(TAX UPDATE) Tax-Exempt Charity (IOT) in Malaysia: Approved Once, Safe Forever? Think Again.

(TAX UPDATE) Tax-Exempt Charity (IOT) in Malaysia: Approved Once, Safe Forever? Think Again.

Introduction

Many charities (Institutions/Organisations/Funds) feel relieved once they receive tax exemption approval under Section 44(6) of the Income Tax Act 1967.
Approval letter received.

Donors happy.

Board relaxed.

But here is the reality check from LHDN (HASIL):

Approval is not permanent. Compliance is watched all the time.

A recent HASIL media statement dated 2 December 2025 sends a very clear message to all Institutions, Organisations and Funds (IOTs).

If you are involved in any tax-exempt charity, please read carefully.

Key Summary … What HASIL Has Clarified

1. Tax exemption approval is now capped at 10 years

Starting 27 November 2025, any approval granted under Section 44(6) ACP 1967 will be limited to a maximum period of 10 years.

This applies to approvals for:
• Institutions
• Organisations
• Funds (IOTs)

After the 10-year period, the exemption does not automatically continue.
It must be reviewed again by HASIL.

For IOTs whose approval expires on 31 December 2025, HASIL will issue a new notification explaining how the 10-year rule applies.

Important point:
• Approvals granted before 27 November 2025 remain valid until their stated expiry
• The new 10-year period will only be considered after the current approval ends

2. HASIL can audit compliance throughout the approval period

HASIL made this very clear.

They may conduct menyeluruh semakan (comprehensive compliance reviews) from time to time, covering:
• Whether approval conditions are complied with
• Whether income and spending follow approved charitable purposes
• Whether document retention periods meet ACP 1967 requirements

This is not a one-off check.
It applies throughout the entire approval period.

3. Non-compliance can lead to withdrawal of exemption

This is the most painful part.

If an IOT breaches any approval condition:
• The tax exemption under Section 44(6) can be withdrawn
• Once withdrawn, the IOT’s income becomes taxable
• Tax is imposed under Schedule 6, subparagraph 13(1)(a), ACP 1967

In simple words:
Back taxes may become payable.
This can be financially devastating for charities.

IOT Implications … Why This Matters to You

IOTs are affected because:
• Directors sit on charity boards
• Companies donate and claim tax deductions
• Group foundations are commonly used for CSR
• Poor compliance affects donor tax claims

If the IOT loses its exemption:
• Donations may no longer qualify for deduction
• Past claims may be questioned
• Reputation risk increases significantly

Doing charity is good.
But doing charity without compliance is risky.

KTP’s Professional View

From a tax governance perspective, this announcement is timely and necessary.

Our advice to all IOTs :

Do not treat approval as “set and forget”
Tax exemption is a privilege, not a right.

Review approval conditions annually
Most problems arise because conditions are forgotten after many years.

Maintain proper records and documentation
HASIL will look at document retention and audit trails.

Prepare early for the 10-year renewal mindset
Waiting until expiry is too late.

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