Global Minimum Tax (GMT) Malaysia: Implications and Tax Planning

Multinationals have a long-known history of shifting their profits to lower jurisdiction areas based on their origin. This has resulted in a major loophole that is directly affecting the taxes and economy of a country. 

To curb these issues, the Organization for Economic Co-operation and Development (OECD) is working on the concept of the global minimum tax (GMT), under OECD’s GloBE Rules, Pillar 2. Malaysia is also at the forefront of this initiative and is all set for Malaysia's pillar 2 implementation of the GMT in 2025. This guide walks you through the provisions, implications and impact of the GMT on MNCs. 

What is the Global Minimum Tax in Malaysia?

The GMT tax in Malaysia is a part of global efforts led by the OECD to ensure that multinational corporations are taxed at a minimum rate of 15%, no matter what their origin is and where they’re operating from.  This step aims to combat tax base erosion i.e. profit shifting to lower tax jurisdictions. 

Implementation Timeline of GMT in Malaysia

The OECD has anticipated a major influx of $250 billion in tax income to be collected through the GMT in countries. This is going to be an incremental step for countries, including Malaysia, toward tax revenues and losses. In light of this, Malaysia plans to implement the GMT by 2025, covering Malaysian and foreign MNCs operating within its borders. 

The Global Minimum Tax 2025 is set to be fully implemented in Malaysia by 2025, with a phased approach to ensure a smooth transition for businesses. The stages are divided as below: 

• 2023-2024: Malaysia initiates to align its existing tax framework and policies to meet with the new global rules, as directed by the OECD.  
• Early 2024: The country finalizes key tax policies and issues guidelines for MNCs to ensure a smooth transition to the new tax regime
• 2025: Implementation of the Global Minimum Tax Malaysia, for MNCs with a consolidated profit of over €750 million to comply with the minimum tax rate of 15%. 

Scope of Global Minimum Tax

The GMT applies to multinational corporations that meet all of the following conditions: 

• MNCs operating in at least two jurisdictions.
• Having an annual consolidated revenue of a minimum of €750 million in two of the four immediately preceding financial years. 
• MNCs based in Malaysia with foreign operations and MNCs based out of Malaysia with operations in Malaysia. 

Impact of GMT on Malaysia's Tax Regime

Implications of GMT for Malaysian Businesses

The implications of GMT for Malaysian businesses are many, as the new tax regime is aimed at bringing in a lot of regulatory, compliance, and taxation shifts for companies, especially MNCs in Malaysia. The implications are covered below: 

• For companies with revenues over €750 million, the 15% minimum tax rate is a must under the OECD GloBE Rules. 
• This requires companies to effectively review their tax structures, tax planning, and reporting compliances, which are mandated to be in line with the GloBE rules. 
• Companies need to plan proactively to ensure they’re compliant with the rules and regulations while also saving their taxes and costs.
• As Malaysia supports the GloBE Rules, the country will undergo greater transparency and uniformity in tax reporting. 

What is Malaysia’s Position on GMT?

Malaysia has a strong commitment to implementing the Global Minimum Tax by diligently adhering to the OECD's GloBE Rules. These rules are in line with Malaysia’s initiative to curb base erosion and profit shifting as well as increasing tax transparency. 

While the framework is still undergoing necessary upgrades, the current rules are primarily targeting larger companies. The implementation of GMT Malaysia will likely take effect by 2025, with ongoing consultations to fine-tune local regulations and ensure smooth integration.

Conclusion

The Global Minimum Tax is going to come as a major turnaround for companies as well as the Malaysian government. This will significantly reshape the tax and compliance framework, making the process more transparent and strict on the reporting requirements. 

Therefore, this phase is essential for companies to adapt their systems to the upcoming compliances and plan their taxes accordingly. This calls for a thorough review of the existing systems and procedures, tax planning, and policies.