Tax Incentives in Malaysia (2026 Updates)

Malaysia has significantly enhanced its tax incentive framework for 2026 with strategic measures aimed at stimulating economic growth, celebrating Visit Malaysia Year 2026 (VM2026), and accelerating digital transformation. This guide provides a comprehensive overview of the latest corporate and individual tax incentives.

1. Boost for Tourism and Cultural Activities (VM2026)

In conjunction with the Visit Malaysia Year 2026 campaign, the government has introduced aggressive incentives for the hospitality and events sectors:

• Renovation Deduction: A tax deduction of up to RM500,000 for qualifying renovation and refurbishment expenses incurred by tourism project operators.

• Inbound Tour Packages: 100% income tax exemption on incremental income derived from inbound tourism packages (provided tour operators bring in at least 1,000 foreign tourists annually).

• MICE Events: 100% statutory income tax exemption for organizations hosting qualifying international conferences, trade exhibitions, or incentive trips with minimum participant thresholds.

  • At least 1,500 foreign participants for the incentive trips annually; or

  • At least 2,000 foreign participants for the conferences annually; or

  • At least 3,000 foreign participants for trade exhibitions annually

• Cultural & Sports Events: 50% tax exemption for companies organizing approved international arts, cultural, and sports events involving foreign participants. (Extended for YA 2026 & YA 2027)

2. Corporate Tax Incentives for Businesses

• Foreign-Sourced Income (FSI) Extension: The tax exemption on foreign-sourced dividends and gains from the disposal of foreign assets has been officially extended to 31 December 2030 for resident companies, LLPs, and individuals (meeting specific economic substance requirements).

• Venture Capital (VC) Restructuring: * VCCs: Qualifying income is taxed at a reduced rate of 5% for 10 years.

  • VCMCs: Income from profit sharing and management fees is taxed at 10% (effective from YA 2025 to 2035).

• Accelerated Capital Allowance (ACA): To drive digital adoption, a 20% initial allowance and 40% annual allowance are provided for qualifying capital expenditure on heavy machinery from local manufacturers, plant, and general machinery from local manufacturers, ICT equipment, and computer software, consultation, licensing, and incidental fees related to customised computer software development incurred until 31 December 2026.

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3. MSMEs: AI & Cybersecurity Training Deductions

To future-proof local businesses, the government introduced specialized support for Micro, Small, and Medium Enterprises (MSMEs):

• AI Training Deduction: An additional 50% tax deduction is available for expenses incurred on Artificial Intelligence (AI) and cybersecurity training accredited by the MyMahir National AI Council or NAIO.

• Claim Frequency: This can be claimed once every two years for applications received between 1 January 2026 and 31 December 2027.

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4. Food Security & Green Investment

• Food Security Projects (Rebranded from "Food Production Projects")

  • 100% income tax exemption has been extended for 5 years for existing companies undertaking expansion projects, selling into the domestic market. 

  • 100% income tax exemption has been extended for 10 years for companies engaging in new projects, selling into the domestic market.

• Green Investment Tax Allowance (GITA): A 100% allowance is available for companies acquiring locally manufactured green technology products certified with the MyHIJAU Mark for their own use.

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5. Individual Tax Relief & Incentives (2026)

• Domestic Tourism Relief: A special individual tax relief of up to RM1,000 for entrance fees to local tourist attractions (museums, theme parks, zoos) and cultural/arts programs. This is applicable for Year of Assessment 2026 only.

• Childcare Expenses: The relief for fees paid to registered childcare centers or kindergartens is now RM3,000 and covers children up to 12 years old.

• Education & Medical Insurance: The relief limit remains at RM4,000, but the scope has been expanded to include insurance for children.

• Lifestyle Relief Expansion: The RM2,500 lifestyle relief now officially includes the purchase of CCTVs and household food waste grinders (claimable once every two years).

6. Strategic Investment Framework

Malaysia continues to utilize the Promotion of Investments Act 1986 to attract high-value investors through:

• Pioneer Status: Income tax exemption of 70% to 100% for 5 to 10 years. 

• Investment Tax Allowance (ITA): 60% to 100% allowance on qualifying capital expenditure. 

• Stamp Duty Changes: Note that from 1 January 2026, stamp duty on property transfers for non-citizens, individuals, and foreign companies increases to 8%.

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Conclusion

The 2026 tax landscape reflects Malaysia's shift toward a high-tech, sustainable, and tourism-driven economy. For businesses and individuals, this is a prime year to leverage VM2026 incentives and AI upskilling deductions to maximize tax efficiency.

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Reference

• PwC Malaysia Budget 2026 Overview – tax incentive highlights.

• KTP & Company PLT – updated tax incentives and business-focused deductions.

• Malay Mail & NST articles on tourism tax incentives under Visit Malaysia Year 2026.

• MIDA & LHDN tax incentive frameworks for investment and corporate reliefs. ​​​​​​​