Form B & Form BE 2026: Income Tax Guide for Sole Proprietors in Malaysia

Two LHDN forms sit one letter apart, and picking the wrong one costs sole proprietors a filing deadline every year. Form B is for individuals with business income. Form BE is for individuals without it. If you run a registered enterprise, freelance, or earn commission, you are on Form B, and your deadline is not 30 April.

The confusion is understandable. Most Malaysians meet e-Filing while they are still salaried, and Form BE becomes muscle memory. Then a side business starts, the SSM certificate goes in a drawer, and April comes around. They log into MyTax, open the same form as last year, and submit. The letter from LHDN arrives much later, usually with a percentage attached.

This guide covers what separates the two forms, who has to use Form B, the filing calendar for year of assessment 2025, how to work out business income when you are taxed as an individual, what CP500 is, and the point at which a sole proprietorship in Malaysia is worth converting into a Sdn Bhd.

Short answer: Form BE is for resident individuals with no business income. Form B is for resident individuals with business income, which includes sole proprietors, enterprise owners, freelancers and commission earners. If you have both a salary and a business, you file Form B only and declare the employment income inside it. For YA 2025, Form BE is due 30 April 2026 with an e-Filing grace period to 15 May 2026, and Form B is due 30 June 2026 with grace to 15 July 2026.

Just about to register as a Sole Proprietor and not sure about the SSM process or fees yet? Read Sole Proprietorship in Malaysia: Complete Registration Guide & Fees (2026).

Form B vs Form BE: what actually separates the two LHDN forms

One question decides it: do you have a business source of income during the basis period. Everything else, including the two-month difference in deadlines, follows from that. LHDN’s Malay-language material calls these Borang B and Borang BE, and both names refer to the same two returns.

The line most people miss is the first one. If you draw a salary and run an enterprise, you do not file two forms. You file Form B, and your employment income goes into the employment section of that same form. Form B contains everything Form BE does, plus the business pages.

There is a useful side effect: the moment you have a business source, your deadline moves from 30 April to 30 June. Plenty of people never realise the shift happened and rush a wrong-form submission in April instead.

Who has to use Form B

You use Form B if you are a Malaysian tax resident with at least one business source of income. In practice that covers:

• Sole proprietors and registered enterprises. A sole proprietorship has no separate legal personality, so the business profit is your personal income and is taxed under your own tax file.
• Freelancers and independent contractors. Designers, photographers, tutors, consultants, contract writers. An SSM certificate is not what makes income business income. The nature of the activity is.
• Commission earners. Property agents, insurance and takaful agents, product distributors. If you have received a CP58 form from the company paying your commission, that figure belongs in the business section of Form B, not the employment section.
• Partners in a partnership. The partnership files Form P, which is an information return and carries no tax of its own. Each partner then declares their share of the divisible profit in their own Form B.
• Owners of rental operations run as a business. Ordinary passive rent is declared as rental income. Where the operation is active, short-stay accommodation with cleaning, guest handling and continuous marketing being the common example, it can be treated as a business source. The line turns on facts, so confirm it with a tax agent.

A point that catches people out: you still file when the business made a loss or did nothing at all. Once LHDN has a business source recorded against your name, the obligation exists until you notify them it has ceased. An undeclared loss is also a wasted one, since losses you never reported cannot be carried forward.

Filing calendar for year of assessment 2025

e-Filing for YA 2025 opened on 1 March 2026. The dates below come from LHDN’s Return Form Filing Programme for 2026.

Two things about that table. The fifteen-day grace period attaches to e-Filing, not to paper returns, so a posted form is judged against the original date. And the balance of tax payable follows the same dates: filing on time but paying late still attracts an increase.

LHDN resets this programme every year. Before you commit any of these dates to a calendar, check the current version on the Return Form Filing Programme page at hasil.gov.my.

Working out business income as a sole proprietor

This is where Form B stops resembling Form BE. On BE you copy figures off an EA form. On Form B you build the profit figure yourself.

