In Budget 2018, the Malaysian government announced the implementation of Earning Stripping Rules (“ESR”) which is effective from 1 January 2019 to control excessive tax deduction on interest expenses between associated persons. e foundation of ESR is incorporated into the Malaysian income tax law through the addition of Section 140C of the Income Tax Act 1967 (“the Act”). 

Subsequently, the Income Tax (Restriction on Deductibility of Interest) Rules 2019 (“ESR Rules”) was gazetted on 24 June 2019 which came into operation on 1 July 2019. The Inland Revenue Board (“IRB”) further issued its Guidelines dated 5 July 2019 which provided clarifications and examples on ESR.