LHDN Means Test 2026: What Company Directors in Malaysia Must Know About Dividend Income

A Special Commissioners of Income Tax (SCIT) ruling dated 13 May 2026 confirmed that LHDN can raise a best judgment assessment — and a 60% penalty — against a company director using nothing more than a desk audit. No field visit. No prior negotiation. The case, DGEK v. Ketua Pengarah Hasil Dalam Negeri (MOF.PKCP.700-7/1/1759–1762), shows how the means test (ujian kemampuan) works in practice in Malaysia — and why dividend income from your own company is not automatically a safe answer.

What the Means Test Is

The means test is a desk-level tool. LHDN compares what you declare as income against what you visibly own and spend — properties, vehicles, company shareholdings, liabilities, and capital movements. Where the numbers do not add up, LHDN treats the gap as unreported income and raises an additional assessment under s.91(1) of the Income Tax Act 1967 (ITA 1967) using its best judgment.

The notices that trigger this process are CP 101A and CP 102, issued under Sections 78, 79, and 81 of ITA 1967. These are requests for information — but they are also the point at which the direction of an audit is set. How you respond at this stage determines whether an assessment follows.

What Happened in This Case

The taxpayer was a director and shareholder in several companies. He owned land, a residential property, and luxury vehicles. LHDN's means test identified an income shortfall of RM1,721,642 across Year of Assessment (YA) 2015, 2016, 2017, and 2018. An additional assessment was raised on 24/11/2020, together with a 60% penalty under s.113(2) ITA 1967 — bringing the total tax and penalty to RM750,635.94.

The taxpayer filed a Form Q appeal on 21/12/2020, arguing that dividend income of RM4,500,000 received from one of his own companies had not been taken into account in the means test. He submitted a dividend voucher dated 23/03/2015 and journal entries from the paying company as supporting evidence.

PKCP dismissed the appeal. The additional assessments and penalty were upheld in full.

Why the Defence Failed

There were three specific reasons the taxpayer could not displace the assessment.

The dividend was not proven to have been actually received. The legal standard under ITA 1967 requires income to be both accrued and received. A dividend voucher and journal entry show that a dividend was declared in the accounts. They do not prove the taxpayer received the funds. The internal records produced were not sufficient to meet that standard.

The paying company lacked the financial capacity to support the dividend. LHDN reviewed the financial position of the company said to have paid the RM4,500,000 dividend. The company could not support a payment of that size from its financial standing. Documents produced by a company the taxpayer also controls carry limited weight when the company's own accounts tell a different story.

One point worth noting for directors of single-tier companies: single-tier dividend status means the dividend is exempt from further tax in the shareholder's hands. It does not exempt the dividend from scrutiny on whether the paying company had sufficient distributable reserves, or whether the shareholder actually received it. LHDN's capacity challenge in this case applied regardless of the dividend's tax classification.

The argument was raised too late. The dividend income defence was only introduced after the additional assessment had already been issued — through Form Q filed on 21/12/2020. SCIT treated this timing as undermining the credibility of the claim. The correct stage to raise this argument was during the CP 101A and CP 102 response window, before the assessment was formalised.

Under Paragraph 13, Schedule 5 of ITA 1967, the burden of proof rests with the taxpayer to displace the assessment. The SCIT found that the taxpayer had not discharged that burden.

The Broader Risk for Company Directors

LHDN does not rely solely on what you declare. The means test cross-checks whether your financial transactions are commercially consistent with your declared position. Declaring a dividend is one thing. Being able to defend it under LHDN scrutiny is another.

If your declared income does not explain your asset accumulation — properties, vehicles, investments — expect questions. The means test runs at desk level. A field audit is not a prerequisite for an assessment to be raised.

Who Should Be Paying Attention

• Company directors whose visible assets and lifestyle exceed what their declared income can explain
• Business owners who draw dividend income from companies they control, including single-tier dividend arrangements
• Individuals who have received a CP 101A or CP 102 notice from LHDN
• Directors with shareholdings across multiple companies where the overall income picture is complex

What You Should Do

• Do not wait for a notice before organising your records. By the time CP 101A arrives, the assessment window is already open. The means test has already run.
• Dividend income from your own company must be defensible end-to-end. Not just declared in board resolutions, but supported by the company's financial position and consistent when cross-checked independently. The question LHDN asks is not whether a dividend was declared — it is whether the company could have paid it, and whether you received it.
• Respond to CP 101A and CP 102 notices thoroughly and on time. This is your best opportunity to address the gap before an assessment is raised. Incomplete or delayed responses accelerate the assessment process.
• Do not introduce new arguments after the assessment. Arguments raised for the first time through Form Q — after the assessment — carry a credibility burden that is difficult to overcome. The time to present your case is before the assessment, not after.

