• Income Tax in Malaysia

An 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.

Income taxes are basically one of the highest sources of revenue within a government. The funds will normally be used to finance the public services, government obligations as well as provide better infrastructure for the people.

Tax residence status in Malaysia

An individual is treated as a tax resident in Malaysia if he meets any of the conditions below:

  • 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 they have to pay their Malaysia income tax.

Corporate Tax checker

Income tax for foreigners in Malaysia

As mentioned above, a person, regardless he is a citizen or not is liable to his income tax filing if Inland Revenue Board deem him a resident of Malaysia. Hence, a foreign expatriate who meets the condition above is liable to his tax filing and will be taxed under normally Malaysian income tax laws and rates, just like any other Malaysian nationals.

Foreign expatriates in Malaysia must submit their notice of chargeability to Non-Resident Branch or nearest LHDN branch within 2 months of their arrival in Malaysia.

Personal income tax in Malaysia

An employee (local and foreign expat) 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 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) 2020 and 2021

For resident individuals, the 2020 and 2021 income tax rates are as below:

Chargeable income (RM)YA 2020YA 2021
Tax (RM)% on excessTax (RM)% on excess
5,0000101
20,00015031503
35,00060086008
50,0001,800141,80013
70,0004,600214,40021
100,00010,9002410,70024
250,00046,90024.546,70024.5
400,00083,6502583,45025
600,000133,65026133,45026
1,000,000237,65028237,45028
2,000,000517,65030517,45030

For non-resident individuals, their personal income tax rates and chargeable are as below:

Types of incomeRate (%)
Public Entertainer’s professional income15
Interest15
Royalty10
Special classes of income:

  • rental of moveable property
  • technical or management services fees*#
  • payment for services rendered in connection with use of property or installation or operation of any plant, machinery or other apparatus purchased from a non-resident person*
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 above10

Personal tax reliefs for resident individuals:

Types of reliefYA 2021 (RM)
Self9,000
Disabled individual – additional relief for self6,000
Spouse4,000
Disabled spouse – additional spouse relief5,000
Child:
  • per child (below 18 years old)
2,000
  • per child (over 18 years old):

receiving full-time instruction of higher education in respect of:

  • diploma level and above in Malaysia; or
  • degree level and above outside Malaysia

OR serving under articles or indentures in a trade or profession in Malaysia

8,000
  • per physically / mentally disabled child
6,000
  • physically / mentally disabled child (over 18 years of age) receiving full-time instruction at institution of higher education in respect of:
  • diploma level and above in Malaysia; or
  • degree level and above outside Malaysia

OR serving under articles or indentures in a trade or profession in Malaysia

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 benefits3,000*
Expenses on medical treatment, special needs or carer expenses for parents (evidenced by medical certification)8,000*
Parental care relief (until YA 2020):

  • father
  • mother
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 parent6,000*
Lifestyle relief consolidated with the following:

  • purchase or subscription (w.e.f. YA2021) of books, journals, magazines, newspaper and other similar publications for the purpose of enhancing knowledge
  • purchase of personal computer, smartphone or tablet
  • purchase of sports equipment and gym memberships, and
  • internet subscription
2,500*
Purchase of breastfeeding equipment1,000*
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*

* Maximum relief

Tax rebates for resident individuals:

Types of rebateRM
Individual’s chargeable income does not exceed RM35,000400
If husband and wife are separately assessed and each chargeable income does not exceed RM35,000400 (each)
If husband and wife are jointly assessed and the joint chargeable income does not exceed RM35,000800
Rebate for Zakat, Fitrah or other Islamic religious dues paidActual amount expended
Rebate for departure levy paid for performing umrah and pilgrimage to holy places.Actual amount expended (twice in a lifetime)

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.

Ready to incorporate a company in Malaysia or start living and working in Malaysia? Reach out to us for a free consultation on incorporation, visa application, and other professional corporate services today.

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FAQs

What will happen if I avoid filing my tax return in Malaysia?2021-11-01T19:01:05+08:00

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. 

Do I need to pay tax in Malaysia when I work overseas?2021-11-01T19:00:55+08:00

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. 

How much annual income is taxable in Malaysia?2021-11-01T19:00:21+08:00

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 

What is the income tax rate in Malaysia?2021-11-01T18:58:11+08:00

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% 

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