Tax Due Diligence Malaysia 2025: M&A Risk Assessment

The New Era of Tax Due Diligence in Malaysia for 2025

In 2025, the landscape of tax due diligence in Malaysia has been fundamentally reshaped. A wave of new tax implementations, coupled with a more sophisticated and stringent audit approach from the Inland Revenue Board of Malaysia (LHDN), has transformed tax due diligence from a routine compliance check into a highly strategic and critical component of any M&A transaction. For buyers and investors, a deep understanding of this new environment is essential for mitigating risk and accurately valuing a target company.

The 2025 Tax Due Diligence Checklist: Critical New Risk Areas

A comprehensive tax due diligence process in 2025 must now extend beyond traditional compliance checks to cover a range of new and significant risk areas:

Global Minimum Tax (GMT): Effective from January 1, 2025, multinational enterprises (MNEs) with annual group revenue of at least €750 million are subject to a 15% minimum tax. Due diligence must now assess a target company's exposure to GMT and its preparedness for compliance.
Mandatory E-Invoicing: With full implementation for all companies by July 1, 2025, e-invoicing compliance is a critical new area of review. The due diligence process must verify that the target company has the systems and processes in place to issue and handle e-invoices in accordance with LHDN's requirements.
Capital Gains Tax (CGT) on Unlisted Shares: The full implementation of a 10% CGT on the disposal of unlisted shares in 2025 has major implications for M&A transactions. Due diligence must now carefully assess the potential CGT liabilities associated with the target company's shares.
Expanded Sales and Service Tax (SST): With the service tax rate increased to 8% for most services and the scope of SST expanded, a thorough review of the target's SST compliance is more important than ever.
Dividend Tax: A new 2% tax on dividend income exceeding RM100,000 for individual shareholders, effective from the 2025 year of assessment, adds another layer to be considered in the due diligence process.

Transfer Pricing: A Magnified Risk

Transfer pricing remains one of the highest-risk areas in any tax due diligence, and the LHDN's focus on it has only intensified. Key considerations for 2025 include:

The New Transfer Pricing Guidelines (MTPG 2024) and Audit Framework (TPTAF 2025): These new frameworks provide a clearer, but also more stringent, set of rules for transfer pricing. Due diligence must assess the target's compliance with these new guidelines.
Stricter Penalties under Section 113B: The introduction of criminal penalties for failure to submit transfer pricing documentation upon request has significantly raised the stakes. A key part of due diligence is now to confirm that the target has contemporaneous and robust transfer pricing documentation in place.

The LHDN Audit Landscape in 2025

The LHDN has professionalized and consolidated its audit approach with the introduction of new frameworks in 2025:

Rangka Kerja Audit Cukai dan Cukai Potongan Majikan (RKA CPM): A new combined audit framework for income tax, employer tax, and withholding tax.
Transfer Pricing Tax Audit Framework (TPTAF) 2025: A specific framework for transfer pricing audits.
Stamp Duty Audit Framework (SDAF) 2025: A new framework for stamp duty audits.

This more structured approach means that businesses can expect more targeted and in-depth audits from the LHDN. Tax due diligence must therefore be equally rigorous and forward-looking.

Conclusion

Tax due diligence in Malaysia in 2025 is a complex and high-stakes exercise. The raft of new taxes and the LHDN's intensified and more sophisticated audit approach mean that a superficial review is no longer sufficient. A successful transaction requires a proactive, in-depth, and strategic tax due diligence process that not only identifies historical liabilities but also assesses the target's preparedness for the new digital and international tax landscape. For buyers and investors, getting this right is more critical than ever.