Editor's Note

The taxpayer has 21 days from the date of the SCIT decision to file a further appeal. SCIT decisions are persuasive but do not constitute binding legal precedent. The ruling reflects SCIT 's application of the means test and the evidentiary standard required under ITA 1967 to displace a best judgment assessment.

Need Help?

If you have received a CP 101A, CP 102, or any LHDN audit notice — or if you are unsure whether your dividend documentation is sufficient to withstand scrutiny — contact us before responding.

KS Chia & Associates Chartered Accountants (AF001828)

WhatsApp or call: 011-2366 5233

Dormant Company in Malaysia? Why You May Still Owe LHDN — and What to Do About It

This situation arises more often than directors expect: a company dormant since 2019, no Form C ever filed, a CP270 penalty notice for more than RM10,000. By the time the notice arrives, the remediation chain is already long — and the cost of resolving it is significantly higher than it would have been if the company had been closed properly from the start.

The Misconception That Causes This

Most directors with dormant companies operate on the same assumption: no activity means no obligation. That assumption is incorrect — and LHDN's enforcement position under Section 90(3) of the Income Tax Act 1967 makes the consequence of that assumption expensive.

LHDN does not automatically know your company is dormant. In the absence of a Form C submission, silence is treated as non-compliance, not inactivity. The same applies to EPF and SOCSO — neither authority automatically deregisters a company because it has ceased operations.

What Is a CP270 and How Is It Triggered?

A CP270 is a penalty notice issued by LHDN. When a company fails to submit Form C, LHDN is empowered under Section 90(3) of the Income Tax Act 1967 to raise a best-estimate assessment of the company's income. The estimate is LHDN's determination — not the company's declaration. Once issued, the burden shifts entirely to the company to dispute it. The CP270 is the penalty notice that follows that assessment.

What Dormant Companies Are Still Required to Submit

LHDN's official website states explicitly:

"Companies, limited liability partnerships, trust bodies and cooperative societies which are dormant and/or have not commenced business are required to furnish the ITRF (including Form E) with effect from Year of Assessment 2014."
Source: hasil.gov.my/en/company/

Two separate filing obligations apply to every dormant company in Malaysia:

• Form C (company income tax return) — required every year since the company was incorporated. The YA 2014 starting point does not apply to Form C. A company incorporated in 2010 that has been dormant since inception is required to have filed Form C for every year from its first year of assessment.
• Form E (employer's return) — required for dormant companies from YA 2014 onwards, per LHDN's official website. This obligation applies regardless of whether any business was conducted or any employees were on payroll.

Both obligations continue for as long as the company remains registered with SSM. Deregistration with SSM does not happen automatically — it requires a formal strike-off application, which itself can only be made after all filing and payment obligations are resolved.

The Remediation Chain — Once a CP270 Has Been Issued

A CP270 is not the end of the problem. It is the beginning of a remediation process that involves multiple authorities, each with their own requirements and timelines:

1. Respond to the CP270 — dispute or settle within the stipulated deadline. Ignoring it increases the liability and reduces the options available.
2. Prepare accounts and file outstanding Form C for all unfiled years since incorporation, with supporting financial statements.
3. File outstanding Form E for all years from YA 2014 to the current year in which the company remains registered.
4. Clear all outstanding tax liabilities and formally close the LHDN income tax file.
5. Close the EPF file — formal deregistration is required even if no contributions were ever made.
6. Close the SOCSO file — same requirement applies. Silence is not deregistration.
7. Apply for SSM strike-off — only after steps 1 to 6 are fully completed. SSM will not approve a strike-off where outstanding statutory obligations remain unresolved.

