A new set of rules has been gazetted to clarify how individual partners of a Limited Liability Partnership, or LLP, are taxed on their share of profits. The Income Tax (Determination of Chargeable Income of an Individual in respect of Limited Liability Partnership's Profit) Rules 2026 apply starting from the year of assessment 2026 and onwards.

Under these rules, an individual partner whose share of profit from an LLP exceeds RM100,000 in a basis period will have that profit taxed using a set formula. The formula works out the actual amount of chargeable income that comes from the LLP profit, by taking the partner's income from the LLP, dividing it by the partner's total income for the year, then multiplying that by the partner's total chargeable income. This same formula applies to both partners who live in Malaysia and partners who live outside Malaysia. The difference between the two groups lies in which part of the tax schedule is used to work out the chargeable income figure, which then affects the final tax rate applied.

Where a husband and wife are assessed together as a combined unit, the income of both spouses is taken into account when working out the relevant figures. This new formula only applies to the specific slice of income that comes from the LLP profit share. Any other income the partner earns, such as salary or business income from elsewhere, is not affected and continues to be taxed the normal way it always has been.

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