Transfer pricing is how related companies in the same group price transactions with each other: for example, a management fee charged by a parent company to its Malaysian subsidiary, or goods bought from a group company overseas. Malaysian tax law requires this pricing to follow the arm's length principle: the price should match what unrelated parties would agree between themselves. The aim is to prevent profits from being artificially shifted and the tax base eroded.
Which businesses need to pay attention to transfer pricing?
Any business with transactions involving related parties, especially an overseas parent or sister company, should pay attention. For a company that is part of a cross-border investment, with funds and goods moving frequently within the group, transfer pricing becomes an important tax issue.
What is transfer pricing documentation?
A company that reaches a certain size, or a certain level of related-party transactions, must prepare transfer pricing documentation: a written record showing that its pricing method is reasonable. The documentation must be ready before the tax return for that year is due, and handed to the Inland Revenue Board (LHDN) within 14 days if it asks for it, as evidence that the pricing follows the arm's length principle. The thresholds and format follow LHDN's latest guidelines. It is usually more efficient to prepare the documentation at the same time as the financial statements.
What is the risk of transfer pricing non-compliance?
If LHDN considers related-party pricing unreasonable, it has the power to adjust the company's taxable profits and raise additional tax, and may also impose penalties. Businesses with significant related-party transactions should therefore address transfer pricing early as part of their tax planning and maintain complete, traceable transaction records, for example through structured outsourced accounting.
This content is for general reference only and does not constitute legal or tax advice. For your own situation, please book a consultation so that GXY's advisory team can advise on your actual circumstances. Last updated: 20 August 2026.
