TaxSavvyMY

Sole proprietor or Sdn Bhd for a growing business

My enterprise makes RM300,000 profit a year. Should I convert to Sdn Bhd?

The situation

A sole proprietor pays tax at individual rates up to 30%. A qualifying SME company pays 15% on the first RM150,000 and 17% up to RM600,000.

The law

  • Part I, Schedule 1, Income Tax Act 1967: Resident individual rates from 0% to 30% (30% above RM2 million for YA 2025)
  • Para 2A, Part I, Schedule 1, Income Tax Act 1967: SME rates: 15% on first RM150,000 and 17% on RM150,001 to RM600,000 of chargeable income

What it means for you

At RM300,000 profit, the individual rate band reaches 25%, while an SME company would pay about RM48,000 on the same profit. Extracting money from a company as salary or dividends has its own tax and EPF effects. Costs of a company are higher: secretary, accounts and audit or exemption. Run both scenarios with actual numbers.

What to do

  1. List your profit, drawings and EPF needs.
  2. Compare individual tax with company tax plus extraction.
  3. Add company running costs.
  4. Decide and plan the transfer of business.

We can do this for youRegister a sole proprietorship or partnership with SSM: MYR 250

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