Like many other jurisdictions, Malaysia has its own taxation system and the country’s taxes are evaluated on a current year basis and are under the self-assessment system for all taxpayers. This include all income accrued in, derived or remitted to Malaysia which is liable to tax. Having said that, the income of any person derived from sources outside Malaysia and received in Malaysia is exempted from tax. This is applied with the exception for other than a resident company carrying on the business of insurance, banking, sea or air transport. The silver lining here is that Malaysia has an extensive number of double tax treaties available for the avoidance of Double Taxation.
As a foreign national planning on relocating to Malaysia, and if you wish to draw up budget and have a better idea of your net salary, there are various taxes that you will need to bear in mind. The different taxes here include, income tax, property tax, corporate tax, consumption tax, and road tax which are the main types. You may also be eligible for certain tax relief exemptions or benefits. Hence, it is imperative that you understand the different types and the important details beforehand to avoid any complications when you are in the region.
Individual Income Tax
As the name implies, the individual income tax in Malaysia is imposed on earned or received in Malaysia, from outside of Malaysia. In view of this, every individual is subject to tax on income accruing in or derived from Malaysia. So, any income earned overseas and remitted to Malaysia by an individual or resident is exempted from tax. The income is evaluated on a current year basis and individuals must act in accordance with the self-assessment scheme.
Generally, everyone who is working in Malaysia is required to pay income tax, and all types of income are taxable which also include gains from business activities and dividends. However, the type of work you do and the duration of your stay in this country will determine the tax category you fall in. So, do note that the tax rate differs as it is calculated according to the chargeable income of the resident individual taxpayers.
Let say if you are working in Malaysia for more than 60 days but less than 182 days in a year, then you will be considered as a non-resident and will be subjected to a flat taxation rate of 28%. So as a non-resident, you will not be eligible for any tax deductions.
If you are working in Malaysia for more than 182 days in a year, then the government classifies you as a tax resident and you will need to pay progressive tax rates and be eligible for tax deductions.
In Malaysia, the progressive personal income tax system involves the tax rate increasing as the individual’s income increases. For instance, starting at 0% for up to RM5,000 earned, to a maximum of 28% for annual income of over RM 1 million.
When you resign from your job or come to the end of your employment contract or leave Malaysia for more than 3 months, you will need to apply for tax clearance. A tax clearance is a letter or certificate from the Malaysian Inland Revenue (LHDN) that determines if you owe any income tax. Hence, upon receiving this letter, your employer should release the balance of any money owed to you after settling any outstanding taxes.
Corporate Income Tax
In Malaysia, every corporations are subject to corporate income tax, real property gains tax, goods and services tax (GST) and so on. Any resident or non-resident organisations doing business and generating taxable income in Malaysia will be taxed on income accrued in or derived from Malaysia. Thus, if you own a business that is a tax resident company in Malaysia, where its management and control are practiced in Malaysia, then you will be liable to pay the corporate income tax.
For resident organisations carrying out business of air transport, sea transport, insurance and banking will be taxable on their global income. That said, there are exemptions for resident banks, insurance companies and Takaful companies but is subject to specified conditions.
For resident companies, they are taxed at the rate of 24% whereas those with paid-up capital of RM2.5 million or less are taxed at the rate of 18% for their first RM500,000 and 24% for earnings in excess of RM500,000. The corporate tax is generally payable in instalments for 12 months, starting from the second month of the company’s financial year, and income-generating expenses are deductible when calculating the taxable income. The tax year or basis period for a business usually follows the financial year ending in that particular year of assessment. For instance, the basis period for Year of Assessment 2017 for a business that closes its accounts on 31 December 2017 is the financial year ending 31 December 2017.
Benefits and Exemptions
Not all expatriates in Malaysia are required to file personal income tax. Foreign nationals who are working in Malaysia for less than 60 days are exempted from filing out taxes as well as those who are employed on board a Malaysian ship or those aged over 55 years old who are receiving pension from employment in Malaysia.
Keep in mind that only income that has its source in Malaysia is taxable in the country, regardless of where you are paid. But there are some exceptions to this territorial principle.
Malaysia has signed agreements on numerous Double Taxation Avoidance which means that certain nationalities will be exempted from paying personal income tax in Malaysia on a condition that their earned income is taxed in their country. Let say your income is derived from specific industries such as banking or air transport, then a worldwide basis for taxation is applied of the territorial principle.
Nevertheless, the Malaysian government offers several tax deductions and benefits for the 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 must pay parental care
- Tax relief for each child below 18 years old
- Tax relief for children studying at a tertiary level
As of 2017, tax relief for childcare centres and breast-feeding equipment is also available. Also, there is one which falls under the category called ‘lifestyle tax relief’ which is limited to RM2,500 per year for lifestyle goods such as books, sporting and electronic equipment.
Goods and Services Tax (GST)
The Goods and Services Tax (GST) is a tax imposed on the consumers which is based on the purchase price of certain goods and services, and currently it stands at 6% in Malaysia. Not only limited to this, imported goods and services will also be charged at this rate.
There is xception to certain goods such as flour, rice, certain medicines, and first 300 units of electricity where they are subjected to a tax rate of 0%. To find out more on this, the full list of taxable and non-taxable goods and services can be found on the Royal Malaysians Customs Department official website.
It is believed that the GST brings in RM40 billion a year and this has been keeping Malaysia solvent during the recent difficult financial times.
The price you see on the menu or item in some shops and restaurants will be lower than the price you pay at the cashier, hence it is important that you know the reason and prepare for the additional cost when you decide to purchase an item or service.
Real Property Gains Tax
For every property purchased in Malaysia, you will be subject to the Real Property Gains Tax (RPGT) when you sell it. This RPGT is a tax on the profit gained from the sale of a property and this tax is payable to the Inland Revenue Board. Do note that this tax will vary depending on the duration of the property owned.
Additionally, if you buy properties in Malaysia, you will also need to pay a Stamp Duty, which is a tax that is levied on the legal recognition of the Sales & Purchase Agreement and Loan Agreement when you buy a house. To know the amount of stamp duty you will owe on a property, you can calculate it on the government’s Valuation and Property Services Department official website.
In Malaysia, road tax and car insurance are compulsory. The road tax structure here varies depending on the car type, its engine capacity, the region and type of ownership.
For cars with less than a 1.6 litre engine capacity, they are charged at a fixed base rate which also varies depending on the car type and whether it is a company-registered or private vehicle. Conversely, for cars that have bigger than a 1.6 litre engine, they are subject to a progressive rate, as well as base rate. So basically, the bigger and more expensive the car, the higher the road tax.
To calculate how much you will owe for your road tax, the Road Transport Department will need to know the type of vehicle, registration number, engine capacity, year of manufacture and sum insured.
Paul Hype Page & Co. will give you more information and assistance on policy updates, compliance regulations and changes to tax conditions. Corporate tax in Malaysia.
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IRB (Inland Revenue Board) governs Malaysia’s tax system, helps develop a stronger economy, better environment and a more vibrant economy. All companies, regardless of industry, have a legal duty to pay taxes.
Malaysia attracts investments from around the world by reducing its corporate income tax rate and introducing different tax incentives. Malaysia has one of the lowest corporate tax rates in the world.
As your company’s Tax agent , Paul Hype Page & Co Chartered Accountant will be fully responsible for the practice of ensuring that these conditions are met. It is important that we be highly qualified and well versed in local regulations and corporate laws, as we are responsible for the upkeep of important company files, tax reports and tax records.