2026 Tax changes Malaysians Should Know and Be Prepared For

Malaysia’s 2026 tax changes are not designed to shock people with higher rates. Instead, they have begun to tighten the system.

If you run a business, handle payroll, or file your own taxes, 2026 will feel more structured and less forgiving. Practices that relied on manual records, backdated invoices, or “we settle later” habits will struggle once e-invoicing and data matching become the norm.

Before every Budget headline in your WhatsApp groups sends your blood pressure up, pause for a sec!

Let’s break down what is changing, what most people misunderstand, and how to prepare calmly.

E-Invoicing Expansion and Its Real Compliance Impact in 2026

E-invoicing becomes a standard compliance requirement for a large group of businesses in 2026, not just large corporations.

Who must comply

• Revenue RM1 million to RM5 million: Mandatory from 1 January 2026
• Below RM1 million: Currently exempt, based on LHDN’s latest guidance

This exemption threshold is one of the most misunderstood points, so it is worth stating clearly. 

“Many early articles and news reports mentioned RM500,000, but current LHDN guidance points to RM1 million.”

What People Get Wrong About e-invoice

An e-invoice is not just a PDF invoice.

Invoices must be issued in digital formats that LHDN systems can read, validate, and cross-check. 

Uploading a scanned invoice or sending a WhatsApp receipt does not meet the requirement.

This includes:

• Sales invoices
• Credit notes and debit notes
• Refunds and cancellations
• Certain receipts treated as invoices

Why this hurts in practice

Once e-invoicing is live, LHDN can automatically compare:

• Your sales records vs bank inflows
• Your expenses vs supplier invoices
• Your tax filings vs transaction-level data

If your books do not line up, questions and letters will arrive faster, not years later.

New LLP Profit Distribution Tax Rules

Budget 2026 introduces a new tax on LLP profit distributions, narrowing a long-standing advantage.

What changed

• A 2% tax applies to profit distributions exceeding RM100,000

Why partners will feel this

Many LLPs already pay tax at the entity level. The new tax applies when profits are distributed to partners, not when retained.

Practical implications

• Monthly or frequent withdrawals may increase tax exposure
• Profit extraction strategies need review
• LLPs remain useful, but no longer “auto-efficient”

This change encourages planning, not casual transfers just because cash is available.

Higher Stamp Duty for Foreign Residential Property Purchases

Foreign buyers now face significantly higher entry costs when purchasing residential property in Malaysia.

The changes

• Stamp duty doubled from 4 % to 8 %

Who is affected

• Foreign individuals buying residential homes
• Developers targeting foreign demand
• Joint ventures involving foreign purchasers

Local buyers are not directly affected, but demand dynamics may shift, especially in developments previously marketed heavily to overseas buyers.

For developers targeting foreigners, you may feel the brunt of this the most.

Expanded Personal Tax Reliefs Under Budget 2026

Now for some good news! Personal tax reliefs expand with a clear focus on families, safety, and domestic spending.

This is one of the more positive parts of Budget 2026 and it doesn’t stop there.

Reliefs

• RM1,000 for domestic tourism expenses under Visit Malaysia 2026
• RM3,000 for childcare, including after-school transit, for children up to age 12
• RM2,500 for home safety items such as CCTV systems and household waste grinders

These reliefs reduce chargeable income, not tax payable directly, so documentation matters.

Here’s an example:

A household paying for after-school transport and installing CCTV at home may now offset part of these expenses. When claimed properly, this lowers taxable income rather than just easing cash flow.

One important detail many miss: Some of these reliefs can only be claimed once across specific years, not repeatedly every year.

Employment Contract Stamp Duty Threshold Increase

Hiring someone in 2026 involves less paperwork than before.

Previously, if an employee’s monthly salary was above RM300, their employment contract technically needed to be stamped.

In reality, many employers ignored this, delayed it, or only stamped when asked during audits.

From 2026, the threshold jumps to RM3,000 per month.

