MITRS and Tax Risk: What Your Financial Statements Tell LHDN Before an Audit Begins

What MITRS Requires You to Submit

Under Section 82B of the Income Tax Act 1967, companies (C category) and limited liability partnerships (PT category) must submit supporting documents through MITRS within 30 days of their Form C filing deadline, starting from YA 2025.

The required documents are:

• Audited or unaudited financial statements
• Income tax computation, including all adjustments from accounting profit
• Complete capital allowance and Schedule 3 computation (where applicable)
• Complete computation of any tax incentives claimed (where applicable)

Upload as PDF. File size limit is 15MB per file — not a combined cap, so large audited FS bundles can be split across files.

None of these are new documents. For YA 2025 MITRS document submission, what changes is not the documents themselves — it is where they end up. They now land in LHDN’s system as a complete set, tied to your company’s tax file, at the point of filing.

What Each Document Reveals

Think about what each document actually contains.

Audited financial statements

The FS carries revenue, gross profit, net profit, director remuneration, dividend declarations, related party transactions, and asset base — all in one place. Gross profit margin can be compared against industry and historical trends without seeking additional documentation. Related party transactions that touch transfer pricing exposure are disclosed on the face of the accounts. For a straightforward trading company, the FS alone answers most of the opening questions a tax auditor would ask.

Income tax computation

The computation shows every adjustment between accounting profit and chargeable income. Every add-back — entertainment, motor vehicle depreciation, non-deductible expenses — is itemised. Every deduction claimed is declared. In practice, this document explains why the tax payable differs from the accounting profit — line by line.

Capital allowance schedule

The CA schedule discloses asset acquisition dates, qualifying costs, accelerated allowance claims, disposals, and balancing charges or allowances. One issue that arises regularly: the CA schedule and the fixed asset note in the FS do not reconcile. Closing balances, disposals, acquisition costs — where these differ between the two documents, the gap needs an explanation before filing, not after.

Tax incentive computation

From our experience, incentive claims are among the most frequently challenged items under LHDN audit — pioneer status, investment tax allowance, reinvestment allowance. The computation must show the qualifying activity, eligible expenditure, and tax relief applied. That computation now sits in LHDN’s system at the point of filing, not only when a CP700 is issued.

What the AFS Shows That Form C Never Did

Before MITRS, LHDN received the financial particulars section of Form C — aggregated line items. A company paying RM1 million in sales commission would report it under Item 28 “Other expenditure.” Maintenance costs sat under Item 23 as a single figure. Professional fees appeared under Item 15 as a total. LHDN had the sum, not the breakdown.

What we observe now is that the audited financial statements do what Form C never did — the notes to the accounts break out the components. Detail that previously required a CP700 to surface now arrives at filing stage.

Four expense areas illustrate this most clearly.

Commission payments → Section 107D withholding

Under Form C, commission paid to agents, dealers, or distributors merged into Item 28 with everything else. We regularly see commission expense disclosed separately in the audited financial statements. Once that figure sits alongside the tax computation, it becomes much easier to assess the scale of payments to individual agents — and whether Section 107D withholding obligations at 2% were met for any resident individual who received over RM100,000 from the company in the preceding year. Previously, LHDN would need to issue a CP700 to know commission was paid at all.

Maintenance and repairs → year-on-year movement

Form C Item 23 gave LHDN a single number with no history. Across consecutive MITRS filings, the maintenance and repairs line in the AFS becomes trackable year by year. A substantial increase is the type of item that often invites follow-up questions — whether any portion should properly be capitalised, and whether the movement is consistent with the company’s asset base and operations. The AFS does not explain the movement. That gap is what draws attention.

Rental and lease → related party exposure

Form C Item 22 gave LHDN a total rental figure. What we often see in the AFS is that the landlord is a director, a shareholder, or a connected entity. Where that relationship is disclosed alongside the rental quantum, this is an area we would normally advise clients to revisit — particularly where the rental rate has not been benchmarked or documented as arm’s length.

Professional and management fees → multiple compliance exposures

Under Form C, Item 15 was a single aggregate. The AFS may disclose the underlying components — legal fees, management charges, consulting fees, technical services. In our experience, that additional visibility tends to attract attention to several areas: whether expenses are revenue or capital in nature, whether related-party management fees are properly supported, whether payments to non-residents carry withholding tax obligations, and whether adequate evidence exists that services were genuinely rendered.

The Convergence With e-Invoice

One point worth noting: MITRS does not sit in isolation.

Phase 1 and Phase 2 e-Invoice taxpayers are already generating transaction records that reach LHDN’s systems at the point of each invoice. Phase 3 and Phase 4 companies will follow. What this means in practice is that LHDN is building visibility at both ends — real-time revenue data through e-Invoice, and the full picture from chargeable income to tax through MITRS.

What a Risk Flag Looks Like

In our experience, no single document triggers an audit. It is patterns across documents that invite further review. The ones we would flag as worth revisiting before a MITRS submission:

• High director remuneration with low or nil dividend distributions
• Capital allowance claims disproportionate to the audited asset base
• Incentive claims in borderline qualifying activities
• Unusually low effective tax rates without a clear explanation in the computation
• Significant related-party transactions that reduce taxable income

What a Clean Submission Looks Like

In our view, the strongest MITRS submission is not necessarily the one with the lowest tax payable. It is the one where the financial statements, tax computation, and supporting schedules tell the same story.

In practice that means: the revenue figure in the FS matches the computation’s opening profit before tax. Every add-back traces to a line in the FS or a supporting schedule. The CA schedule reconciles to the fixed asset note — closing balances, disposals, acquisitions. If incentives are claimed, the computation reflects qualifying expenditure that is consistent with the nature of the business in the FS.

These are not new requirements. They are the consistency checks a competent tax agent performs before filing Form C.

The time to resolve inconsistencies is before submission, not after a CP700 lands. Once MITRS locks your financial statements and tax computation into LHDN’s system as a set, any unexplained gaps become much harder to fix.

Practical Note on Timeline

Prepare the MITRS document set alongside Form C — not after.

MITRS does not create new tax obligations. The rules on withholding tax, transfer pricing, deductibility, and incentive claims were already there. What MITRS changes is how much of the information needed to identify non-compliance reaches LHDN at filing stage — without a single letter being issued.

We have seen companies treat MITRS as an upload exercise. In our view, the more useful question to ask before submission is: do these four documents, read together, tell a consistent and explainable story? If the answer is yes, the submission is defensible. If there are gaps you cannot explain, the time to address them is now — not when a CP700 arrives.

Source: Section 82B and Section 120(1)(d), Income Tax Act 1967; LHDN MITRS official guidance; Finance Act (Amendment) 2024.