1. Revenue: sales or fees earned during the basis period, not cash banked. An invoice raised in December and paid in February still belongs to December, because Malaysian income tax works on an accrual basis.
2. Less cost of sales: stock, raw materials, direct project costs.
3. Less allowable operating expenses: expenses wholly and exclusively incurred in producing that business income, under Section 33(1) of the Income Tax Act 1967.
4. Add back disallowed items: anything blocked by Section 39.
5. Less capital allowances: the tax substitute for accounting depreciation.

What comes out is your statutory business income. That is added to your other income sources, reduced by personal reliefs, and only then taxed at the graduated individual rates.

Allowable and disallowed expenses

The test is stricter than “did I spend this on the business”. It asks whether the expense was laid out wholly and exclusively to produce that business income. Mixed spending has to be apportioned, and the personal share is not claimable.

Section 39 blocks domestic or private expenses, capital withdrawn, contributions to unapproved funds, most entertainment expenditure, and employee leave passage. That is not the full list, and the entertainment rules carry exceptions depending on what your business does.

Capital allowances instead of depreciation

Buy a laptop, a van, machinery or office furniture, and you do not deduct the full cost in the year of purchase, nor accounting depreciation, which is not allowable for tax. You claim capital allowances under Schedule 3 of the Income Tax Act 1967 instead: an initial allowance in the first year, then annual allowances at rates fixed by asset category.

Deducting asset purchases outright is one of the most common self-prepared errors we see, and when LHDN adjusts it the correction usually lands across several years at once.

Records you must keep, and for how long

Section 82 of the Income Tax Act 1967 requires anyone carrying on a business to keep sufficient records, and Section 82A sets the retention period at seven years from the end of the relevant year of assessment. Not seven years from the transaction date. From the end of the year of assessment, which in practice is longer than most people assume.

For a sole proprietorship, that means keeping:

• Cash book and sales, purchases and general ledgers
• Serially numbered sales invoices and receipts issued
• Supplier invoices and expense receipts
• Complete bank statements for the business account
• Payroll records, deductions and statutory contributions
• Stock lists and closing stock valuations
• Debtor and creditor listings
• Fixed asset and capital allowance schedules
• Records of personal money introduced into the business and drawings taken out
• Profit and loss account and balance sheet for each period

Failing to comply with a direction to keep proper records carries a fine of RM300 to RM10,000, imprisonment of up to one year, or both. The bigger exposure is not the fine: where records are inadequate, LHDN may determine your chargeable income to the best of its judgement, and the burden falls on you to show the figure is wrong.

One practical habit worth adopting: open a separate bank account for the business. Nothing compels a sole proprietor to do it, since there is no separate legal entity. But once household and business money share an account, apportioning expenses at year end becomes far harder, and the support behind your claims gets thin exactly where it needs to be strong.

CP500: paying tax by instalments on business income

CP500 is the instalment payment notice LHDN issues to individuals with income outside employment, including business, rental, interest and royalty income. It estimates the current year’s tax, usually from the prior year’s assessment, and spreads payment across the year.

CP500 instalments fall due bi-monthly, six times a year, on 1 March, 1 May, 1 July, 1 September, 1 November and 1 January of the following year.

If the estimate is well off what you expect to earn, you can apply to revise it using Form CP502. The first application must be submitted by 30 June of the year of assessment, and the current CP502 form also indicates a second revision window running to 31 October. Confirm both dates on hasil.gov.my before relying on them, because they have moved before.

Two penalties attach to CP500, both under Section 107B. Instalments not paid by the due date can draw a 10% increase. And where actual tax exceeds the estimate by more than 30% of the actual tax, the excess above that threshold can attract a further 10% penalty. Deliberately lowballing the estimate is not the cash flow trick it looks like.

For year of assessment 2026, LHDN announced that eligible taxpayers will not be penalised for failing to pay CP500 instalments on schedule, as a transition measure. The waiver covers the penalty, not the tax, which remains payable on assessment. Check LHDN’s current media releases for exact scope and eligibility, since announcements of this kind are tied to the year named.

Penalties for late filing and under-declaration

These figures can be checked on the offences, fines and penalties page at hasil.gov.my, and amounts are revised from time to time.

