Quick answer: LHDN's audit framework effective 15 March 2025 provides for income tax, withholding tax, capital gains tax, Labuan and employer audits. A request for documents must be answered within 14 calendar days, and a formal objection to the audit findings within 18 calendar days of the findings letter. Penalties under section 113(2) are 15% for a first offence, 30% for a second, 45% for a third and later, 0% for a technical adjustment and 100% for fraud or wilful default.
- Respond to a document request within 14 calendar days.
- Object to audit findings within 18 calendar days.
- Penalty: 15%, 30%, 45%, with 0% for technical adjustments and 100% for fraud.
- Voluntary disclosure before an audit starts can reduce penalties.
- Appeal an assessment to the Special Commissioners within 30 days using Form Q.
Types of Audit
| Audit | What it covers |
|---|---|
| Income tax | Compliance with the Income Tax Act 1967, excluding withholding tax, employer, capital gains and Labuan matters |
| Withholding tax | Whether withholding tax was deducted and remitted on time |
| Capital gains tax | Introduced 1 January 2024: acquisition and disposal of shares and related expenses |
| Labuan business activity | Whether Labuan treatment applies, or the income is taxed under the Income Tax Act |
| Employer | Monthly PCB deductions, remittance and employer duties under section 83 |
Methods and Notices
| Item | Rule |
|---|---|
| General review | Desk-based, often by correspondence |
| Comprehensive review | Interviews, and possibly visits to premises or an agreed location |
| Document request | Request for Documents and Information letter, by official email or post |
| Visit notice | At least 14 calendar days before the visit |
| Rescheduling | Allowed for reasonable and unavoidable reasons |
Deadlines
| Step | Deadline |
|---|---|
| Reply to document request | 14 calendar days from the letter date |
| Object to audit findings | 18 calendar days from the Audit Findings Letter |
| Appeal assessment to Special Commissioners | 30 days from the assessment notice, using Form Q |
| General audit case resolution period | 90 days, unless third-party confirmation is pending |
Penalties (Section 113(2))
| Case | Penalty |
|---|---|
| First offence | 15% |
| Second offence | 30% |
| Third and later | 45% |
| Technical adjustment | 0% |
| Fraud or wilful default | 100% |
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Voluntary Disclosure and Rights
Voluntary disclosure must be made in writing before the audit begins. The standard penalty is 15%, and 10% applies in the case the framework describes, where an initial amended return was filed and a further disclosure follows within six months of the original return deadline. During an audit you may verify the auditor's identity, appoint a registered tax agent by letter, use an interpreter, receive an explanation of findings, and obtain copies of records. The Director General may reduce or remove penalties under section 124(3).
Records to Keep
Keep adequate records under sections 82 and 82A: account books and financial statements, invoices, vouchers and receipts, agreements with related and third parties, payroll records, EA and CP8D data, Form CP39 and PCB payment proof, and electronic records. Failure to keep adequate records is an offence under section 119A.
Mistakes
Ignoring the document request
The audit continues on existing information and unsupported claims may be disallowed.
Missing the 18-day objection window
No objection is treated as agreement with the findings.
Disclosing after the audit starts
Voluntary disclosure must come before it begins.
How We Help
What we handle for you
Accounts and filings
- Keep your accounting records and prepare year-end financial statements.
- Help with the tax and statutory filings that follow from your accounts.
Payroll
- Run payroll and prepare the monthly and yearly payroll filings.
Why companies choose us
Accounting, payroll and company set-up under one roof
- We also handle company incorporation and expatriate pass applications, so your accounts, payroll and structure stay aligned.
A Kuala Lumpur firm
- Neutral Consulting PLT is led by a Managing Partner who is a member of the Malaysian Institute of Accountants.
Frequently Asked Questions
Quick answers.
How long do I have to reply to a document request?
14 calendar days from the letter date.
What happens if I do not reply?
The audit continues using existing information, and unsupported expenses may be disallowed.
How long do I have to object to the findings?
18 calendar days from the Audit Findings Letter.
What are the penalty rates?
15% for a first offence, 30% for a second, 45% for a third and later, 0% for technical adjustment and 100% for fraud.
Can I reduce the penalty?
Voluntary disclosure before an audit begins can, and the Director General may reduce or remove penalties under section 124(3).
How much notice is given for a visit?
At least 14 calendar days.
Can I appoint a tax agent?
Yes, by submitting an appointment letter before the agent acts.
How do I appeal an assessment?
To the Special Commissioners of Income Tax within 30 days, using Form Q.
What records must I keep?
Accounts, supporting documents, agreements, payroll records and electronic records, under sections 82 and 82A.
Can the same year be audited again?
Not for the same year and issue unless new information arises.
What is an employer audit?
A check of PCB deductions, remittance and section 83 duties.
Can you represent us in an audit?
We can help you prepare the records and the response.
Sources
Official sources
This page is general information, not legal advice. Agencies change their requirements, so confirm the current rules with LHDN, the Royal Malaysian Customs Department and SSM, or with us, before you act. Checked November 2026.
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