This guide helps Malaysian SMEs assess documentation requirements for sales, purchases, management fees, rentals, royalties, loans, advances, guarantees and other transactions with related parties.
Do Malaysian SMEs need transfer-pricing documentation?
Any person entering into a controlled transaction should ensure the price and terms are consistent with the arm’s length principle. A documentation exemption reduces the CTPD requirement; it does not permit non-commercial or unsupported related-party pricing.
Controlled transactions can be domestic or cross-border and include operational transactions and financial assistance. Common SME examples are director or shareholder loans, intercompany balances, shared staff costs, management charges, property rental and sales between related companies.
When is a taxpayer exempt from preparing CTPD?
The Malaysia Transfer Pricing Guidelines 2024 provide several exemptions. Important examples include:
- An individual who is not carrying on a business.
- An individual carrying on a business, including a partnership, who engages only in domestic controlled transactions.
- A person whose total controlled transactions for the year of assessment do not exceed RM1 million. LHDN has clarified that this total includes operational transactions and financial assistance.
- A person engaging only in domestic controlled transactions where the relevant parties do not enjoy tax incentives, are taxed at the same headline rate and have not suffered losses for two consecutive years before the tested year.
The domestic exemption should be tested condition by condition. If an incentive, different headline tax rate or the relevant loss position prevents the exemption, the taxpayer should assess whether minimum or full CTPD is required.
What are the full CTPD thresholds?
| Condition | Documentation position |
|---|---|
| Gross business income exceeds RM30 million in total and annual cross-border controlled transactions total RM10 million or more | Full CTPD |
| Controlled financial assistance received or provided exceeds RM50 million annually | Full CTPD |
| Not exempt, but the full CTPD thresholds are not met | Minimum CTPD may be prepared |
| Permanent establishment | Prepare separate full CTPD, subject to the official rule |
The RM10 million test relates to cross-border controlled transactions. The RM50 million financial-assistance threshold covers controlled financing. Businesses should measure annual transaction values correctly rather than relying only on year-end receivable or payable balances.
What is minimum CTPD?
Minimum CTPD is a reduced documentation approach for a taxpayer that is not exempt but does not meet the full CTPD threshold. It should still explain the business, related parties, controlled transactions and the basis used to establish an arm’s length price.
- Current organisation and ownership chart.
- Description of the business and related parties involved.
- Schedule of each controlled transaction by type and value.
- Agreements, invoices, calculations and payment evidence.
- Explanation of the pricing policy and why it is commercially supportable.
- Relevant financial information and transaction reconciliations.
- LHDN’s minimum CTPD template and supporting notes, completed for the relevant year.
When must CTPD be prepared?
CTPD is contemporaneous when it is completed and dated before the due date for furnishing the tax return for the relevant year of assessment. It should not be assembled only after an audit notice arrives.
Where LHDN issues a written notice, the taxpayer may be required to furnish CTPD within 14 days. A short response period makes annual preparation and document retention essential.
Related-party transactions SMEs often overlook
- Interest-free or low-interest shareholder and intercompany loans.
- Management fees without a service description or benefit evidence.
- Shared payroll, software, rent or administrative costs without an allocation basis.
- Property or equipment rental between related entities.
- Guarantees, advances and long-outstanding balances.
- Transactions with a Singapore or other overseas related company.
Annual SME transfer-pricing checklist
- Update the group structure and related-party list.
- Reconcile controlled transactions to the general ledger and tax computation.
- Test the RM1 million exemption and domestic-transaction conditions.
- Test the full CTPD thresholds separately.
- Prepare and date minimum or full CTPD before the tax-return deadline.
- Retain contracts, invoices, calculations and evidence of services received.
- Review new loans, restructurings and cross-border arrangements before implementation.
How HTL supports SMEs
HTL helps SMEs identify controlled transactions, assess CTPD thresholds, prepare minimum or full documentation and strengthen related-party policies before an LHDN review. Learn more about HTL’s transfer-pricing services.
This article provides general information only. The correct documentation position depends on the taxpayer’s facts, the applicable year of assessment and the latest LHDN rules and guidelines.
