Executive Summary
The introduction of the Global Minimum Tax under Pillar Two of the OECD's BEPS 2.0 project represents a fundamental shift in the international tax landscape. This guide provides an overview of the key mechanics of the Global Minimum Tax, its potential impact on Malaysian businesses, and practical steps that companies can take to prepare for its implementation in 2025.
What is the Global Minimum Tax (Pillar Two)?
Pillar Two introduces a global minimum corporate tax rate of 15% for multinational enterprises (MNEs) with a global turnover of more than €750 million. The objective is to ensure that MNEs pay a minimum level of tax on their profits in every jurisdiction where they operate, thereby reducing the incentive for companies to shift profits to low-tax jurisdictions.
Key Mechanics of Pillar Two
Pillar Two operates through a set of interlocking rules, primarily the Income Inclusion Rule (IIR) and the Undertaxed Payments Rule (UTPR). The IIR allows the ultimate parent entity of an MNE group to pay a top-up tax on the profits of its foreign subsidiaries that are taxed below the 15% minimum rate. The UTPR serves as a backstop to the IIR, denying deductions or requiring an equivalent adjustment for payments to related entities that are not subject to the minimum tax.
Impact on Malaysian Businesses
While the Global Minimum Tax targets large MNEs, it will have a significant impact on the Malaysian tax landscape. Malaysian companies that are part of an MNE group meeting the turnover threshold will need to assess their global tax position and may be subject to additional tax liabilities. The new rules will also affect Malaysia's tax incentives and its attractiveness as an investment destination.
What You Need to Do to Prepare
- Assess Your Group's Structure: Determine if your MNE group falls within the scope of Pillar Two.
- Data Collection and Analysis: Gather the necessary financial data to calculate your group's effective tax rate in each jurisdiction.
- Impact Modelling: Model the potential impact of the new rules on your group's tax liabilities.
- Review Your Tax Strategy: Re-evaluate your group's tax strategy in light of the new rules.
- Engage with Stakeholders: Communicate the potential impact of Pillar Two to your stakeholders, including the board of directors, audit committee, and investors.
Related Services
Our Tax Advisory & Compliance team can help you navigate the complexities of the Global Minimum Tax. We provide impact assessments, implementation support, and strategic advice to help you prepare for this new era of international taxation.
Last updated: 15 Oct 2025