The Malaysia Income Tax is basically a type of tax imposed by a government towards businesses or individuals who earn income within their jurisdiction. It is common practice for developing countries to implement a taxation system, and Malaysia is no different with its income tax.
The Malaysia Income Tax is one of the highest sources of revenue within the government. The funds collected will normally be utilized to finance the public services, government obligations as well as provide better infrastructure for the people.
Tax residence status in Malaysia
An individual is subjected to Malaysia’s income tax should he meet any of the following conditions:
- Has been in Malaysia for at least 182 days in a calendar year;
- Has been in Malaysia for a period of less than 182 days during the year but that period is linked of physical presence of 182 or more consecutive days in the preceding years;
Temporary absence 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 illness
- Social visits not exceeding 14 days
- Has been 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.
An individual who is resident in Malaysia is taxable on all income accruing in or derived from Malaysia and on income received from outside Malaysia. Inland Revenue Board Malaysia (LHDN) tax a person depends on his residence status, and such persons shall pay their Malaysia income tax.
Income tax for foreigners in Malaysia
As mentioned above, a person, regardless of whether or not he is a citizen, is liable to income tax filing if Inland Revenue Board deems this individual as a Malaysia resident. Hence, a foreign expatriate who meets the conditions above is liable to his tax filing and will be taxed normally under Malaysian income tax laws, just like any other Malaysian national under Malaysian income tax laws.
Foreign expatriates in Malaysia must submit their notice of chargeability to Non-Resident Branch or the nearest LHDN branch within 2 months of their arrival in Malaysia.
Personal income tax in Malaysia
Employees (local citizens and foreign expats) who earns more than MYR 35,000 per annum after EPF deductions are compulsory to register a tax file. An income tax is not only chargeable on a monthly salary but also all types of income such as businesses, dividends, rents receivable etc. received by an individual within Malaysia. For employees, if you received bonuses, overtimes as well as commission in a month, those are also taxable under the Income Tax law in Malaysia.
There is a 15% tax rate scheme for knowledge worker who resides in Iskandar Malaysia. This means that a person is only taxed at 15% on income from an employment with a designated Company engaged in a qualified activity in that region. The designated Company are those:
- Granted the IDR status or MSC/ MD status or BioNexus status or any incorporated under Companies Act 1965/2016
- The Company must conduct a qualifying activity as its core business
- Must be located in Iskandar Malaysia
The same rate, 15% applies to those qualified individual under the Returning Expert Programme who is under Employment Pass with someone in Malaysia. Such rate is applicable for the next 5 years of the foreign expat working and deriving income in Malaysia.
Income tax rate for year assessment (YA) 2021
For Malaysia tax resident individuals, the 2021 income tax rates are as below:
| Chargeable income (RM) | YA 2021 | |
| Tax (RM) | % on excess | |
| 5,000 | 0 | 1 |
| 20,000 | 150 | 3 |
| 35,000 | 600 | 8 |
| 50,000 | 1,800 | 13 |
| 70,000 | 4,400 | 21 |
| 100,000 | 10,700 | 24 |
| 250,000 | 46,700 | 24.5 |
| 400,000 | 83,450 | 25 |
| 600,000 | 133,450 | 26 |
| 1,000,000 | 237,450 | 28 |
| 2,000,000 | 517,450 | 30 |
For Malaysia non-tax resident individuals, their personal income tax rates and chargeable are as below:
| Types of income | Rate (%) |
| Public Entertainer’s professional income | 15 |
| Interest | 15 |
| Royalty | 10 |
Special classes of income:
|
10 |
| Dividends (single tier) | Exempt |
| Business, employment income, discounts, rents, premiums, pensions, annuities, other periodical payments and other gains or profits (includes payments received for part-time / occasional broadcasting, lecturing, writing, etc.) | 30 |
| Income other than the above | 10 |
Personal tax reliefs for Malaysia tax resident individuals:
