Insights · Malaysia Tax
Malaysia Transfer Pricing Rules 2026: Documentation Thresholds and Penalties
Malaysian companies with related-party transactions must prepare contemporaneous transfer pricing documentation before their tax return is due and hand it over within 14 days of a written request from the Inland Revenue Board. Full documentation is required above RM30 million of gross business income with RM10 million or more of cross-border controlled transactions, or above RM50 million of controlled financial assistance; most others may prepare minimum documentation. Failing to furnish it can mean a RM20,000 to RM100,000 fine, and adjustments attract a surcharge of up to 5%.
This guide is for directors and finance leads of Malaysian companies that trade with, lend to or charge fees to group companies. It covers who must document what, what contemporaneous means, how the 14-day rule, penalties and surcharge work in an audit, and what changed in 2026.
| Rule | Position at 2 October 2026 |
|---|---|
| Legislation | Section 140A, Income Tax Act 1967; Income Tax (Transfer Pricing) Rules 2023, from YA 2023 |
| Exempt | Total controlled transactions, including financing, of RM1 million or less |
| Full documentation | Gross business income above RM30 million plus RM10 million or more of cross-border controlled transactions, or financial assistance above RM50 million |
| Minimum documentation | Everyone else with controlled transactions |
| Timing | Ready before the return is due; furnished within 14 days of a written notice |
| Arm’s length range | 37.5th to 62.5th percentile; results outside it go to the median |
| Failure to furnish | Section 113B: RM20,000 to RM100,000 fine, up to 6 months’ imprisonment, or both |
| Surcharge | Up to 5% of the adjustment under section 140A(3C) |
Who must prepare full or minimum documentation
Section 140A of the Income Tax Act 1967 requires transactions between associated persons to be priced at arm’s length. The Income Tax (Transfer Pricing) Rules 2023, gazetted on 29 May 2023 and effective from YA 2023, set out the documentation, and the Inland Revenue Board of Malaysia (LHDN) explains the thresholds in the Malaysian Transfer Pricing Guidelines 2024, issued on 24 December 2024. Controlled transactions include goods, services, royalties, management fees and financial assistance such as loans.
Paragraph 1.5 of the Guidelines exempts four groups from preparing documentation: individuals not carrying on a business; individuals and partnerships with only domestic controlled transactions; any person whose controlled transactions total RM1 million or less; and a person dealing solely with a domestic associate where both have no tax incentive, pay the same headline rate and made no losses in the two preceding years. LHDN’s FAQ confirms the RM1 million counts trading and financing together, so RM950,000 of purchases plus a RM500,000 related-party loan breaks the exemption. Exempt persons must still price at arm’s length and keep records.
Full documentation is required where a company has gross business income above RM30 million and cross-border controlled transactions of RM10 million or more, or provides or receives controlled financial assistance above RM50 million. LHDN measures both per basis period, so test them every year of assessment. Everyone else with controlled transactions may prepare minimum documentation, using LHDN’s template. A permanent establishment must prepare full documentation, separate from its head office, whatever its size.
Contemporaneous documentation, the 14-day rule and the arm’s length range
Under the 2023 Rules, documentation is contemporaneous only if it is brought into existence before the due date for furnishing the return for that year of assessment. For a company, that is Form e-C, due seven months after the financial year end. The file is not submitted with the return; LHDN may serve a written notice, and it must then be furnished within 14 days of the date of service. A file written after the return deadline is not contemporaneous, however thorough.
Full documentation follows the schedules to the Rules: group information where the company belongs to a multinational group, the local business and its controlled transactions, and any cost contribution arrangements. It must apply a recognised pricing method and test results against comparables. The Rules fix the arm’s length range at the 37.5th to 62.5th percentile of comparable results. Where a result falls outside it, the arm’s length price is taken at the median, so a distributor earning 2% against a range of 3% to 6% and a median of 4.5% is adjusted to 4.5%, not 3%.
Penalties, the 5% surcharge and what changed in 2026
Failing to furnish complete contemporaneous documentation within 14 days of a written notice is an offence under section 113B: on conviction, a fine of RM20,000 to RM100,000, up to six months’ imprisonment, or both. LHDN’s Transfer Pricing Tax Audit Framework, effective 31 July 2025, also applies a penalty under section 113B(4) at the end of an audit, for each year of assessment where documentation is late or incomplete: RM20,000 for a delay of up to 7 days, rising in RM20,000 steps to RM100,000 beyond 28 days.
