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Rent from a factory is taxed as part of the owner’s income. If you own the factory personally, the net rent is added to your other income and taxed at 0% to 30%. If a Malaysian company owns it, the company pays 24%, or 15% and 17% on the first RM600,000 for qualifying SMEs (Budget 2027 proposes 14% and 16% from YA 2027). In both cases, you pay tax on the rent after deducting costs such as quit rent, assessment, insurance, repairs and loan interest.
With factory rents in Johor at around RM2.50 per sq ft a month, even a mid-sized factory brings in RM400,000 or more a year, so the choice between owning personally or through a company makes a real difference.
Tax rates for factory rental income
| Owner | How rent is taxed | Rate |
|---|---|---|
| Malaysian resident individual | Net rent added to total income | Progressive, 0% to 30% (25% on income from RM100,001 to RM400,000) |
| Non-resident individual | Net Malaysian rent | Flat 30%, no personal reliefs |
| Malaysian SME company (paid-up capital RM2.5m or less, sales up to RM50m) | Company income | 15% on first RM150,000, 17% to RM600,000, 24% above (YA 2026) |
| Other Malaysian company | Company income | 24% |
For individuals, rent is usually taxed as investment income under section 4(d) of the Income Tax Act. If you provide substantial services with the property, or letting is the main activity of a company, LHDN may treat it as business income instead, which changes what you can claim, including capital allowances.
Expenses you can deduct
LHDN allows expenses that are incurred wholly and exclusively to earn the rent (Public Ruling No. 12/2018). For a factory landlord, the common ones are:
- Quit rent (cukai tanah) and assessment (cukai pintu).
- Fire insurance on the building.
- Interest on the loan used to buy the factory, for the period it is rented out. The principal repayment is not deductible.
- Repairs and maintenance that restore the building, such as roof repairs, repainting and fixing the drainage. Extensions and upgrades are capital and are not deductible against rent, but they count as enhancement costs for RPGT.
- Agent’s fee and legal fee to renew a tenancy. The fee to find the first tenant and the stamp duty on the first tenancy are not deductible.
👉 Keep a simple file for each factory: quit rent, assessment, insurance, loan statements and repair invoices. Most landlords lose deductions because they cannot find the receipts at tax time.
Example: the same factory owned two ways
A factory is rented out for RM40,000 a month (RM480,000 a year). The yearly costs are assessment RM12,000, quit rent RM3,000, insurance RM4,000, repairs RM10,000 and loan interest RM90,000, so the net rent is RM361,000.
| Owned by an individual (resident) | Owned by an SME company | |
|---|---|---|
| Net rent | RM361,000 | RM361,000 |
| Tax (YA 2026 rates) | About RM74,650 | About RM58,370 |
| Effective rate on net rent | About 21% | About 16% |
The individual figure is before personal reliefs and assumes the owner has no other income. If the owner also has a salary or business income, the rent is taxed at the owner’s top rate, often 25% to 30%. The company figure is 15% on the first RM150,000 and 17% on the next RM211,000. Money paid out to shareholders as dividends from a Malaysian company is currently not taxed again in most cases, apart from the 2% dividend tax on individuals receiving more than RM100,000 a year.
Under the Budget 2027 proposal of 14% and 16%, the company tax on the same RM361,000 would fall by about RM3,600 a year. See our article on what Budget 2027 means for factory owners.
Individual or company: which is better?
- A company usually pays less tax on rent and can hold several factories, but it costs more to run (audit, secretary, tax agent), and it pays 10% RPGT on a future sale even after the fifth year.
- An individual pays 0% RPGT after the fifth year, which matters if you plan to sell. The rent is taxed at personal rates, which are high once your total income is above RM100,000.
- Moving the factory later from your name to a company triggers stamp duty and possibly RPGT, so decide before you buy. See our guide to stamp duty on a factory.
Service tax is separate
Rental income tax is paid to LHDN. If your yearly rent from non-residential property is more than RM1 million, you must also register for service tax with Customs and charge 6% to your tenant. See service tax on factory and warehouse rent.
Frequently asked questions
Can a foreign owner rent out a factory in Malaysia?
Yes. A foreign individual pays a flat 30% on the net Malaysian rent. A foreign company with no business presence in Malaysia is also taxed on Malaysian rent, so get advice on the best structure before you buy.
Is the deposit from the tenant taxable?
A refundable security deposit is not income while it is held. If you keep part of it, for example to cover unpaid rent or damage, that part becomes taxable in the year you keep it.
What yield can I expect from a factory in Johor?
At around RM2.50 per sq ft a month in rent and RM400 per sq ft to buy, the gross yield is about 7.5% before costs and tax. See our article on investing in industrial property in Johor.
Looking for a factory with a tenant, or to buy and rent out? Browse our factories for sale in Johor, or contact Jimmy Toh.
This article is general information, not legal or tax advice. Rates and rules change, so please confirm the details with your lawyer or tax agent before you sign.