| Types of relief | YA 2021 (RM) |
|---|---|
Self |
|
|
9,000 |
|
6,000 |
Spouse |
|
|
9,000 |
|
5,000 |
Child |
|
|
2,000 |
|
8,000 |
|
6,000 |
|
14,000 |
| Life insurance premiums (Note 1) | 3,000* |
| EPF contributions (Note 1) | 4,000* |
| Private Retirement Scheme contributions and Deferred annuity scheme premium (until YA 2021) | 3,000* |
| Insurance premiums for education or medical benefits | 3,000* |
| Expenses on medical treatment, support needs, or carer expenses for parents (evidenced by medical certification) | 8,000* |
Parental care relief (until YA 2020): |
|
|
1,500 |
|
1,500 |
| Employee’s contribution to Social Security Organisation (SOCSO) | 250* |
| Medical expenses for self, spouse or child suffering from a serious disease, expenses incurred on fertility treatment, or vaccination up to RM1,000 (w.e.f YA 2021) (including fees of up to RM500 (RM1,000 w.e.f. YA 2021) incurred by self, spouse or child for complete medical examination) | 8,000* |
| Fee expended for any course of study up to tertiary level other than a degree at Masters or Doctorate level, undertaken for the purpose of acquiring legal, accounting, Islamic financing, technical, vocational, industrial, scientific or technological skills or qualifications or any course of study for a degree at Masters or Doctorate level undertaken for the purpose of acquiring any skill or qualification. This includes fees for attending upskilling and self-enhancement courses, limited to RM1,000 (w.e.f YAs 2021 to 2022) | 7,000* |
| Purchase of supporting equipment for self (if a disabled person) or for disabled spouse, child or parent | 6,000* |
Lifestyle relief consolidated with the following: |
|
|
2,500* |
| Purchase of breastfeeding equipment | 1,000* |
| Fees paid to child care centre and kindergarten (Note 2) | 3,000* |
| Deposit for child into the Skim Simpanan Pendidikan 1Malaysia account established under Perbadanan Tabung Pendidikan Tinggi Nasional Act 1997 (until YA 2020, extended to YA 2022) | 8,000* |
| Domestic travelling expenses (payment for accommodation and fee for entrance to tourist attractions) (Special Relief) (Note 3) | 1,000* |
| Additional relief (on top of lifestyle relief) for purchase of personal computer, smartphone or tablet (Special Relief) (Note 4) | 2,500* |
| Additional relief (on top of lifestyle relief) for expenditure related to cost of purchasing sports equipment, entry/ rental fees for sports facilities and registration fees for sports competitions of RM500 (w.e.f. YA 2021) | 500* |
The above rebate granted is deducted from tax charged and any excess is not refundable.
How to compute income tax?
The simplest calculation is as below:
Annual salary is – MYR 65,000
The first MYR 50,000 = MYR 1,800 tax
The next MYR 15,000 x 13% = MYR1,950
Total tax payable is MYR 1,800 + MYR 1,950 = MYR 3,750
However, the above have not include those tax exemptions as well as tax rebates. Hence, the tax payable can be lower than MYR 3,750. You may estimate your tax payable using a Malaysia income tax calculator via this link.
What is the process of filing tax in Malaysia?
For first timers, you will first need to register as follow:
- Register your individual profile at e-Daftar website in order to retrieve tax reference number
- Once tax reference number is retrieved, you are required to visit any LHDN office/branch to get your personal PIN. This PIN is crucial for you to complete the online registration for you to electronically file your tax returns
- Lastly, proceed to file out the necessary forms and start filing your taxes in LHDN website.
FAQs
Claiming that you earn lower income than you actually do in order to pay lower tax will risk you to a penalty of MYR 10,000 and have to pay 200% of tax amount that was undercharged.
No, if you are earning income outside of Malaysia, you are automatically exempted from paying income tax in Malaysia. However, you are still liable to pay income tax in the country you work at.
According to Inland Revenue Board (LHDN), those who earns at least MYR 2,900/month or MYR 35,000 per annum after EPF deductions is taxable
A graduated scale of rate starting from 0% to 30% applies on chargeable income of resident individual taxpayers. Non-resident individuals pay tax at flat rate of 30%