What this means 

• Most entry-level, junior, and even many executive contracts no longer need stamp duty
  
• HR teams do not have to:
  
  
  • Print contracts just for stamping
  • Queue at LHDN or rely on third-party stamping
  • Chase signatures again because stamping was forgotten

Why employers care

If you hire regularly, this saves time every single month. No more last-minute panic when auditors ask, “Why is this contract not stamped?”

It is not a flashy change, but it removes a very common administrative headache.

Vehicle Tax Exemption Tightening 

This change mainly affects duty-free vehicle purchases, not all car buyers nationwide.

New rule

• Tax exemptions apply only to vehicles priced RM300,000 and below
• This is most relevant for duty-free purchases in Langkawi and Labuan

What it means

• Normal family car buyers see no major change
• Luxury vehicles no longer qualify for duty-free exemptions
• Loopholes are closed clearly, with no grey areas

Why The Government Did This

Previously, some luxury purchases benefited from incentives meant to support everyday buyers. This change closes that gap.

It is part of a wider trend where tax benefits are targeted, not given broadly.

Increased Audit Visibility and Enforcement in 2026 

This is where many people get caught off guard.

There are no dramatic new penalties announced. Instead, enforcement becomes smarter.

What changed behind the scenes

With e-invoicing and better system integration, LHDN can now automatically compare data across multiple sources, which means no more hiding your side-gigs from the taxman.

They can cross-check:

• Your sales against bank deposits
• Your expenses against supplier invoices
• Your payroll records against PCB, EPF, and SOCSO submissions

The system flags mismatches on its own so don’t even try to cheat the system.

Common problem areas

• Sales recorded lower than money coming into the bank
• Expenses claimed without proper invoices
• Freelancers treated as contractors when they function like employees
• Overseas payments made without withholding tax

What Should I Do Now Before The New Tax Laws Come into Play?

As wide sweeping as the tax changes are, for most normal households or SMEs, there’s no need to panic.

• Review your accounting and invoicing system
  Make sure sales, invoices, and bank records talk to each other properly.
  
• Align revenue recognition
  Avoid situations where cash comes in but sales are recorded much later, or not at all.
  
• Improve expense documentation
  If you claim it, make sure there is a proper invoice and it matches the books.
  
• Reassess LLP profit withdrawals
  Stop treating distributions as casual transfers. Timing and amount matter now.
  
• Track personal tax relief expenses early
  Childcare, travel, safety expenses are easy to forget if you wait until filing season.

2026 Tax Changes Malaysia: What to Be Ready For

Businesses and individuals who prepare early will find the transition manageable. Those who continue informal practices may feel pressure that seems sudden, even though the direction has been clearly signposted over the past few years.

At Accounting Malaysia, we help businesses and individuals make sense of these changes in practical terms. From tax services and audit support, we focus on keeping your records aligned, your filings accurate, and surprises to a minimum.

If 2026 feels uncertain, you do not have to navigate it alone. Speak to us early, and we will help you stay compliant, prepared, and confident as the rules continue to evolve.

Source:

• Ministry of Finance (MOF) – Budget 2026 Tax Measures (Tax Measures PDF, 11 Oct 2025) – Official details on LLP profit distribution tax (2% above RM100k), domestic tourism relief (RM1,000), childcare relief changes, and the RM2,500 home safety / food-waste grinder / CCTV relief and its “once in YA 2026–2027” condition.
• LHDN – e-Invoice / MyInvois Official Implementation & Exemption Notes
• Prime Minister / Government Announcements (Dec 2025) on E-Invoicing Threshold Media coverage (Bernama / local press) 
• KPMG Malaysia – Budget 2026 Highlights / Tax Developments –
  Confirms: 2% tax on LLP profit distributions exceeding RM100,000 per partner (YA 2026 onward).
• Bernama & Major Local Media on Budget 2026 (The Star, NST, The Edge, etc.)