The Global Minimum Tax (GMT) was designed to curtail profit shifting by large multinational enterprises (MNEs) into low-tax or tax-free jurisdictions. In many such arrangements, the MNE paid little or no tax in either its home jurisdiction or the host jurisdiction. Although generally lawful, these structures were widely regarded as tax avoidance in substance. The international response, developed through the OECD's Pillar Two framework, is a 15% global minimum effective tax rate applicable in every jurisdiction where a large MNE operates.
Malaysia has committed to GMT for financial years beginning on or after 1 January 2025.
Scope and thresholds
GMT applies where an MNE group's consolidated annual revenue exceeds €750 million (approximately RM3.5 billion at current exchange rates). The threshold must be met in at least two of the four financial years immediately preceding the year under review.
The Malaysian rules capture Malaysian MNE groups above that threshold, together with their subsidiaries, branches and permanent establishments. A group falls within scope only if at least one constituent entity, branch or permanent establishment is located outside Malaysia.
Certain entities are excluded: governmental entities, international organisations, non-profit organisations, pension funds, investment funds that are the ultimate parent entity (UPE), real estate investment vehicles that are the UPE, and certain qualifying holding entities.
Taxes counted towards the effective tax rate (ETR) calculation include income tax, Real Property Gains Tax, Petroleum Income Tax, and taxes imposed under the Labuan tax regime.
The two top-up tax mechanisms
Malaysia implements GMT through two distinct charges.
The Domestic Top-up Tax (DTT) is Malaysia's Qualified Domestic Minimum Top-up Tax (QDMTT) under the OECD Pillar Two Rules. It allows Malaysia to collect top-up tax on the low-taxed profits of constituent entities located in Malaysia where the jurisdictional ETR falls below 15%. The DTT gives Malaysia the primary taxing right over those domestic low-taxed profits.
The Multinational Top-up Tax (MTT) is Malaysia's Income Inclusion Rule (IIR). It operates where a foreign jurisdiction in which a constituent entity is located has not itself imposed a QDMTT. The MTT then enables Malaysia to collect the top-up tax on those foreign low-taxed profits, ensuring a minimum 15% ETR across the group.
Computing the effective tax rate
The ETR is calculated by dividing Covered Taxes by Financial Accounting Net Income or Loss (FANIL). Covered Taxes include income taxes and foreign taxes, but exclude non-income-based levies such as indirect taxes, payroll taxes, stamp duties and property taxes. Both the numerator and denominator are subject to prescribed adjustments under the GloBE Rules.
Filing obligations and deadlines
Where a Malaysian entity forms part of an in-scope MNE group, it will have filing obligations under Malaysia's GMT legislation. Persons responsible for filing include the manager or principal officer, directors and the company secretary of the relevant Malaysian constituent entity.
The first GMT return, covering the 2025 financial year, is due 18 months after the end of that financial year. For a company with a 31 December 2025 year-end, the deadline is 30 June 2027. For subsequent years, the filing deadline is 15 months after the end of the relevant financial year.
Why this matters in practice
Malaysia's dual-mechanism approach, pairing a QDMTT with an IIR, follows the OECD's recommended architecture closely. Groups that have historically benefited from Labuan structures, petroleum tax concessions or other preferential regimes will need to model their jurisdictional ETRs carefully. The exclusion of non-income taxes from Covered Taxes means that groups with significant indirect tax burdens cannot rely on those charges to lift their effective rate above the 15% floor.
With the first return deadline falling in mid-2027, in-scope groups should already be stress-testing their data collection processes, reviewing intercompany arrangements, and confirming which entities carry filing responsibility under Malaysian law.