Total tax: sole proprietor vs Sdn Bhd.
Lower-tax structure
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Sole proprietor tax
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Sdn Bhd total tax
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Two ways to be taxed on the same profit
Pick the wrong business vehicle and you can hand a surprising slice of your profit to the taxman for no good reason. Run your business as a sole proprietor and every ringgit of profit lands on your personal tax return, climbing the resident scale that the calculator applies, from 0 percent up to a top marginal 30 percent on chargeable income above RM2 million. Incorporate as a Sdn Bhd and the picture splits in two. The company pays corporate tax on whatever profit it keeps, and you, as the working owner, pay personal tax only on the salary you actually draw. That salary is a deductible expense for the company, so it is never taxed twice. This tool sets the two routes side by side and tells you which one carries the lower combined bill.
The structure of the rules is the stable part, and it is worth understanding even if the exact figures shift in a future budget. The corporate side here uses the small and medium enterprise scale, which (as modelled, and worth confirming with LHDN) charges 15 percent on the first RM150,000 of company profit, 17 percent on the slice up to RM600,000, and 24 percent above that. A company that fails the SME conditions, on paid-up capital or gross income, pays a flat 24 percent instead, and the dropdown lets you switch to that.
Where the company structure starts to win
The crossover happens because personal rates ramp up faster than the SME corporate scale. A sole proprietor banking RM300,000 of profit is paying 25 percent at the margin. A company keeping the same profit, after paying out a sensible owner salary, may have much of its retained earnings sitting in the 15 and 17 percent tiers. The more profit you can reasonably leave inside the company rather than draw as salary, the wider that gap tends to open.
What the comparison leaves out
Here is the honest caveat, and it is the mistake people make most often. This calculator models income tax only. It does not add the running cost of a company: audited accounts, a company secretary, and annual filing fees that can comfortably run into the low thousands of ringgit a year. Nor does it model the statutory contributions that attach to a real salary. Pay yourself through the company and you trigger EPF (employee around 11 percent, employer 12 to 13 percent for those under 60, reduced or nil past 60), plus SOCSO and EIS. Those are partly a benefit and partly a cost, but they are real cash. Treat the tax saving the tool shows as the ceiling, then subtract these to find the true advantage.
RM300,000 of profit, split two ways
Take the default inputs: RM300,000 annual profit, an owner salary of RM100,000, and SME status. The numbers below use the rates this calculator applies, with the automatic RM9,000 individual relief subtracted on each personal calculation.
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So the company route is roughly RM18,460 a year lighter on tax alone. Set that against, say, RM4,000 to RM6,000 of compliance and the genuine net gain shrinks but usually survives at this profit level.
Dividends, shares, and the gains question
One thing the comparison stops short of is what happens when you pull retained profit out as a dividend. From year of assessment 2025 Malaysia applies a 2 percent tax on an individual shareholder's dividend income above RM100,000 in a year, on the excess only, with EPF and unit-trust dividends excluded. Below that threshold dividends remain untaxed in your hands. Worth knowing: Malaysia has no general capital gains tax on shares for individuals, so selling listed shares at a profit is not taxed the way it is in many countries. Real property is the exception, where RPGT applies by holding period. Confirm the current dividend threshold and SME conditions with LHDN, and the contribution rates with KWSP, before you decide.
Does drawing a higher salary always cut the Sdn Bhd bill?
No, and that is a useful thing to test in the tool. A bigger salary shifts profit out of the low 15 and 17 percent corporate tiers and onto your personal scale, where the marginal rate may be 19 or 25 percent. Past a point, extra salary costs more tax than it saves. Nudge the salary field up and down and watch the combined figure to find the sweet spot for your profit level.
Who is this comparison really for?
It fits a profitable solo operator or small partnership weighing whether to incorporate, typically once annual profit clears six figures. Below RM70,000 or so of profit, the personal scale is gentle and the company's fixed compliance costs rarely justify the move on tax grounds alone.