An SME boss told me,
“Both companies belong to my family.”
“Both are in Malaysia.”
“So Transfer Pricing Documentation is not required, right?”

I asked him 3 questions.
“Does either company enjoy a tax incentive?”

He kept quiet.
“Are both companies taxed at the same headline tax rate?”

Still quiet.
“Did either company suffer losses for the previous two consecutive years?”

Now he looked worried.

Many SME owners believe domestic related-party transactions are automatically exempt from Transfer Pricing Documentation.

They are not.

LHDN recently issued a new FAQ explaining the exemption under the Malaysian Transfer Pricing Guidelines 2024.

For most SME companies, there are two important exemption tests.

The first is the RM1 million test.

If total controlled transactions for the year do not exceed RM1 million, the company may be exempt from preparing Contemporaneous Transfer Pricing Documentation, or CTPD.

But RM1 million does not mean related-party sales only.

For example,

Related-party sales: RM600,000.
Management fees: RM350,000.
Intercompany loan: RM500,000.
The boss sees RM600,000 of sales.

LHDN sees RM1.45 million of controlled transactions.

Because the calculation may include :

Sales.
Purchases.
Services.
Management fees.
Loans.
Advances.
Guarantees.

A small SME group can exceed RM1 million faster than expected.

Then the boss says,
“Never mind.”
“All our transactions are domestic.”

There is an exemption for certain domestic controlled transactions.

But both parties must satisfy all three conditions.

First.
Neither party enjoys a tax incentive.

Second.
Both parties are taxed at the same headline tax rate.
The current headline corporate tax rate is 24%.

A preferential or lower SME tax rate is not treated as the same headline rate.
Both companies may be Malaysian companies.
But that does not mean they pass this test.

Third.
Neither party suffered losses for the two consecutive years immediately before the controlled transaction.

One tax incentive.
One tax-rate mismatch.
Or two consecutive loss years.

The domestic exemption may be gone.

There is another point many taxpayers misunderstand.
An exemption from preparing CTPD is not an exemption from Transfer Pricing.

Even when CTPD is not required, the arm’s length principle still applies.

You must still price related-party transactions commercially.
You must still make the relevant tax-return disclosures.

In simple English,

LHDN may exempt the paperwork.
LHDN does not give you permission to charge any price you like.
And if your company does not qualify for an exemption, it does not automatically mean full CTPD is required.

Read the full content in our blog
https://www.ktp.com.my/blog/transfer-pricing-exemption-malaysia/30july2026