
5. Pay by the 15th, with the right payment code and year. Standing instructions beat memory. Check the ByrHASiL acknowledgement against the CP205 schedule each month.
6. Model the YA 2027 compression now. Eleven instalments instead of twelve is roughly a 9% increase in the monthly outflow for the same annual tax. It is a budgeting item, not a surprise.
ONEKEY BIZ handles the full corporate tax cycle for foreign-owned Malaysian subsidiaries — CP204 estimates and revisions, monthly instalment monitoring, Form C filing, and the bookkeeping underneath that makes the estimate defensible. See our corporate tax filing service, or speak to our team before your next basis period begins.
Frequently asked questions
When exactly is CP204 due?
Under section 107C(2), not later than 30 days before the beginning of the basis period for that year of assessment. For a 31 December financial year end, the CP204 for the year starting 1 January 2027 is due by 1 December 2026. A newly incorporated company instead files within 3 months from the date operations commence, provided its first basis period is not less than 6 months; where the first basis period is shorter than six months, no estimate is required for that year of assessment.
My subsidiary is small — do we get the two-year exemption?
Only if it is an SME on all limbs. Section 107C(4A) exempts a qualifying SME from furnishing an estimate and paying instalments for two years of assessment from the year operations commence. The SME test requires paid-up ordinary share capital of not more than RM2.5 million at the beginning of the basis period and gross business income of not more than RM50 million — and that the company is not controlled by, and does not control, a company whose paid-up ordinary share capital exceeds RM2.5 million. That last limb disqualifies most subsidiaries of substantial foreign parents, and it also removes the 15%/17% reduced tax rates. Even where the exemption applies, filing a nil CP204 avoids automated notices.
How is the 30% under-estimation penalty actually calculated?
Under section 107C(10), where the actual tax payable exceeds the last estimate filed by more than 30% of the actual tax payable, a penalty of 10% of that entire difference is imposed. It is a threshold, not a taper. Example: actual tax RM400,000 against a final estimate of RM270,000 gives a difference of RM130,000, which is 32.5% of the actual tax — so the penalty is 10% of RM130,000 = RM13,000. Had the estimate been RM300,000, the difference of RM100,000 would be 25% of actual tax and the penalty would be nil.
Can I revise CP204 at any time, and will I get a refund if I revise it down?
Revisions are made on Form CP204A in the 6th, 9th and 11th month of the basis period — the 11th-month window has been available on a standing basis from YA 2024 onwards. A revision outside those windows requires an application with reasons and is at the Director General's discretion; do not plan cash flow around it. A downward revision stops future instalments but does not trigger an in-year refund of instalments already paid — any excess is dealt with on assessment after Form C is filed.
What changes to instalments in YA 2027 and YA 2028?
The Finance Act 2025 (gazetted 31 December 2025) restructures the schedule so instalments no longer spill into the following year. YA 2027 is transitional: instalments still start in month 2 of the basis period but are limited to 11, so the same estimated tax is collected over eleven months and each monthly payment is roughly 9% larger. From YA 2028, the first instalment moves to month 1 of the basis period and there are 12 instalments, all falling within the same year. The CP204 submission deadline — 30 days before the basis period begins — is unchanged.
Sources & references
- Lembaga Hasil Dalam Negeri Malaysia — Tax Estimation (Company)
- Lembaga Hasil Dalam Negeri Malaysia — Company Tax Payment
- LHDN Public Ruling No. 4/2025 — Notification of Change of Accounting Period of a Company / LLP / Trust Body / Co-operative Society
- Attorney General's Chambers Malaysia — Federal Legislation Portal (Income Tax Act 1967, Finance Act 2025)
- Ministry of Finance Malaysia
- MyTax — LHDN e-Filing Portal
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.