(TAX UPDATE) Group Relief in Malaysia : A 20-Year Journey of Change

(TAX UPDATE) Group Relief in Malaysia : 20-Year Journey of Change

On 31 July 2025, the Inland Revenue Board of Malaysia (LHDN) issued Public Ruling No. 2/2025 as the most comprehensive guide yet on group relief.

It pulls together almost 20 years of changes, from its humble beginnings in 2006 to the tighter rules we see today. For SME bosses, it’s not just another tax update. It’s the rulebook that decides whether you can share losses between companies and keep more cash inside your group.

This is the timeline of how group relief has changed over the years, and what it means for your business today.

1. The Basics On Why Group Relief Exists

In Malaysia, every company is taxed as a separate entity. If one company in your group makes a profit and another makes a loss, you can’t just “net them off” — at least not in the early days.

Losses stay with the company that incurred them. First, you offset them against your own income. Any leftover can be carried forward for up to 10 years, but only for that company’s future profits.

The problem?

Many corporate groups ended up paying more tax than necessary because one company was profitable while another was stuck with unused losses.

Group relief was introduced in 2006 to solve this. It allows a loss-making company to transfer part of its current year adjusted business losses to a related profitable company. The profitable company pays less tax, and more money stays within the group instead of going to LHDN.

2. The Early Days Public Ruling No. 6/2006

When group relief first arrived in Public Ruling No. 6/2006, it came with a 50% surrender limit.

That meant if Company A lost RM1 million, it could only transfer RM500,000 to Company B, even if Company B was profitable enough to use more.

The eligibility rules were also strict:

Both companies had to be Malaysian-incorporated and resident.
Paid-up capital had to be more than RM2.5 million in ordinary shares.
There had to be at least 70% common ordinary shareholding between the companies.

It was a cautious start with generous enough to help, but tight enough to control abuse.

3. The First Big Boost 2009

In Public Ruling No. 6/2011, the surrender limit jumped from 50% to 70%, following changes in the Finance Act 2009.

For groups with significant losses, this was a game changer. Now, if Company A lost RM1 million, it could surrender RM700,000 instead of just RM500,000.

This opened the door to more efficient tax planning across group entities with a real win for corporate cash flow.

4. Sharper Rules Public Ruling No. 6/2016

The 2016 update didn’t change the 70% limit, but it made the eligibility tests more sophisticated.

Two levels of testing were introduced:

First-level test – At least 70% ordinary shareholding through Malaysian-incorporated companies.
Second-level test – At least 70% beneficial entitlement to residual profits and assets.

This was to ensure that the relationship between companies was genuine and sustained — not just a paper arrangement to pass losses around.

5. The Game Changer Finance Bill 2018

Then came the biggest shift since the beginning.

From the Year of Assessment (YA) 2019, new companies could only use group relief for three consecutive years starting after their first YA.

In other words, if your company started operations in 2020, you only had until YA 2023 to surrender losses after that, no more group relief.

Transitional rules were put in place :

Companies starting in 2017 could surrender losses until YA 2021.
Those starting in 2016 could go until YA 2020.
Those starting in 2015, only until YA 2019.
Companies set up before 2015 lost eligibility entirely.

This was a clear message from the government : group relief is not meant to be a permanent tax shield.

6. Today’s Rules Public Ruling No. 2/2025

The new Public Ruling No. 2/2025 brings everything together in one place.

The 70% surrender limit stays. But now there’s clearer guidance and definitions to remove past uncertainties.

Key eligibility rules remain:

Both companies must be Malaysian-incorporated and resident.
Paid-up capital above RM2.5 million in ordinary shares.
Identical 12-month accounting periods.
Both taxed at the standard corporate tax rate.
Pass both first-level and second-level shareholding tests for the current and preceding 12 months.

New clarity in definitions:

“Operations” now includes business activities, investments, or both.
“Residual assets and profits” are amounts left after commercial loan repayments and fixed dividends.
Clearer distinction between commercial and non-commercial loans.

7. Compliance Has Tightened

Group relief elections must now be made irrevocably in your Income Tax Return Form (Form C) under Section 77A. Once submitted, you can’t amend or withdraw.

Mistakes can be costly and penalties apply if you give incorrect information. That means proper documentation and professional advice are more important than ever.

8. Not Everyone Qualifies

Some companies are excluded entirely :

Those enjoying pioneer status incentives.
Companies with unutilized Investment Tax Allowance.
Companies with unabsorbed pioneer losses after the incentive period.

This avoids “double dipping” that claiming more than one type of relief on the same losses.

9. What This Means for SME Bosses

The biggest takeaway is the three-year limit for new companies. If you’re setting up a new entity, you only have a short window to use group relief.

That means :

Plan your group structure before you start operations.
Forecast your profit and loss patterns.
Time your investments and expansion to match the relief window.
For established companies, the focus should be on compliance and documentation. With tighter definitions and penalty risks, you can’t afford to be sloppy.

10. Final Word … Plan Early, Act Smart

Group relief in Malaysia has evolved from a cautious 50% start to a more generous 70%, but with far tighter control.

Public Ruling No. 2/2025 keeps the door open for loss sharing but only for those who plan ahead, meet all the tests, and play by the rules.

For SME bosses, the message is simple : Treat group relief as a strategic tool, not a permanent entitlement.

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