LHDN Tax Audit in Malaysia: The Process, Your Rights and Penalties
An LHDN tax audit is a check by the Inland Revenue Board of Malaysia that your tax returns were correct. It usually starts with a letter asking for documents or a notice of a visit, and it ends either with no change or with an additional assessment and a penalty, which you can appeal.
This article walks through each stage under LHDN's Tax Audit Framework, in force since 15 March 2025: how audits are chosen, the two kinds of review, what notice you get, your rights, how long you have to answer the findings, the penalty rates, and what to do if you disagree.
Key takeaways
- LHDN's Tax Audit Framework for income tax and employers, in force since 15 March 2025, replaced five earlier audit frameworks and keeps the general review and comprehensive review structure.
- For an audit visit, LHDN gives written notice at least 14 days in advance stating the date, the years under audit, the records required and the officer's name.
- A taxpayer generally has 18 calendar days to object to LHDN's audit findings letter, and silence is treated as agreement.
- Audit penalties are usually 15%, 30% or 45% of the tax undercharged for a first, second or third offence, with no penalty for technical adjustments and a penalty equal to the full tax undercharged for deliberate fraud.
- An additional assessment raised after an audit is appealed on Form Q within 30 days, but the tax must still be paid while the appeal is pending.
On this page
- What is an LHDN tax audit and how is it chosen?
- General review or comprehensive review: what is the difference?
- What notice and documents should you expect?
- What are your rights during an LHDN audit?
- How do audit findings, settlement and penalties work?
- What if you disagree with the result of the audit?
- Frequently asked questions
What is an LHDN tax audit and how is it chosen?
A tax audit is LHDN's review of whether a return was complete and correct. LHDN's audit policy division has said publicly that an audit does not automatically mean wrongdoing. A tax investigation is different: it is opened where evasion is suspected and can lead to prosecution.
The legal powers come from the Income Tax Act 1967 (Act 53). LHDN can call for returns, books, documents and information under sections 78 to 81, and section 82 requires business records to be kept for seven years. Obstructing an officer is an offence.
Cases are usually selected by computer risk analysis and information from other sources, such as:
- third-party information;
- industry-wide issues and specific types of transaction;
- public complaints and lifestyle checks that compare spending with declared income.
The 2025 framework applies to income tax, capital gains tax on the disposal of unlisted shares, withholding tax, employers' obligations and Labuan entities. Audits generally cover up to three years of assessment, which can be extended to five depending on the issues found. Under section 91 of the Act, LHDN can generally raise an additional assessment only within five years after the end of the year of assessment, but there is no limit where there has been fraud, wilful default or negligence.
General review or comprehensive review: what is the difference?
LHDN audits come in two main forms. A general review is a desk audit at LHDN's office, while a comprehensive review is a deeper audit that usually involves a visit.
| General review | Comprehensive review | |
|---|---|---|
| Where | LHDN office, mainly by correspondence; any interview may be in person or virtual | Your premises, an LHDN office or another agreed place |
| How it starts | A letter asking for documents | A notice of visit at least 14 days ahead |
| Scope | Specific issues in the return | Business records, contracts, incentive conditions and, for sole proprietors and partnerships, personal bank statements |
| Visit length | No visit | Generally one to three days |
The framework sets target completion periods. Under the 2022 framework, which the 2025 version consolidated, audit cases were to be completed within 90 calendar days of the visit or of the letter fixing the start date, and LHDN had to tell the taxpayer if this would be exceeded. The 2025 framework gives 90 days for employer audits and longer periods for some sectors. Late documents and third-party checks stretch the timetable.
A completed audit is not reopened for the same year and issue unless new issues or information come to light.
What notice and documents should you expect?
For a comprehensive review, LHDN must send a written notice at least 14 days before the visit. The notice states the visit date, the records to prepare, the years under audit, the audit officer's name and the expected length of the visit. You can ask to postpone for a reasonable, unavoidable reason, but do so in writing and early.
Officers typically ask for:
- tax returns, computations and audited financial statements;
- general ledgers, sales and purchase invoices and bank statements;
- payroll records, EA forms and employer returns;
- contracts, loan agreements and related-party documents;
- evidence supporting claims for deductions, allowances and incentives.
Records kept outside Malaysia are no excuse. The 2025 framework requires taxpayers to retrieve and submit documents on Malaysian transactions stored abroad, and late submission can lead to claims being disallowed.
Respond within the time stated in each letter. An LHDN officer explained in July 2025 that if a taxpayer does not reply in time, the claim is treated as lacking supporting documents, which can lead to it being disallowed and an additional assessment being raised. If you need more time, ask for an extension formally before the deadline.
What are your rights during an LHDN audit?
You have the right to fair, transparent treatment and to be represented. The audit frameworks list these rights:
- to receive formal written notice before an audit starts, and to be told its purpose, scope and expected duration;
- to check the officer's identity using his or her authority card;
- to appoint a tax agent and have the agent attend meetings and interviews;
- to use an interpreter if needed;
- to ask for clarification of any unclear question;
- to see a written explanation of the findings and to object to them within the set period;
- to complain to a more senior LHDN officer about an officer's conduct;
- to apply to pay additional tax by instalments;
- to appeal against any resulting assessment.