The distinction between Sections 112 and 113 matters. Late filing is a timing problem, priced on how long you were late. Under-declaration is a content problem, priced on the tax you should have paid. If you have missed a deadline, submit now; waiting only moves you into the next percentage band.

Reliefs sole proprietors most often miss

Enterprise owners file Form B, but they are still individuals, so the full set of personal reliefs applies. The ones that get overlooked tend to be the self-employment ones:

• Voluntary EPF contributions. Self-employed persons can contribute to KWSP voluntarily and claim under the approved scheme limit, RM4,000 (restricted) for YA 2025.
• PERKESO contributions under the Self-Employment Social Security Scheme. SOCSO contribution relief is RM350 (restricted).
• Private Retirement Scheme. RM3,000 (restricted).
• Life insurance and takaful. RM3,000 (restricted). This is a personal relief, not a business expense, so it does not belong in the profit and loss account.
• Self education fees. RM7,000 (restricted), including upskilling courses in specified fields.
• Medical expenses for parents RM8,000 (restricted), serious illness RM10,000 (restricted) which includes a RM1,000 component for a full medical examination, and lifestyle RM2,500 (restricted).

There is also a RM400 rebate for a resident individual whose chargeable income does not exceed RM35,000. A rebate comes off the tax itself rather than off income.

Those amounts are the YA 2025 figures published by LHDN. They are reviewed in each annual budget, so check the official tax relief list at hasil.gov.my for your own year of assessment. Our guide to personal tax relief for 2026 sets out the full list with claim conditions.

When a sole proprietor should think about a Sdn Bhd

This is the question we field most often after filing season, usually from someone who has just seen their tax figure. The honest answer is that incorporation pays off for some owners and wastes money for others, and the profit figure alone will not tell you which you are.

The tax rate argument

As a sole proprietor, business profit is taxed at graduated individual rates. For YA 2025, resident rates start at 0% on the first RM5,000 and step up to 30% on chargeable income above RM2,000,000, with the sharpest jump after RM100,000 where the marginal rate reaches 25%.

A company is taxed at corporate rates. For a resident company qualifying as an SME, meaning paid-up capital of not more than RM2.5 million and gross business income not exceeding RM50 million, the HASiL portal lists 15% on the first RM150,000 of chargeable income, 17% from RM150,001 to RM600,000, and 24% above that. Further conditions apply around shareholding by other companies, so not every small Sdn Bhd qualifies automatically. Verify the current rates and conditions on the company tax rate page at hasil.gov.my, and read our breakdown of the corporate tax rate in Malaysia.

In practice: at lower profit levels individual rates are often cheaper, because personal reliefs and the very low opening bands do real work. At higher profit levels it reverses. The crossover point differs for every owner, and profits you withdraw in full each year to live on do not capture the corporate rate advantage the way retained profits do.

The liability argument

This one is stronger than the tax argument and is almost never what triggers the call. A sole proprietorship carries no limited liability. Business debts are your debts, and if a customer sues, your personal assets are in scope. A Sdn Bhd is a separate legal person, and shareholder liability is generally limited to capital contributed, subject to exceptions such as personal guarantees and certain director defaults.

If your work involves large contracts, other people’s premises, products capable of causing injury, or significant supplier credit, the liability case usually outweighs anything on the tax side. We set out how the structure works in our explainer on what a Sdn Bhd is.

The credibility and access argument

Some doors stay shut to an enterprise: certain government tenders, large corporate vendor panels, grants requiring an entity registered under the Companies Act, and bigger banking facilities. If you have been turned away once or twice on structure alone, that is a better signal than any tax computation.

When it is not worth it

We do not push every client towards incorporation. A Sdn Bhd brings fixed compliance costs payable whether you profit or not: company secretarial fees, accounts preparation, the annual audit, the Annual Return, and Form C with its CP204 tax estimate. None of it is optional, and each piece carries its own deadline.

If your annual profit is still modest, if you work alone with no significant assets or contracts, if the business runs alongside a full-time job, or if you are not sure it will exist next year, those fixed costs will very likely exceed any tax saving. Staying an enterprise and keeping tidy records is the better call. We compare both structures in detail in sole proprietorship vs Sdn Bhd.

