Income Tax | CP204 for a New Incorporated Company

Published: 28 Apr 2025

You’ve probably heard that incorporating your business in the form of a company can help you save on taxes, as companies are eligible for more tax incentives and generally enjoy more favourable tax rates compared to sole proprietorships.

However, what many entrepreneurs may not realise is that running a business through a company comes with a lot of rules and regulations. One crucial compliance requirement that is often overlooked when setting up a new company is the submission of the company’s estimate of tax payable (also known as Form CP204).

Key Takeaways

• The Form CP204 is essential for a newly incorporated company after its commencement of operation.
• It helps businesses to kick-start the management of corporate tax return compliance.
• Understanding Form CP204 can facilitate effective financial planning.
• Timely submission is crucial to avoiding statutory penalties.
• Utilising tax compliance services can ease the Form CP204 preparation and submission process.
• Awareness of common challenges with Form CP204 can prevent costly errors.

What is Form CP204?

Form CP204 is a prescribed form of a company’s estimated tax payable for a given year of assessment (YA). Besides that, the form also includes a schedule of monthly tax instalments and their respective due date for payment. Companies are required to comply with the schedule and remit the tax instalments on time to the Inland Revenue Board of Malaysia (IRBM).

Importance of Form CP204 for New Businesses

Form CP204 is crucial as it helps spread the company’s tax liability evenly throughout the YA, allowing the company to avoid a huge lump sum payment when submitting its tax return. This approach ensures that the company maintains a steady cash flow for its daily operations. It is also beneficial to the government, as it provides a consistent cash flow to support the maintenance of public amenities and services.

Filing Deadlines

According to Section 107C(4) of the Income Tax Act 1967 (ITA), where a company first commences operation in a YA and the basis period for that year is not less than 6 months, the tax estimate for that YA shall be furnished to the IRBM within 3 months from the date of commencement of operations.

However, many entrepreneurs face challenges in determining the date of commencement. The date a business begins operations is a matter of fact, and the ITA does not provide specific guidance or rules for determining this date.

Often, entrepreneurs mistakenly treat the incorporation date as the commencement date. From a tax perspective, this is not acceptable as there is usually a "start-up" period before actual business activities begin. This may involve activities such as renting premises, hiring staff, and acquiring fixed assets or inventory. These preparatory actions do not necessarily indicate that the business has commenced trading.

In general, a new business is considered to have commenced when the active income-generating activities begin, rather than when preparatory activities take place. Failure to identify the date of commencement may cause late submission of Form CP204.

Estimate The Tax Payable

Another common challenge that entrepreneurs always face is estimating the tax payable. This requires a combination of skills, including forecasting sales revenue and understanding which expenses are deductible.

The good news for newly incorporated companies is that, under Section 107C(4A) of the ITA, if the company qualifies as a Small and Medium Enterprise (SME), it is exempted from furnishing a tax estimate to the IRBM for the first two years of assessment. However, the determination of SME status is not a straightforward process.

What does it mean to be an SME for the exemption from furnishing a tax estimate?

To determine whether a company qualifies for the above exemption, the following key criteria are required to be met by the company:

Criteria	Requirement
Incorporation & Residency (Note 1)	The company must be incorporated and resident in Malaysia.
Paid-up Share Capital	Must not exceed RM2.5 million at the beginning of the basis period.
Control by Related Companies	The company must not directly or indirectly control or be controlled (by more than 50% shareholding) by a related company with a paid-up share capital exceeding RM2.5 million at the beginning of the basis period.
Foreign Ownership Restrictions	No more than 20% of the company's paid-up share capital at the beginning of the basis period is directly or indirectly owned by: Companies incorporated outside Malaysia, or Individuals who are not Malaysian citizens.

Note 1: Residence Status

It is a common misconception that a company incorporated in Malaysia is automatically considered a tax resident. However, this is not necessarily true.

Under Section 8 of the ITA, specific conditions must be met for a company to be regarded as a tax resident. According to this section, a company is considered a Malaysian tax resident if, at any time during the basis year, the management and control of its business or affairs are exercised in Malaysia.

In practice:

• A company is generally considered a tax resident if at least one board of directors’ meeting is held in Malaysia during the basis period.
  
• If no board meetings are held in Malaysia, the company does not qualify as an SME.
  

Process of Estimating The Tax Payable

To estimate the company’s tax payable, the company is required to prepare a provisional tax computation by forecasting the taxable income and deductible expenses. The following steps should be taken:

Step 1: Determine Taxpayer Status

• Identify if the company qualifies as an SME or non-SME. SME status determines applicable tax rates and eligibility for exemption for tax estimation.
  

Step 2: Estimate Taxable Income and Deductible Expenses

• The company must forecast its income and expenses for the relevant YA. It should also determine the taxability of income and deductibility of expenses. Additionally, capital allowance claims should be considered when preparing the provisional tax computation.
  

Step 3: Apply the Tax Rate and Estimate of Tax Payable

• Once Step 2 is completed, the company shall be able to determine its chargeable income. This amount is then multiplied by the applicable tax rate to estimate the tax payable. For non-SMEs, a flat 24% tax rate applies.
  

Step 4: Complete & Submit Form CP204

• For a newly incorporated company, Form CP204 must be completed and submitted to the IRBM within 3 months from the business commencement date. Submission is done via the MyTax portal.
  

Error on Filings and Their Consequences

Under the Self-Assessment System (SAS), failure to comply with the provisions of the ITA will result in the company facing penalties. In respect of Form CP204, the type of offences of its respective penalties are stipulated in the table below:

Type of Offences	Provisions under ITA	Penalties
Late submission of Form CP204	Section 120(1)(f)	RM200 - RM20,000
Failure to pay the Form CP204 instalment on time	Section 107C(9)	10% on the amount unpaid
Under-estimation of tax payable	Section 107C(10)	10% on the amount under-estimated

Conclusion

Form CP204 is a crucial component of income tax compliance for newly incorporated companies in Malaysia. Understanding how to manage Form CP204 is essential for effectively navigating corporate taxes.

Engaging professional services for CP204 preparation and submission can simplify tax compliance. At YYC Advisors, one of Malaysia's leading accounting firms, we provide expert guidance on the Form CP204 process. Our team ensures that new companies meet their tax obligations accurately and on time with comprehensive tax filing services.

Proper planning and careful tax filing are key to the success of any new business. By adhering to the Form CP204 best practices, companies can manage their finances efficiently and lay the groundwork for long-term growth.