You also have duties. You must cooperate, answer relevant questions, give access to premises, records and electronic systems, and provide reasonable facilities. Never offer gifts or payments to audit officers, which LHDN warns can have legal consequences.
A tax agent handles the figures. Legal advice is worth taking early where the audit may turn into an investigation, where the amount is large, where the issue is one of law (for example whether a receipt is capital or income), or where you are being asked to sign an admission. What you say and agree at the audit stage forms the record for any later appeal.
How do audit findings, settlement and penalties work?
At the end of the review, LHDN issues a findings letter setting out each issue and its reasons. You then generally have 18 calendar days to object in writing with supporting evidence. If you do not object in time, you are treated as agreeing, and LHDN issues a notice of additional assessment.
Penalties under the 2025 framework for an incorrect return are:
| Situation | Usual penalty rate |
|---|---|
| Technical adjustment | 0% |
| First offence | 15% of tax undercharged |
| Second offence | 30% |
| Third and later offences | 45% |
| Voluntary disclosure before an audit starts, within six months of the return due date | 10% |
| Voluntary disclosure before an audit starts, later | 15% |
The statutory maximum under section 113(2) of the Income Tax Act 1967 is a penalty equal to the tax undercharged, and the 2022 framework applied that full rate to deliberate fraud. Wilful evasion under section 114 is a criminal offence. Once audit action has begun, the reduced voluntary disclosure rates are no longer available.
Tax and penalties are generally due within 30 days of the notice of assessment, and late payment attracts an increase. Since March 2025, individuals and companies can apply for instalments through LHDN's e-Ansuran facility on MyTax, subject to its conditions.
What if you disagree with the result of the audit?
Object to the findings within the 18-day window first, then appeal any additional assessment to the Special Commissioners of Income Tax by filing Form Q within 30 days after the notice is served, under section 99 of the Income Tax Act 1967.
- At the findings stage, set out each disputed issue with documents. Many cases are settled here, or the adjustment is reduced.
- If an assessment is raised, file Form Q on time, signed by the taxpayer or the company's authorised officer. A letter is not enough.
- Pay the tax by the due date even while the appeal is pending, as section 103 requires, or ask about instalments.
- LHDN reviews the appeal and may settle it, including through its Dispute Resolution Proceeding.
- If not settled, the Special Commissioners hear the appeal, with further appeals to the High Court and the Court of Appeal on questions of law.
A penalty can be challenged together with the assessment. Where LHDN has gone beyond its powers, for example by assessing outside the time limit without proof of fraud, wilful default or negligence, judicial review may sometimes be possible, but it is exceptional.
Our tax dispute lawyers work with your tax agent on the appeal, and our appellate team handles the court stages. We advise after reviewing the audit correspondence and assessment at a consultation.
Frequently Asked Questions
How long does an LHDN tax audit take in Malaysia?
An LHDN tax audit in Malaysia usually aims to finish within a set period from the visit or from the letter fixing the start date. The 2022 framework set 90 calendar days for audit cases, and the 2025 framework sets 90 days for employer audits and longer for some sectors. Late documents and third-party checks can extend it.
How many years back can LHDN audit in Malaysia?
An LHDN tax audit in Malaysia generally covers up to three years of assessment, which can be extended to five depending on the issues found. Under section 91 of the Income Tax Act 1967, LHDN can generally raise an additional assessment within five years after the end of the year of assessment. There is no time limit where there has been fraud, wilful default or negligence.
What is the penalty after an LHDN tax audit?
Under LHDN's Tax Audit Framework in force since 15 March 2025, the usual penalty for an incorrect return found in an audit in Malaysia is 15% of the tax undercharged for a first offence, 30% for a second and 45% for later offences, with none for technical adjustments. The statutory maximum under section 113(2) of the Income Tax Act 1967 equals the tax undercharged.
Can I refuse or postpone an LHDN audit visit?
A taxpayer in Malaysia cannot refuse an LHDN audit, and failing to cooperate or obstructing an officer can be an offence under the Income Tax Act 1967. You can, however, ask in writing to postpone a visit for a reasonable, unavoidable reason. LHDN must give at least 14 days' written notice of a comprehensive review visit, so make any postponement request promptly after receiving it.
Can I appeal LHDN audit findings in Malaysia?
Yes, in two stages. In Malaysia you can first object to LHDN's audit findings letter in writing, generally within 18 calendar days, with supporting documents. If LHDN still raises an additional assessment, you can appeal to the Special Commissioners of Income Tax by filing Form Q within 30 days after the notice of assessment is served, under section 99 of the Income Tax Act 1967.
Need advice on your own situation?
Every case turns on its own facts and documents. Our lawyers in Puchong and Mont Kiara advise once we have reviewed your documents at a consultation, online or in person.
Related reading
This article is general information on Malaysian law as at October 2026 and is not legal advice. Laws and procedures change, so please seek advice on your own facts before acting.