One note on timing. Converting mid-financial-year creates two sets of accounts and two filing obligations in the same year, so planning the switch to land at the start of a basis period usually saves a good deal of accounting work.

Common mistakes

• Filing Form BE while running an enterprise. The wrong form means the business income was never declared, which can be treated as under-declaration under Section 113.
• Filing both B and BE because you have a salary and a business. One form only. Form B, with both sources declared inside it.
• Treating the bank balance as profit. A balance ignores debtors, creditors, stock and drawings.
• Deducting your own drawings as salary. A sole proprietor cannot pay themselves a deductible wage. Drawings are not an allowable expense.
• Writing off the full cost of assets in the year of purchase. Use capital allowances, not a direct deduction and not accounting depreciation.
• Ignoring CP500 notices until year end. Missed instalments accumulate increases and make the final bill worse.
• Not filing because the business lost money or was dormant. The obligation stands while the business source is on LHDN’s records.
• Discarding receipts after a year or two. Seven years runs from the end of the year of assessment, not from the receipt date.
• Treating the 15-day grace period as the real deadline. It is an administrative concession for e-Filing that LHDN can change. Aim for the statutory date.

Frequently asked questions

I have a salary and a small enterprise. Which form do I file?

Form B only. Your employment income is declared inside Form B in the employment section. You do not submit a separate Form BE, and your deadline follows Form B at 30 June rather than 30 April.

I freelance without an SSM registration. Do I still file Form B?

Yes, if the income comes from activity that is business in nature. SSM registration is an obligation under business registration law; it is not the test for whether income counts as business income for tax. No certificate does not mean no business source.

My business made a loss. Do I still have to file?

Yes. Beyond the legal obligation, a properly declared business loss can be carried forward against future profits, subject to conditions and time limits. A loss you never reported is simply gone.

What happens if I miss the Form BE submission deadline or the Form B one?

Submit as soon as you can. The Section 112(3) increase is calculated on how late you are, starting at 15% for delays up to twelve months, so every month of waiting moves you closer to the next band. If tax is outstanding, the late payment increase applies on top.

Can I deduct home rent if I run the business from home?

Partly, if you can show a reasonable and consistent basis for apportioning private and business use, such as the floor area used exclusively for work. The private share stays disallowed. Keep the apportionment working with your records, because that is what gets asked for on review.

Why did I get a CP500 when this year has been slow?

Because CP500 is based on the previous year’s assessment, not on current performance. If you expect materially lower income this year, submit Form CP502 to apply for a revision within the window LHDN sets.

How long do I keep business invoices and receipts?

Seven years from the end of the relevant year of assessment, under Section 82A of the Income Tax Act 1967. Electronic records are acceptable as long as they are complete, legible and can be reproduced on request.

My partnership already filed Form P. Do I still file Form B?

Yes. Form P is an information return and the partnership itself pays no tax. Each partner declares their share of the divisible profit in their own Form B, and both forms share the same deadline.

Does my enterprise need to issue e-Invoices?

It depends on your annual turnover and which implementation phase you fall into. LHDN is rolling e-Invoice out in stages by turnover band, and businesses below a stated threshold have been exempted. The timeline and thresholds have been revised more than once, so confirm your current position on the e-Invoice section of hasil.gov.my before committing to a system.

Is it worth paying a tax agent to prepare Form B?

It depends on complexity. One business source, few expenses, no significant assets and no staff is manageable on your own through e-Filing. Once stock, capital allowances, employees, multiple income sources or cross-border transactions are involved, professional fees usually cost less than the adjustments and penalties that follow a self-prepared return.

Next steps

If you are weighing whether to stay an enterprise or incorporate, start with your own numbers. Compare individual tax on last year’s actual profit against estimated corporate tax plus the full annual compliance cost, and keep the liability question separate from the tax question. For the wider structural picture, see our guide to the types of business entities in Malaysia.

SASCO prepares business accounts for Form B, reviews expense and capital allowance treatment, handles CP500 and CP502 estimates, and manages conversions to Sdn Bhd once that decision is made. Send us your current-year statements and records and we will show you where you stand before the deadline gets close.