The Correct Sequence — Before a CP270 Arrives

If your company is dormant and you have not yet received a penalty notice, the window to resolve this cleanly is still open. Acting now means the company controls the timeline and the cost. Acting after a CP270 means responding to LHDN's timeline and LHDN's estimate. The correct sequence is:

1. Prepare final financial accounts for all outstanding years
2. File all outstanding Form C returns for every unfiled year since incorporation
3. File all outstanding Form E returns from YA 2014 onwards
4. Settle any tax liability and obtain formal closure of the LHDN tax file
5. Close EPF and SOCSO files
6. Apply for SSM strike-off — last step only

Key Facts Summary

Item	Position
Form C obligation — dormant company	Required every year since incorporation
Form E obligation — dormant company	Required every year from YA 2014 onwards
LHDN power when Form C not filed	Section 90(3) ITA 1967 — best-estimate assessment
Penalty notice type	CP270
SSM strike-off — when to apply	Only after LHDN, EPF and SOCSO files are closed

Sources

• Section 90(3), Income Tax Act 1967
• LHDN official website — Company taxpayer responsibilities: hasil.gov.my/en/company/
• ITRF Filing Programme: hasil.gov.my

Need Help?

KS Chia & Associates handles the full remediation process for dormant companies — accounts preparation, Form C filing for all outstanding years since incorporation, Form E filing from YA 2014 onwards, LHDN tax file closure, EPF and SOCSO deregistration, and SSM strike-off coordination.

WhatsApp or call: 011-2366 5233
KS Chia & Associates (AF001828)

5 Red Flags LHDNM Will See From Your e-Invoice Data

 LHDN is no longer just asking whether your business issues e-Invoices. They are checking how you issue them, and whether your numbers tell a consistent story. Since e-Invoice implementation began on 1 August 2024, HASiL has actively used transaction data to cross-match against tax returns.

Recent press statements confirm that more than 500,000 potential cases have been flagged where financial activity does not match existing tax records. This data-matching exercise has already resulted in 38,906 taxpayers voluntarily declaring RM3.5 billion in previously unreported income.

Here are the 5 red flags in your e-Invoice data that can trigger an LHDN review.

1. Your e-Invoice Revenue Does Not Match Your Tax Return

If your MyInvois portal shows validated e-Invoices totalling RM10 million, but your Form C or Form B declares RM6 million in income, that gap is visible the moment HASiL runs a data match. No audit officer needs to visit your premises to identify this discrepancy.

HASiL confirmed in its February 2026 press statement that more than 500,000 potential cases were flagged for exactly this pattern — high financial activity with no corresponding tax record.

KS Chia's take: The reconciliation between your MyInvois submission log and your audited accounts is now a compliance document. If those two numbers cannot be explained and reconciled, you are exposed before anyone asks a single question.

2. Frequent Cancellations and Credit Notes

The occasional credit note is normal business practice. But a pattern of frequent cancellations or credit notes — particularly with related companies, major customers, or at year-end — signals potential revenue reversal activity.

Under the e-Invoice framework, credit notes, debit notes, and refund notes are all submitted to and validated through the MyInvois portal. The full transaction trail is visible to HASiL. Adjustments do not disappear — they create a data record of their own.

KS Chia's take: Every credit note should have a clear, documented business reason that your finance team can explain immediately. If the justification is not on file, the pattern will be the story.

3. Invoice Splitting to Avoid the RM10,000 Threshold

For Phase 1, 2, and 3 businesses: the RM10,000 threshold is fully operative now. Every single transaction above RM10,000 requires its own individual validated e-Invoice. Artificially splitting one RM15,000 transaction into two RM7,500 invoices to route it through the consolidated channel is precisely the type of invoicing anomaly that data-matching analytics is designed to surface.

For Phase 4 businesses: the RM10,000 rule is suspended during the relaxation period. Under e-Invoice Specific Guideline Version 4.7, Section 16.2(a) overrides the standing obligation in Section 3.7 — Phase 4 taxpayers may issue consolidated e-Invoices for all transactions, including those above RM10,000, until 31 December 2027.

KS Chia's take: The relaxation is real and significant — but it expires 1 January 2028. Phase 4 businesses should use this window to build the right workflows now. For any Phase 1-3 client, invoice splitting above RM10,000 is a workflow risk that needs to be corrected today.