Where an audit adjustment increases income or reduces deductions or losses, section 140A(3C) allows a surcharge of up to 5% of the adjustment, for basis periods beginning on or after 1 January 2021. LHDN’s FAQ says 5% is the general rate, with the final rate set case by case, and the framework allows 0% to 4% for voluntary disclosure. A transfer pricing audit normally covers up to six years of assessment and can reach back seven, with no limit for fraud, wilful default or negligence.
Two developments in 2026 matter. Amendment rules gazetted in August 2026, with effect from YA 2023, let the Director General approve, on request, an offsetting adjustment to the other party’s assessment. In July 2026 LHDN also published guidelines on intra-group loans, covering credit ratings and a simplified interest-rate option for some ringgit loans. The Finance Act 2025 left the penalty and surcharge rules unchanged, and budget proposals take effect only once legislated.
A transfer pricing checklist for the year end
- List every associated person and every controlled transaction, including loans, guarantees, cost recharges and interest-free balances.
- Total controlled transactions, including financial assistance, against the RM1 million exemption, then test income, cross-border transactions and financing against the full-documentation thresholds.
- Put written intercompany agreements in place and set prices with a method you can explain and benchmark.
- Finish and date the documentation before Form e-C is due, seven months after the financial year end.
- Keep the file ready to hand over within 14 days of a written notice, and record the date the notice is served.
- If you find a pricing error, consider a voluntary disclosure, which LHDN’s framework rewards with a lower surcharge.
- Check country-by-country reporting if consolidated group revenue reached RM3 billion in the preceding financial year.
Frequently asked questions
What are the transfer pricing documentation thresholds in Malaysia?
Under the Malaysian Transfer Pricing Guidelines 2024, full documentation is required where gross business income exceeds RM30 million and cross-border controlled transactions total RM10 million or more a year, or where controlled financial assistance exceeds RM50 million. Persons whose controlled transactions total RM1 million or less are exempt. Everyone else may prepare minimum documentation using LHDN’s template. Permanent establishments must always prepare full documentation.
When must transfer pricing documentation be prepared and submitted in Malaysia?
It must exist before the due date of the tax return for that year of assessment, which for a company is seven months after the financial year end. It is not filed with Form e-C. When LHDN serves a written notice, the company has 14 days from the date of service to furnish complete documentation. A file written later, for example after an audit starts, is not contemporaneous.
What is the penalty for not having transfer pricing documentation in Malaysia?
Failing to furnish contemporaneous documentation within 14 days of a written notice is an offence under section 113B, punishable by a fine of RM20,000 to RM100,000, up to six months’ imprisonment, or both. Under LHDN’s audit framework, a penalty of RM20,000 to RM100,000 per year of assessment, scaled by the delay, is imposed at the end of an audit. Adjustments can also attract a surcharge of up to 5%.
What is the 5% transfer pricing surcharge in Malaysia?
Section 140A(3C) of the Income Tax Act 1967 lets LHDN impose a surcharge of up to 5% of the amount of a transfer pricing adjustment, for basis periods beginning on or after 1 January 2021. According to LHDN’s FAQ, 5% is the general rate, and the final rate depends on the merits of each case. Under the audit framework, a voluntary disclosure can reduce it to between 0% and 4%.
Sources
Figures in this article were checked against these sources on 2 October 2026. Rates, fees and deadlines change, so confirm the current position with the authority before acting.
- Inland Revenue Board of Malaysia (LHDN), Transfer pricing
- Inland Revenue Board of Malaysia (LHDN), Malaysian Transfer Pricing Guidelines 2024
- Inland Revenue Board of Malaysia (LHDN), Income Tax (Transfer Pricing) Rules 2023
- Inland Revenue Board of Malaysia (LHDN), Transfer pricing tax audit framework
- Inland Revenue Board of Malaysia (LHDN), FAQ on the section 140A(3C) surcharge
- Inland Revenue Board of Malaysia (LHDN), FAQ on paragraph 1.5 of the Transfer Pricing Guidelines 2024
- Inland Revenue Board of Malaysia (LHDN), Transfer pricing documentation flowchart
- Inland Revenue Board of Malaysia (LHDN), Income Tax (Transfer Pricing) (Amendment) Rules 2026
