Budget 2026 was tabled in Parliament on 10 October 2025 under the theme "Belanjawan MADANI 2026". Unlike some previous budgets, it did not change Malaysia's headline corporate tax rates. Instead, the measures relevant to small and medium enterprises (SMEs) are concentrated in a small number of targeted reliefs: a training-related tax deduction, accelerated capital allowances for equipment and digitalisation, a higher stamp duty exemption threshold for employment contracts, and adjustments to service tax for micro, small and medium enterprises (MSMEs). Several further refinements were issued by the Ministry of Finance and the Inland Revenue Board (LHDN) after Budget day, so the practical rules businesses now face are not identical to what was announced on 10 October 2025.
This article sets out the measures most relevant to a typical Malaysian SME or mid-size company, distinguishes between what was announced in the Budget speech and what has since been confirmed through gazetted rules or official notices, and outlines planning considerations for the year ahead.
Corporate Tax Rates: No Change Announced
Budget 2026 did not change Malaysia's corporate tax rate structure. The standard corporate tax rate remains 24%. Qualifying resident SMEs (companies with paid-up capital of RM2.5 million or less and gross business income not exceeding RM50 million, subject to the existing related-company and foreign-ownership conditions under the Income Tax Act 1967) continue to be taxed at 15% on the first RM150,000 of chargeable income, 17% on the next RM450,000, and 24% thereafter.
Businesses should not assume a rate change occurred simply because search results or informal commentary reference "Budget 2026 tax changes" alongside rate tables. The relief in this Budget is delivered through targeted deductions, allowances and duty thresholds rather than a rate adjustment.
Key SME-Relevant Measures
1. Additional Deduction for AI and Cybersecurity Training
SMEs may claim an additional 50% tax deduction on qualifying expenditure for certified training in artificial intelligence (AI) and cybersecurity. The measure is intended to support human-capital readiness as Malaysian businesses adopt digital and AI tools. Based on public commentary at Budget tabling, training is expected to need to be delivered by a recognised or HRD Corp-approved provider and to cover AI, machine learning, data analytics or cybersecurity content for the deduction to apply.
What this means practically: if your business already budgets for staff training, this measure may reduce the after-tax cost of AI or cybersecurity-related courses. It does not reduce the cash cost of the training itself, and eligibility conditions (provider recognition, course content, documentation) will need to be confirmed against the gazetted rules and LHDN guidance once issued, rather than assumed from the Budget speech alone.
2. Accelerated Capital Allowances on Machinery and ICT Equipment
An accelerated capital allowance (ACA) — comprising a 20% initial allowance and 40% annual allowance — applies to qualifying capital expenditure on plant, machinery and information and communications technology (ICT) equipment (including computer software and related development or licensing costs) incurred between 11 October 2025 and 31 December 2026. Under the standard ACA structure, qualifying expenditure can typically be written off within a shorter period than under normal capital allowance rates.
What this means practically: an SME investing in computer hardware, standard machinery, or customised software during the qualifying period may be able to claim capital allowances more quickly than under general rules, improving cash flow in the years the assets are acquired. The relief applies to capital expenditure already planned or committed within the window — it does not retroactively apply to expenditure incurred before 11 October 2025, and the exact qualifying asset categories should be checked against the gazetted Income Tax Rules before a claim is made.
3. Stamp Duty: Higher Exemption Threshold for Employment Contracts
From 1 January 2026, the stamp duty exemption threshold for employment contracts increased from RM300 to RM3,000 per month in wages. Employment contracts stating a monthly salary of RM3,000 or below are exempt from stamp duty; contracts above that threshold remain subject to duty. This change coincides with the wider rollout of the Stamp Duty Self-Assessment System (SAS) from 1 January 2026, under which taxpayers assess and pay stamp duty without waiting for an IRBM assessment, with payment due within 30 days of the return.
