Malaysia’s commitment to long-term economic competitiveness has led to the formal gazetting of new tax incentives aimed at sustainability. Gazetted on 23 June 2025, the P.U. (A) 193/2025 rules allow Malaysian businesses to optimise their tax relief by claiming deductions for tax governance and ESG-related expenditure.
For many Malaysian businesses, ESG is no longer optional; the ESG rules 2025 ensure that sustainability reporting is both a compliance requirement and a tool for tax deductions.
1. Qualifying ESG Expenditure for Tax Deduction in Malaysia
Under these rules 2025, a business can claim a tax deduction for esg expenditure if the expenditure incurred falls into the categories outlined in the rules:
- ESG Reporting and Disclosures: Costs for ESG reporting incurred by a financial institution or a company listed on Bursa Malaysia. This includes expenditure for the validation, verification, and certification of ESG practices, as well as the calculation and tracking of greenhouse gas (GHG) emissions.
- Technology and Training: Subscription fees for software systems used for data collection and risk management, as well as capacity building and skills development for employees.
- Related to Tax Governance Reporting: Expenses related to appointing an independent reviewer to assess compliance with the Tax Corporate Governance Framework (TCGF) issued by the Inland Revenue Board.
- Transfer Pricing: Costs for preparing the contemporaneous transfer pricing documentation.
- E-Invoicing for MSMEs: Consultation fees for the development of customised software for e-invoicing, provided by external service providers. Note: This does not include costs at the planning stage or preliminary procedures for the provision of the customised software.
2. Quantum and Timeframe for the ESG Tax Deduction
- Annual Cap: The total ESG deduction shall not exceed fifty thousand ringgit (RM50,000) per year in tax deductions for a year of assessment:
- ESG Reporting & Verification: Costs for validating, verifying, and certifying ESG practices, including greenhouse gas emission tracking.
- -Technology & Software: Subscriptions for systems to collect data, track metrics, manage risks, and perform scenario analysis.
- -Capacity Building: Training, education, and skill development for employees regarding ESG.
- -Consultancy Fees: Services from subject matter experts to implement the above activities.
- Applicable Period: These tax deductions apply from the year of assessment 2024 through 2027.
3. Eligibility for Companies and Labuan Entities
To claim this deduction, the entity must be resident in Malaysia and fall into one of these categories:
- Financial institutions and companies listed on Bursa Malaysia.
- Companies and Labuan entities (Labuan companies).
- MSMEs (micro enterprise or small and medium enterprise) as determined by the National SME Development Council.
4. Key Restrictions from ESG Tax Deduction Rules 2025
Businesses of all sizes must note that these rules do not apply if the company has already:
- Claimed a deduction under Section 33 of the Income Tax Act.
- Received an exemption under section 127 of the Income Tax Act for the same expenditure.
- Claimed other tax deductions for the same ESG-related costs under different rules.
Need assistance with your ESG deduction strategy?
With the introduction of ESG-related tax benefits in the 2024 budget, businesses must ensure their tax risk controls are optimised to obtain tax relief. Whether you need to engage ESG consultants, an independent reviewer, or external service providers, ensuring alignment with the TCGF is vital.
Subject to obtaining a certificate of compliance, your business can successfully navigate these new income tax rules. Reach out to the Altomate support team for guidance on how to incur and record eligible esg expenses correctly.
Source: P.U. (A) 193/2025
