THE Global Minimum Tax (GMT) was introduced to address profit shifting by very large multinational enterprises (MNE) to low-tax or tax-free jurisdictions, which resulted in double non-taxation.
In many cases, the MNE were either not taxed in their home jurisdiction or the host jurisdiction, or they paid only a negligible amount of tax in those locations. While these arrangements were generally legally permissible, they were regarded as tax avoidance in substance.
The international response by tax authorities was the introduction of a global minimum effective tax rate of 15% for large MNE operating across multiple jurisdictions. Under the GMT regime, in-scope MNE are expected to pay an effective tax rate of at least 15% in every jurisdiction in which they operate. GMT generally applies where the consolidated annual revenue of an MNE Group exceeds €750 million, which is about RM3.5 billion based on current exchange rates.
The Malaysian situation
Malaysia committed to implementing GMT for financial years beginning on or after Jan 1 2025. The entities affected include Malaysian MNE Groups with consolidated annual revenue exceeding €750 million. This includes subsidiaries, branches and permanent establishments.
To fall within the scope of the GMT regime, at least one constituent entity, branch, or permanent establishment must be located outside Malaysia.
Another requirement is that the €750 million consolidated revenue threshold must be met in at least two of the four financial years immediately preceding the tested financial year.
Certain entities are excluded from the GMT regime, including governmental entities, international organisations, non-profit organisations, pension funds, investment funds that are the ultimate parent entity (UPE), real estate investment vehicles that are the UPE, and certain qualifying holding entities.
The taxes generally covered under GMT include income tax, Real Property Gains Tax, Petroleum Income Tax and taxes imposed under the Labuan tax regime. Where a Malaysian entity forms part of an in-scope MNE Group, the relevant Malaysian constituent entities may have filing obligations under Malaysia’s GMT legislation.
Filing obligations
GMT in Malaysia is administered through two top-up tax mechanisms: Domestic Top-up Tax (DTT); Malaysia’s implementation of the Qualified Domestic Minimum Top-up Tax (QDMTT) under the OECD Pillar Two Rules and Multinational Top-up Tax (MTT); Malaysia’s implementation of the Income Inclusion Rule (IIR) under the OECD Pillar Two Rules.
The DTT enables Malaysia to collect Top-up Tax on the low-taxed profits (i.e., where the jurisdictional Effective Tax Rate is below 15%) of Constituent Entities located in Malaysia that are members of an in-scope MNE Group. By applying the DTT, Malaysia has the primary taxing right over domestic low-taxed profits, ensuring that these profits are subject to a minimum effective tax rate of 15%.
The MTT is Malaysia’s implementation of the IIR. It enables Malaysia to collect Top-up Tax on the low-taxed foreign profits of constituent entities within an in-scope MNE Group if that host country jurisdiction does not collect the DTT. The MTT ensures that foreign profits within the group are subject to a minimum effective tax rate of 15%, where the relevant jurisdiction has not already imposed a QDMTT.
The basic component of the GMT computation is the jurisdictional Effective Tax Rate (ETR), determined by dividing Covered Taxes by Financial Accounting Net Income or Loss (Fanil). The numerator comprises Covered Taxes, including income taxes and foreign taxes, but excludes non-income-based taxes such as indirect taxes, payroll taxes, stamp duties, and property taxes. The denominator is Fanil. Both Covered Taxes and Fanil are subject to a number of prescribed adjustments under the GloBE Rules.
The first GMT return for the 2025 financial year is due 18 months after the end of the relevant financial year. For example, a company with a financial year ending Dec 31, 2025 is required to file its first GMT return by June 30, 2027. Thereafter, the filing deadline is generally 15 months after the end of each financial year. In Malaysia, the persons responsible for the filing include the manager or principal officer, directors, and company secretary of the Malaysian constituent entity.
This article is contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai (www.thannees.com).