What this means practically: for SMEs that employ staff at or near the RM1,700 minimum wage — common in manufacturing, retail, food and beverage, and services — this removes a small but recurring compliance cost on new employment contracts. It does not affect existing contracts already stamped, and businesses now bear direct responsibility for correctly self-assessing stamp duty under SAS, which is a shift in compliance burden even where the duty itself is exempted.
4. Service Tax Relief for MSMEs
Following Budget 2026, the Ministry of Finance confirmed several service tax adjustments relevant to MSMEs, effective 1 January 2026: the service tax rate on rental or leasing of goods for industrial use was reduced from 8% to 6%; the annual sales threshold below which MSME tenants are exempt from this service tax was raised from RM1 million to RM1.5 million; and newly established MSMEs were given a one-year service tax exemption from their date of registration. Separately, sales tax exemption on certain critical raw materials and inputs used by registered manufacturers took effect from 1 January 2026, intended to moderate cost pressure on essential goods.
What this means practically: SMEs that lease industrial equipment, machinery or premises may see a lower service tax cost from January 2026, and more MSMEs may now fall under the exempt sales threshold. Businesses should check their annual sales figure against the revised RM1.5 million threshold rather than the RM1 million figure referenced in earlier commentary, and confirm registration status directly with the Royal Malaysian Customs Department (RMCD).
5. E-Invoicing: Threshold and Timeline Position
Mandatory e-invoicing continues its phased rollout, and Budget 2026 sits alongside a set of e-invoicing changes that businesses often associate with it. Two points are worth stating precisely, because they are commonly conflated. First, the general e-invoicing exemption threshold for micro businesses was raised so that businesses below RM1 million in annual turnover are, subject to LHDN's conditions, exempt from mandatory e-invoicing — replacing the earlier RM500,000 reference point. Second, businesses with turnover up to RM5 million (which includes the RM1 million to RM5 million band) fall under a mandatory implementation date of 1 January 2026 in LHDN's published timeline; what runs to 31 December 2027 is an interim relaxation period, during which penalties are not imposed provided a genuine attempt at compliance is made, not a deferral of the implementation date itself. From 1 January 2026, an individual e-invoice is also required for any single transaction exceeding RM10,000, with consolidated e-invoicing no longer available at that transaction size.
What this means practically: SMEs with annual turnover under RM1 million are, subject to LHDN's exemption criteria, outside mandatory e-invoicing, while those in the RM1 million to RM5 million band are within scope from 1 January 2026 but benefit from the penalty relaxation period to 31 December 2027. This is useful breathing room, but it is not the same as being exempt or deferred — the obligation to register and implement applies from the mandatory date, and businesses should treat the relaxation period as preparation time rather than a reason to pause. Confirm your own position and the current relaxation terms against LHDN's e-Invoice guideline, as these have been revised more than once.
6. Limited Liability Partnership (LLP) Profit Distributions
Budget 2026 introduced taxation of profit distributions from LLPs to individual partners where distributions exceed RM100,000 per annum. This is relevant to SMEs structured as LLPs, particularly professional services firms and family businesses using the LLP structure for its liability protection. The precise mechanics — including the applicable rate, whether the threshold is per partner or per LLP, and the effective year of assessment — should be confirmed against the gazetted Finance Act provisions once available, rather than assumed from Budget-day commentary.
Planning Considerations for SMEs
- Confirm your SME classification. Several measures (the training deduction, ACA, service tax exemptions) apply specifically to entities meeting SME or MSME definitions under the relevant Act or SME Corp classification. Classification criteria differ slightly between the Income Tax Act 1967 (paid-up capital and gross income tests) and SST/MSME administrative definitions, so the same business may qualify under one framework and not another.
- Time capital expenditure with the ACA window in mind. The accelerated capital allowance applies to qualifying expenditure incurred between 11 October 2025 and 31 December 2026. Businesses planning ICT or machinery purchases within this period may wish to review timing and documentation with their tax adviser, without treating the allowance as a reason to bring forward expenditure that would not otherwise be commercially justified.
