Five Doors LHDN Is Knocking On Right Now

It starts with an envelope. Or these days, a notification on MyTax.

You open it on a Monday morning. LHDN would like to "review" your records for the last three years of assessment. Fourteen days to respond.

You think back. The related company loan that never had an agreement. The shares you moved to your holding company last year. The company car your sales director drives every weekend. That container from China cleared through a forwarder under someone else's name.

None of it felt like a tax problem at the time. It just felt like running a business.

That is exactly the point. The Inland Revenue Board of Malaysia (LHDN, also known as HASiL) has spent the last two years building the rules, frameworks and systems that turn these everyday decisions into audit findings. Royal Malaysian Customs (RMCD) is doing the same on the indirect tax side.

In our practice, five areas come up again and again. Here is what each one means for you, and what the authorities are actually looking for.

011. Transfer pricing: the rules have caught up with SMEs

Transfer pricing used to sound like a multinational problem. It is not anymore.

Section 140A of the Income Tax Act 1967 requires every transaction between associated persons to be priced at arm's length. Goods, services, management fees, rental, royalties and, increasingly, loans. The Income Tax (Transfer Pricing) Rules 2023 apply from YA 2023, and the Malaysian Transfer Pricing Guidelines 2024 explain who must document what.

Here is the part most SME owners miss. The exemption from preparing documentation is narrow. If your controlled transactions, trading and financing combined, exceed RM1 million, you are generally in scope. Exceed RM30 million of gross business income with RM10 million or more of cross-border controlled transactions, or more than RM50 million of controlled financial assistance, and full documentation applies. Everyone else in scope prepares minimum documentation using LHDN's template.

"Exempt" from documentation never means exempt from arm's length. LHDN can still adjust your pricing.

Why it is a focus now

The Transfer Pricing Tax Audit Framework 2025 took effect on 31 July 2025. It sets out how cases are selected and how penalties are applied at the end of an audit.

In 2026, LHDN added two more pieces. In July, it issued dedicated guidelines on intra-group loans, covering credit ratings and a simplified interest rate option for certain ringgit loans. In August, amendment rules were gazetted, with effect from YA 2023, allowing the Director General to approve, on request, a corresponding adjustment to the other party's assessment.

The message is clear. Interest-free director and related company balances, informal management fees and "we will settle later" intercompany accounts are now squarely on the radar.

What it costs you

Your documentation must be contemporaneous. That means it must exist before the due date of your tax return for that year of assessment. For a company, that is seven months after the financial year end. You do not file it with Form e-C. But once LHDN serves a written notice, you have 14 days to furnish it.

A file written after the audit letter arrives is not contemporaneous, however good it looks.

Failing to furnish exposes you to a fine of RM20,000 to RM100,000 under Section 113B. Under the audit framework, a penalty scaled by the length of delay applies for each year of assessment. On top of any additional tax, Section 140A(3C) allows a surcharge of up to 5% of the adjustment amount, whether or not additional tax is payable. Voluntary disclosure can bring that surcharge down.

Where your result falls outside the arm's length range, the 2023 Rules adjust it to the median, not to the nearest edge of the range.

022. Stamp duty: LHDN no longer gives you the number

For decades, stamping was simple. You submitted the document. An LHDN officer told you the duty. You paid.

From 1 January 2026, that changed. Under the Stamp Duty Self-Assessment System (STSDS), you determine the duty, declare it and pay it through e-Duti Setem on MyTax. LHDN audits afterwards. It is the same shift income tax made decades ago.

The rollout is phased. Phase 1, from 1 January 2026, covers rental and lease agreements, securities such as share transfers, and general stamping. Phase 2, from 1 January 2027, moves property transfers that do not require a JPPH valuation. Phase 3, from 1 January 2028, covers the rest.

Why it is a focus now

LHDN has been running stamp duty audits nationwide under its Stamp Duty Audit Framework since 2025. One headline finding: many employment contracts had never been stamped, despite RM10 duty under Item 4 of the First Schedule to the Stamp Act 1949.

