Self-Employed & Business Income Tax in Malaysia: Form B Explained

You are taxed on profit, not revenue

The starting point is your business's net profit, but the tax figure is not simply money-in minus money-out. LHDN taxes your adjusted income: you begin with the accounting profit, add back any expenses that are not tax-deductible, and subtract capital allowances. Only expenses incurred wholly and exclusively in producing the income are deductible — the classic test in Section 33 of the Income Tax Act.

Once you have your adjusted business income, it is combined with any other income you have (employment, rental, interest) to reach your total income. Then the same personal reliefs and the same progressive resident tax brackets that apply to employees apply to you — a sole proprietor is taxed as an individual, not as a company.

Allowable vs. disallowable expenses

Getting this split right is where most self-employed taxpayers save — or lose — the most money. Broadly:

• Allowable — rent for business premises, staff wages and EPF/SOCSO on them, utilities and internet used for the business, professional and accounting fees, business insurance, marketing, stock/raw materials, and the business portion of your phone and vehicle running costs.
• Disallowable — your own drawings or 'salary', private/domestic expenses, the capital cost of equipment and vehicles (claim capital allowances instead), general provisions, most fines and penalties, and any private-use portion of a mixed expense.
• Apportion mixed costs — if you work from home or use one car for both business and personal trips, deduct only the business fraction and keep a basis for the split you used.

Capital allowances replace depreciation

You cannot deduct the cost of a laptop, machine or company vehicle as an expense, and accounting depreciation is added back. Instead you claim capital allowances on qualifying plant and machinery: an initial allowance in the year of purchase plus an annual allowance each year until the cost is written off. For most small assets this spreads the deduction over a few years; small-value assets up to the statutory limit can often be written off fully in the year of purchase.

The practical point: keep every invoice for equipment you buy for the business — the capital allowance it unlocks reduces your adjusted income directly.

Which form and when

Because you have business income you file the Form B (not the Form BE, which is employment-only), and the deadline is 30 June, two months later than the 30 April employee deadline. Filing is done on the LHDN MyTax portal (mytax.hasil.gov.my) through e-Filing. A partnership files a Form P for the partnership itself, and each partner then reports their share of the divisible profit in their own Form B.

Even in a loss year, or a year below the tax-payable threshold, having business income generally means you should still file — it is how losses are recorded and carried forward, and how you stay compliant.

CP500 — paying tax in instalments

Self-employed taxpayers do not have PCB deducted, so LHDN collects tax during the year through the CP500 scheme. LHDN issues a CP500 notice estimating your tax based on prior years, payable in six bi-monthly instalments (March, May, July, September, November, January). When you file the Form B, the actual tax is reconciled against what you paid — you top up the shortfall or receive a refund.

If the estimate is clearly too high or too low, you can apply to revise it using Form CP502, usually by 30 June of the assessment year. Underpaying against a materially higher final tax can attract a 10% penalty on the difference, so revise the estimate rather than ignore it.

Keep proper records for seven years

You are required to keep sufficient business records — invoices, receipts, bank statements, a basic set of accounts — for seven years, and to produce them if LHDN audits you. You do not submit them with the return, but every deduction and capital allowance you claim must be supportable. Separating your business and personal bank accounts from day one makes this dramatically easier and is the single best habit for a sole proprietor.

Important caveats

This is general information for a Malaysian resident sole proprietor or freelancer, not tax advice. The deductibility of a specific expense, capital allowance rates, small-value-asset limits and CP500 estimates all turn on the exact facts and the current rules under the Income Tax Act 1967 and LHDN Public Rulings. The calculator below applies the resident individual brackets and reliefs to a chargeable-income figure — work out your adjusted business income first, add your other income, then use it as a planning estimate and confirm your position with LHDN or a tax agent before filing.