Do you know that if you choose the right business structure, you can potentially save up to 100% in taxes for three years?
Most e-commerce clients we know (who have been selling goods on e-commerce platforms like Shopee or Lazada) started off as Sole Proprietors as it's easier. Over the years, as their businesses grow and they start earning good revenue, they start to realise that they are paying more in taxes, due to the tiered tax structure of Sole Proprietorship.
That's when they start thinking, should they convert to Sdn Bhd to save taxes?
If you are thinking about this, you are not alone. Many e-commerce sellers often don't know whether the time, effort and money spent to incorporate their company (Sdn Bhd) would be worth the tax savings. This is because they don't know how to optimise specific costs so as to gain the maximum amount of tax savings legally.
Let's do a quick comparison of the tax rates for Sole Proprietorship and Sdn Bhd:
Sole Proprietorship: Your taxes are tiered, whereby you are taxed up to 21% of your chargeable income for the first RM 100,000, followed by 24% for the next tier and so on.
Sdn Bhd: You will be paying a flat company tax rate of 17% for the first RM 600,000 of your chargeable income.
However, most of you know might also understand there's a lot more to be taken into consideration for a Sdn Bhd, for example, your incorporation cost might range from RM 1500 onwards, not to mention you will need to appoint a corporate secretary costing around RM 1500-RM 2000 per year, other SSM compliance costs and so on, so you'll need to make the necessary calculations based on your profit and the pros and cons of each structure.
But let's zoom out to look at the big picture. Is your goal long-term tax savings or short term savings? If you are looking at long-term savings, converting to Sdn Bhd at the right stage is very crucial.
Based on our Tax Savings Strategies, using a step-by-step approach to declare a certain range of director fee, if your profits are more than RM 6,750 a month (or RM 81,000 a year), you would actually be able to enjoy more tax savings if you convert to Sdn Bhd as compared to remaining as a Sole Proprietor (due to the tax rebate, which we will mention in our next point).
Did you know that there's currently a tax rebate of RM 60,000 over three years for newly incorporated companies? That means a rebate of RM 20,000 a year – even more savings! This is only valid if you incorporate your company and commence business latest by 31st December 2022.
With our Tax Savings Strategies and tax rebates, you can actually save up to 100% in taxes in the first three years!
Want to find out how much tax savings you can get if you incorporate your company today?
Download our Free Tax Savings Calculator below.
If you want to save on costs but want to enjoy the tax benefits of Sdn Bhd, you can consider registering a Limited Liability Partnership (LLP) instead. Its tax rates are similar to Sdn Bhd, and you can also enjoy the RM 60,000 tax rebate mentioned above.
However, you might not be able to qualify for bank loans easily, nor do crowdfunding, both of which you would be able to achieve easily with a Sdn Bhd – so if these are benefits that you can do away with, LLP might be suitable for you.
To better understand the different various structures, take a look at our comparison table below.
We understand that evaluating what's best for you can be quite overwhelming, especially when you just want to focus on your business.
So leave the complex calculations and assessments to us. We have a more complete list of benefits, loans and fundings that would help you better assess which business structures would work best for your business needs.