4. Self-Billed e-Invoices Your Supplier Did Not Reflect

If your customer issues a self-billed e-Invoice to you — for commission payments, freight rebates, sub-contractor fees — that transaction is validated in the MyInvois portal and visible to HASiL. If your books do not reflect the same amount, or you never declared that income at all, the mismatch is automatic.

KS Chia's take: This catches many SME clients off guard — particularly agents, sub-contractors, and logistics operators who assume "if I did not issue the invoice, there is nothing to declare." Under self-billing, your customer creates the record. Your obligation to declare the income exists regardless of who generated the document.

5. Operational Records That Do Not Align With Your e-Invoice Trail

At the system level, HASiL cross-references validated e-Invoice data against filed tax returns to identify income discrepancies. In a field audit, LHDN officers go further — comparing physical delivery orders, goods received notes, stock movement records, and e-Invoice logs.

If your delivery order shows 500 units dispatched but your e-Invoice records show only 400 units billed, that discrepancy will be queried and documented.

KS Chia's take: e-Invoice data does not replace field audits — it makes the starting point for a field audit far easier to identify and justify. For trading, manufacturing, and logistics businesses, your warehouse, operations, and sales teams now generate data that feeds directly into your tax risk profile. This is not just a finance department issue.

What You Should Do Now

• Reconcile your MyInvois submission log against your YA 2024 and YA 2025 declared income — now, before filing season closes.

• Review your credit note and cancellation log for patterns that cannot be immediately explained.

• If you are Phase 1, 2, or 3 — check your invoicing workflow for any transactions above RM10,000 being processed through the consolidated route.

• If you received a nudge letter — act before it becomes a formal audit notice. Voluntary disclosure at this stage carries materially lower penalty exposure.

• If you are Phase 4 — use the relaxation period to build compliant workflows. 1 January 2028 is a hard deadline.

Need Help?

Contact KS Chia & Associates (AF001828) for professional advice on e-Invoice compliance and tax risk management.

WhatsApp us at 011 2366 5233.

Sources:

•HASiL press statement HASiL/2026/02/03–10, dated 03/02/2026

•HASiL press statement HASiL/2026/04/27–25, dated 27/04/2026

•e-Invoice Specific Guideline V4.7, Sections 3.7, 16.2(a), and 16.2(d)

Rental Income: Business Source or Non-Business Source? Malaysia High Court Rules in 2026

A High Court decision on 22 April 2026 has clarified a question that affects many Malaysian companies that own and rent out properties: when does rental income qualify as business income under Paragraph 4(a) of the Income Tax Act 1967 (ITA 1967), and when is it simply passive rental income under Paragraph 4(d)? The answer has significant consequences for how expenses are deducted, whether losses can be carried forward, and whether capital allowances are available.

The Case: Glenmarie Estates Sdn Bhd v Director General of Inland Revenue

Glenmarie Estates Sdn Bhd, a non-listed investment holding company, owns 14 properties that were rented out. The company took the position that its rental income was taxable as business income under Paragraph 4(a). LHDN disagreed and raised additional assessments for financial years 2015, 2016, and 2017 on the basis that the income was non-business rental under Paragraph 4(d).

The Special Commissioners of Income Tax dismissed the taxpayer's appeal on 14/07/2023. The company brought the matter to the High Court of Kuala Lumpur, which dismissed the appeal again on 22/04/2026, with costs awarded to LHDN.

The Legal Test: What Does "Comprehensive and Active" Mean?

Under Public Ruling No. 12/2018 (Income from Letting of Real Property), rental income is treated as a business source under Paragraph 4(a) only if the owner provides maintenance or support services that are both comprehensive and active.

Comprehensive means covering all general upkeep of the property — structural elements, common areas, stairways, lobbies, lifts, car parks, drains, landscape, exterior fittings. Providing security services alone does not meet this standard.

Active means the owner proactively ensures these services are delivered — either directly or through appointed contractors — as an ongoing obligation. Services that are only provided when tenants make a request or complaint do not qualify.

In this case, the court found that the tenancy agreements did not require the company to provide comprehensive maintenance. The evidence showed services were provided reactively — upon request or complaint only. This was insufficient to satisfy the test in PR 12/2018.

The Investment Holding Company Dimension: Section 60F ITA 1967

Because Glenmarie Estates is a non-listed investment holding company (IHC), Section 60F ITA 1967 applies. Under Section 60F, income derived from investments — including rent — is treated as income from a non-business source. This reinforced LHDN's position that the correct treatment is Paragraph 4(d).

