Malaysia Taxation System
Income tax in Malaysia is imposed on income accruing in or derived from Malaysia except for income of a resident company carrying on a business of air/sea transport, banking or insurance, which is assessable on a world income scope.
Corporate Income Tax in Malaysia
A company is tax resident in Malaysia if at any time during that basis year its management and control of its business are exercised in Malaysia. Management and control are normally considered to be exercised at the place where the directors’ meetings concerning management and control of the company are held.
Resident companies are taxed at the rate of 24% while those with paid-up capital of RM2.5 million or less are taxed at the following scale rates
- The first RM500,000 the tax rate is 17%
- In excess of RM500,000 the tax rate is 24%
Withholding tax is a method of collecting tax from non-resident who have derived income which is subject to Malaysian tax. Any tax resident person who is liable to make a certain specified type of payments to a non-resident is required to deduct withholding tax at a prescribed rate applicable to the gross payment and remit it to the Malaysian Inland Revenue(LHDN) within 1 month of paying or crediting
Payments subject to withholding tax
- Interest – 15%
- Royalty – 10%
- Rental of movable properties – 10%
- Technical or management service fees – 10%
- Income of non-resident public entertainers – 15%
- Dividends – exempt
- Other income – 10%
Personal Income Tax in Malaysia
Not all expatriates in Malaysia are required to file personal income tax. Foreigners working in Malaysia for less than 60 days are exempt from filling out taxes, as are those who have employed on board a Malaysian ship, or those aged over 55 years old who are receiving a pension from employment in Malaysia.
Expatriates working in Malaysia for more than 60 days but less than 182 days in a year are considered non-tax residents.
Only income that has its source in Malaysia is taxable in the country, regardless of where you are paid. However, there are some exceptions to this territorial principle. Malaysia has signed numerous Double Taxation Avoidance agreements, so certain nationalities will be exempt from paying personal income tax in Malaysia if their earned income is taxed in their home country. If your income is derived from specific industries, such as air transport or banking, a worldwide basis for taxation is applied instead of the territorial principle.
The Malaysian government offers several tax deductions and benefits for expatriate workers who qualify as tax residents. These include:
Tax relief for a spouse that does not earn an income anywhere
Tax relief for those who have to pay parental care
- Tax relief for each child below 18 years old
Tax relief for children studying at a tertiary level
Tax residents status of individuals
An individual is regarded as tax residents if meets any of the following conditions :
- in Malaysia for at least 182 days in a calendar year.
- in Malaysia for a period of less than 182 days during the year (“shorter period”) but that period is linked to a period of the physical presence of 182 or more “consecutive” days in the following or preceding year (“longer period”). Temporary absences from Malaysia due to the following reasons are counted as part of the consecutive days, provided that the individual is in Malaysia before and after each temporary absence: – –
- – business trips
- – treatment for ill-health
- – social visits not exceeding 14 days
- in Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, he was in Malaysia for at least 90 days or was resident in Malaysia
- resident for the year immediately following that year and for each of the 3 immediately preceding years
Personal Income Tax Rates
Personal income is taxable at progressive resident rates from 0% to 28% (w.e.f YA2020 is 0% to 30%) and entitled to claim certain personal reliefs. The chargeable income of first RM5,000 is taxed at zero value.
- Non-resident individual is subject to a flat rate of 28% (w.e.f. YA2020 is 30%) or at the progressive resident rates whichever amounts result in a higher tax. Director fees, consultant fees and all other incomes are taxed at 28% (w.e.f. YA2020 is 30%).
- Non-resident individuals will not be entitled to tax reliefs.
- When you come to the end of your employment contract, or if you resign from your job or leave Malaysia for more than three months, you need to apply for tax clearance. This is a certificate or letter from LHDN that determines whether you owe income tax or not. Once this letter has been received your employer should release the balance of any money owed to you after you settle any outstanding taxes.
Real Property Gains Tax and Stamp Duty in Malaysia
Feature of Real Property Gain Tax and Stamp Duty
- If you purchase a property in Malaysia, you will be subject to Real Property Gains Tax (RPGT) when you sell it. RPGT is a tax on the profit gained from the sale of a property and is payable to the Inland Revenue Board, and it will vary depending on the amount of time you have owned the property.
- If you purchase a property in Malaysia, you will also need to pay Stamp Duty, which is a tax that is levied on the legal recognition of the Sales & Purchase Agreement (“SPA”) and Loan Agreement when you buy a property.