- Review employment contract templates and stamp duty processes. With the exemption threshold change and the move to Stamp Duty Self-Assessment, SMEs should update payroll and HR documentation processes and confirm who in the business is responsible for stamp duty self-assessment and payment within the 30-day window.
- Reassess SST exposure on leased assets. Businesses leasing industrial equipment or premises should recheck their annual sales figure against the revised RM1.5 million MSME threshold and confirm whether the reduced 6% rate applies to their arrangements.
- Continue e-invoicing preparation. Businesses in or approaching the RM1 million to RM5 million turnover band are within scope from 1 January 2026 and should use the relaxation period to 31 December 2027 as preparation time, not as a reason to pause implementation work.
- LLP structures should review distribution planning. LLPs anticipating partner distributions above RM100,000 per annum should discuss the new measure with their tax adviser once the gazetted provisions are available, to understand the effective date and computation method.
Announced vs Enacted: A Necessary Caveat
The measures described above were announced in the Budget 2026 speech on 10 October 2025, or in follow-up Ministry of Finance and Inland Revenue Board notices issued after that date. Budget announcements represent government policy intent; they generally become legally binding only once the corresponding Finance Act, Income Tax Rules, or other subsidiary legislation is gazetted, and rules can be amended, deferred or clarified between the Budget speech and gazettement — as already happened with the e-invoicing thresholds and SST refinements referenced above, several of which were only confirmed in official notices issued after Budget day. Businesses should treat the figures and thresholds in this article as a general planning guide and confirm the current position with LHDN, RMCD or a qualified tax adviser before relying on any specific measure, particularly where an amount, threshold or effective date has changed more than once since October 2025.
Common Questions
Did the SME corporate tax rate change in Budget 2026?
No. The 15%/17%/24% tiered structure for qualifying SMEs and the 24% standard corporate tax rate were not changed by Budget 2026.
Is my business still required to implement e-invoicing if my turnover is between RM1 million and RM5 million?
Yes. Businesses in this band fall within the up-to-RM5 million phase with a mandatory implementation date of 1 January 2026, and benefit from an interim penalty relaxation period to 31 December 2027 — the requirement was not removed or deferred. Confirm your position against LHDN's current e-Invoice guideline.
Does the higher stamp duty exemption threshold apply to contracts signed before 2026?
Based on the transitional treatment described in official and professional commentary, contracts signed before 1 January 2025 generally remain fully exempt, while contracts signed in 2025 were subject to the prior RM300 threshold with limited penalty relief. Businesses should confirm the applicable transitional treatment for a specific contract with LHDN or their tax adviser.
Can my business claim both the AI/cybersecurity training deduction and existing HRD Corp levy claims?
Interaction between the Budget 2026 training deduction and HRD Corp levy reclaim mechanisms depends on the gazetted rules for the deduction and the specific HRD Corp scheme used. This should be confirmed with a tax adviser rather than assumed.
How Saifudin & Co Can Help
Saifudin & Co (SNCO) is a Malaysian Institute of Accountants (MIA)-registered chartered accounting firm (AF1451). We support Malaysian SMEs with tax planning and compliance in accordance with the Income Tax Act 1967 and related legislation, keeping in mind the credible basis that any tax position must have in law and the compliance implications for each business. As Budget 2026 measures move from announcement to gazetted law, our team can help you review which measures apply to your business, confirm classification and eligibility, and plan capital expenditure, employment documentation and SST registration accordingly.
If you would like to discuss how these changes may apply to your business, please request a consultation with our tax advisory team.
Last updated: July 2026
Source: Ministry of Finance Malaysia — Belanjawan 2026 tax measures appendix. This article is a general planning guide; readers should confirm current thresholds and effective dates with LHDN, RMCD, or a qualified tax adviser before relying on any specific figure.