If your company is structured as an IHC and rents out properties, the threshold to qualify for Paragraph 4(a) is higher, and the risk of misclassification is greater.

What About PR 12/2018 Applying to Pre-2018 Years?

The taxpayer argued that PR 12/2018, published on 19/12/2018, should not apply to financial years 2015, 2016, and 2017. The court rejected this. PR 12/2018 replaced Public Ruling No. 4/2011, which had been in force since 10/03/2011. The same guidance on the comprehensive-and-active test existed throughout the years under assessment. There was no retrospective application — the law and its interpretation were consistent.

Key Differences: Paragraph 4(a) vs Paragraph 4(d)

• Deductible expenses: Under 4(a), both direct and indirect expenses are deductible. Under 4(d), only direct expenses directly related to earning that rental income are allowed.
• Capital allowances: Claimable under 4(a) on qualifying plant and machinery. Not available under 4(d).
• Rental losses: A 4(a) business loss can be set off against aggregate income from other sources and carried forward. A 4(d) rental loss is restricted — cannot be set off against other sources and cannot be carried forward.

What Property-Owning Companies Should Do Now

• Review your tenancy agreements — do they expressly require you to provide comprehensive maintenance, or only to respond to complaints?
• Review your actual maintenance practices and ensure records exist to show services are delivered proactively and comprehensively.
• Confirm whether your company is classified as an IHC, and whether Section 60F applies to your situation.
• Review your current and prior-year tax filing positions to assess exposure.

Need Help?

KS Chia & Associates advises companies on rental income classification, investment holding company tax treatment, and LHDN audit exposure. If you own properties through a company structure and are unsure whether your tax position is defensible, speak to us before your next filing.

WhatsApp or call us at 011-2366 5233.

Note: Glenmarie Estates retains the right to appeal to the Court of Appeal within 30 days from 22/04/2026. This article reflects the High Court decision. The position may change if the Court of Appeal rules differently.

HASiL Found RM3.5 Billion in Unreported Income Using e-Invoice Data — What Malaysian Businesses Must Know

On 27 April 2026, HASiL (Lembaga Hasil Dalam Negeri Malaysia) announced that cross-referencing e-Invoice transaction records against filed income tax returns identified taxpayers with unreported income. The results confirm that e-Invoice data is now an active tax enforcement tool — not a future risk.

What the Numbers Show

Following HASiL's nudging exercise, 38,906 taxpayers submitted income tax returns (Borang Nyata Cukai Pendapatan / BNCP) declaring RM3.5 billion in previously unreported income, resulting in RM760.7 million in tax payable. Taxpayers who did not respond voluntarily will face audit and enforcement action under the Income Tax Act 1967.

Separately, a National e-Invoice Compliance Operation conducted from 20 to 24 April 2026 identified 108 Phase 1 and 2 businesses — those with annual turnover above RM25 million — still not issuing e-Invoices. These businesses are now subject to enforcement action.

What This Means for Your Business

• Received a nudge letter? Act before it becomes a formal audit notice. Voluntary disclosure at this stage carries materially lower penalty exposure than a post-audit assessment.
• No letter yet? Check whether your declared income for YA 2024 and YA 2025 is consistent with your e-Invoice submission records. A gap is detectable.
• Phase 1 or 2 business not yet on e-Invoice? Enforcement action is already underway. Rectify immediately.
• Phase 4 business (below RM5 million)? The relaxation period runs until 31 December 2027. Use it to prepare — not to defer.

Key Facts at a Glance

Item	Figure
Unreported income identified	RM3.5 billion
Taxpayers who submitted returns after nudging	38,906
Tax payable declared	RM760.7 million
Phase 1 & 2 businesses under enforcement	108
Phase 4 relaxation deadline	31/12/2027

Source

HASiL Press Statement HASiL/2026/04/27 – 25, dated 27 April 2026. Available at www.hasil.gov.my.

Need Help?

If you have received a nudge letter, are unsure whether your records are consistent, or need to assess your e-Invoice readiness, contact us before the situation escalates.

WhatsApp or call: 011-2366 5233
KS Chia & Associates (AF001828)