For contracts executed from 1 January 2026, stamping applies where monthly remuneration exceeds RM3,000. RM10 sounds trivial. Multiply it by every hire, every year, then add the late penalty per contract.

The bigger exposure sits elsewhere. Share transfers attract 0.3% on the higher of consideration or value, normally based on net tangible assets. Transfer shares at RM1 in a company with RM5 million of NTA, and the duty is not RM3. Loan agreements, service agreements and tenancies are ad valorem too. Under self-assessment, an understated figure is now your error, not the officer's.

What it costs you

Instruments executed in Malaysia must generally be stamped within 30 days. Late stamping under Section 47A attracts the higher of RM50 or 10% of the deficient duty within three months, and the higher of RM100 or 20% beyond that.

There is also a cost no penalty table shows. An unstamped instrument cannot be admitted as evidence in court until duty and penalty are paid. You usually discover this when the other party has already breached the contract.

LHDN has granted a first-year penalty concession for Phase 1 instruments during 2026. That window closes on 31 December 2026. Confirm the exact scope against the HASiL announcement before relying on it for any specific document.

033. Capital gains tax: the RM1 share transfer is over

Here is a conversation we have had more than once.

"We just moved the shares to our holding company. RM1. Internal only. No money changed hands."

To LHDN, that is a disposal of a chargeable asset.

Since 1 January 2024, companies, LLPs, trust bodies and co-operative societies pay capital gains tax (CGT) on disposals of unlisted shares in Malaysian companies. Disposals up to 29 February 2024 were exempt. Individuals are outside the regime.

The rate is 10% of the chargeable gain. For shares acquired before 1 January 2024, you may instead elect 2% of the gross disposal price.

Why it is a focus now

Three reasons.

First, connected party disposals. Under Section 65E, where the parties are connected or the transaction is not at arm's length, LHDN substitutes market value for the price you wrote in the agreement. That RM1 transfer of a company with RM5 million of net tangible assets is not a RM1 gain question. It is a market value question.

Second, the meaning of disposal widened from 1 January 2026 under the Finance Act 2025. It now captures capital reductions, share redemptions and conversions, buy-backs and rights extinguished on a winding up. A members' voluntary liquidation or a group capital reduction now needs a CGT review before the board approves it.

Third, the paper trail now exists. Every share transfer must be stamped, and stamp duty is self-assessed on the higher of consideration or value. Your stamp duty filing and your CGT return now tell LHDN two stories about the same transaction. They had better match.

What it costs you

The return (e-CKM) and the tax are both due within 60 days of disposal. Where there is a written agreement, the clock starts on the agreement date, not completion. Each disposal needs its own return.

The group restructuring exemption under P.U.(A) 289/2024 and the IPO exemption under P.U.(A) 290/2024 remain available for qualifying disposals up to 31 December 2028. But you still file and pay first, then claim. Missing the 60 day window brings the usual late return and late payment penalties under the Act, even where the exemption would ultimately apply.

Capital losses are ring-fenced. They offset future capital gains only, never business income.

044. PCB audits: the company car is the starting point

Your payroll may be perfect. Salary, EPF, SOCSO, PCB all remitted by the 15th of the following month.

Then the auditor opens your general ledger, not your payroll.

That is where the real employer audit happens. LHDN compares what the company paid for its people against what appears in Form EA and the CP8D attached to Form E. Every gap is a potential finding.

Why it is a focus now

Benefits-in-kind (BIK) are the classic gap. Under Section 13(1)(b) of the Income Tax Act 1967 and Public Ruling No. 11/2019, non-cash benefits provided to an employee are taxable employment income. The company car used privately. The driver. The condominium paid by the company. Furnishings, club memberships, utilities.

Perquisites under Section 13(1)(a), covered by Public Ruling No. 5/2019, sit right next to them. Petrol cards. Personal bills settled by the company. The director's family holiday booked through the company's credit card.

In SMEs, the biggest exposure is almost always the director. Expenses booked as "motor vehicle", "entertainment" or "general expenses" that are really personal benefits. The auditor finds them in the ledger, values them under the ruling, and asks why they never appeared in the EA form.

