Malaysia’s Budget 2026 takes a measured approach, refining and extending existing incentives while introducing a mix of targeted reliefs and selective tax broadening. The extension of the foreign-sourced income (FSI) exemption to 2030, now expanded to include trust bodies and cooperative societies, is a welcome move that encourages outbound investment and supports efforts to maintain Malaysia’s competitiveness as an investment destination.

The introduction of a 2% income tax on profit distributions by Limited Liability Partnerships (LLPs) marks a shift toward closer alignment of LLP taxation with company structures, and its practical implications for professional and investment entities will be closely observed. Meanwhile, the stamp duty reforms, particularly the increase in the wage threshold for employment contract exemptions from RM300 to RM3,000, represent a significant and long-awaited update that better reflects current wage realities.

Other notable measures include the introduction of a carbon tax, incentives for artificial intelligence adoption, the Accelerated Capital Allowance (ACA) for locally manufactured machinery and software, and extensions of existing stamp duty exemptions.

Explore the key tax highlights shaping Malaysia’s commercial landscape in our Budget 2026 infographic. Click here to view the infographic.

For further queries, please contact Partners Jason Tan Jia Xin (tjx@lh-ag.com), Chris Toh Pei Roo (tpr@lh-ag.com), Ivy Ling Yieng Ping (il@lh-ag.com), or Senior Associate Jay Fong Jia Sheng (fjs@lh-ag.com) and Associate Alvin Choong Jian Loong (jlc@lh-ag.com).

14 October 2025