Some benefits are genuinely exempt. A mobile phone, broadband subscription and certain devices, medical benefits and leave passages within limits all have specific treatment in the ruling. The problem is not that exemptions do not exist. It is that most companies never documented which benefits they relied on and why.

What it costs you

Under Section 107 of the Act, an employer who fails to deduct or remit monthly tax deductions becomes liable for the amount that should have been deducted. LHDN can recover it from the company, with an increase on amounts not remitted.

The employee's assessment is also revised. Now your director has a personal tax bill, the company has a PCB shortfall, and the disallowed expenses may flow into a corporate tax adjustment too. One finding, three assessments.

The fix is unglamorous. List every benefit the company provides. Value it using the formula or prescribed value method in the ruling. Report it consistently in Form EA, CP8D and, where applicable, PCB. Keep the working.

055. SST on imports: the "all in" shipment with no paperwork

You know the offer. Ship from China, door to door, one price per cubic metre. Tax settled. Just pay and collect.

It is convenient. It is also one of the fastest growing problem areas we see.

How it should work

Sales tax on imported goods is collected by RMCD at the point of clearance, through the Customs Form No. 1 (K1) declaration. Most taxable goods are charged at 5% or 10%, on a value that includes CIF and import duty. The K1 identifies the importer, the goods, the tariff code and the value. For your business, the K1 and the customs receipt are your evidence that tax was properly paid.

Where it goes wrong

In many consolidated "all in" arrangements, the goods are declared under the forwarder's or consolidator's name. Values are often understated. Descriptions are vague. Your company receives the goods, a single lump sum invoice from the forwarder, and nothing else.

From RMCD's view, the question becomes simple. Who imported these goods, at what value, and was the correct sales tax paid?

Why it is a focus now

The SST scope expansion on 1 July 2025 brought many more goods into the 5% and 10% bands. RMCD's penalty-free transition period ended on 31 December 2025, and penalties for incorrect declarations have applied since 1 January 2026.

There is an income tax side too. When LHDN reviews your purchases and finds stock with no supplier invoice, no K1 and only a forwarder's lump sum bill, it will question the cost, the quantity and the valuation of your inventory. Under the e-Invoice regime, importation of goods also carries a self-billed e-Invoice obligation, which is hard to meet when you have no import documents to support it.

What it costs you

Unpaid or underpaid sales tax can be recovered from the importer, with penalties. Incorrect or false declarations can be offences under the Customs Act 1967 and the Sales Tax Act 2018, and goods can be seized. On the LHDN side, unsupported purchase costs risk being disallowed.

If you import commercially, insist on the K1 in your company's name, the supplier's commercial invoice and the customs payment receipt for every shipment. If a forwarder cannot give you those, you are not buying convenience. You are buying exposure.

06The common thread

Look at the five areas again.

Transfer pricing. Stamp duty. CGT. PCB and BIK. SST on imports.

Different taxes, different authorities. But the audit question is the same every time. Can you prove, with documents that existed at the time, that what you did matches what you declared?

The shift to self-assessment, whether in stamp duty, CGT or transfer pricing documentation, moves the burden of proof onto you. The authorities are no longer calculating your tax. They are checking your homework.

Before your next financial year end, ask your finance team five questions. Do we have documentation for every related party transaction, including loans? Has every share transfer, tenancy and employment contract been stamped? Did any company in the group dispose of unlisted shares in the last 60 days? Does every benefit we give our directors appear in their EA forms? Do we hold a K1 in our own name for every import?

If any answer is "not sure", that is your starting point.

This article is general educational content based on the law and published guidance as at November 2026. It is not tax advice for your specific circumstances. Please speak to a licensed tax agent before acting on it.

This article was drafted with AI assistance and reviewed by a licensed tax agent at KTP & Company PLT.

Reviewed by: Koh Teck Peng, Licensed Tax Agent, Section 153(3) ITA 1967. Date: 10 November 2026