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Taxes in Malaysia

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There are various taxes that you will need to bear in mind if you are planning on relocating to Malaysia, and wish to draw up a budget and have a better idea of your net salary. Income tax, corporate tax, property tax, consumption tax and vehicle tax are the main types, and it's best to know the main details beforehand to avoid any surprises when you're in country.

You may also be eligible for certain tax relief benefits or exemptions, so it's worth doing some research to find out how you can make the most of your situation.

Personal income tax

Everyone working in Malaysia is required to pay income tax, and all types of incomes are taxable, including gains from business activities and dividends. However, the duration of your stay in Malaysia and the type of work that you do will decipher which tax category you fall in.

If you are working in the country for more than 60 days but less than 182 days in one year, you will be considered a “non-resident” and subjected to a flat taxation rate of 28%. As a non-resident, you will also not be eligible for any tax deductions.

If you are working in Malaysia for more than 182 days a year, the government considers you to be a “tax resident,” and you will pay progressive tax rates and be eligible for tax deductions. Malaysia's progressive personal income tax system involves the tax rate increasing as an individual’s income increases, starting at 0% for up to RM5,000 earned, to a maximum of 28% for annual income of over RM1 million.

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 the Malaysian Inland Revenue (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.

Exemptions and benefits

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 are employed on board a Malaysian ship, or those aged over 55 years old who are receiving a pension from employment in Malaysia.

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; and tax relief for children studying at a tertiary level. As of 2017, there is also tax relief for childcare centres and breast feeding equipment, and lifetsyle goods such as books, electronic and sporting equipment fall in a category called 'lifestyle tax relief', which is limited to RM2,500 per year.

Filing your tax return and penalties

In Malaysia, the tax year begins on 1 January and ends on 31 December, in simple accordance with the calendar year. All expatriates must complete and file their tax returns before 30 April of the following year or you are likely to incur a disciplinary fee of a 10% increment of the tax payable.

To complete your tax return, you will need details of the total amount paid to you during the assessment year. This Yearly Remuneration Statement (EA form) is issued by the end of February each year.

Every individual who is liable to pay tax is required to declare his income to the Inland Revenue Board of Malaysia (IRBM). The taxpayer is responsible for submitting their completed Income Tax Return Form (ITRF), keeping records of supporting documents for auditing purposes for seven years, and paying the income tax due.

To file their income tax, an expatriate needs to obtain an income tax number from the IRBM. Usually, your company will take on the responsibility of obtaining income tax numbers for their foreign employees. However, if your company fails to do this, you should register yourself for an income tax number at your nearest IRB office within two months of your arrival in the country.

You can file your tax return either online via e-filing or manually. For e-filing, you first must register as an online user by either going to the nearest IRBN office or by sending an email to pin@hasil.gov.my and attaching a copy of your passport. Alternatively, if you'd rather go through the process manually, you can go to your nearest IRBM office to obtain the relevant form. Form B is for individuals who have a business in Malaysia, so won't apply to you if you are employed by a company. Form BT is for an individual who has been approved as a skilled expert. The most common forms for expatriates are Form BE, which is for those who are employed by a company, and Form M, which is for non-residents.

If an expatriate submits an incorrect tax return in which they omit or understate their income, the IRB has the right to fine that individual 100% of the undercharged tax.

Corporate income tax

If you own a business that is a tax resident company in Malaysia, meaning that its management and control are exercised in Malaysia, then you will be liable to pay corporate income tax. Resident companies are taxed at the rate of 24%, while those with paid-up capital of RM2.5 million or less are taxed 18% for their first RM500,000 and 24% for earnings in exces of RM500,000. Tax is generally payable in 12 monthly installments, starting from the second month of the company's financial year, and income-generating expenses are deductible when calculating the taxable income.

Goods and Services Tax (GST)

Goods and Services Tax (GST) is a tax charged to the consumers that is based on the purchase price of certain goods and services, and it currently stands at 6% in Malaysia. Imported goods and services will also be charged at this rate. Certain goods such as rice, flour, certain medicines, first 300 units of electricity are subjected to a tax rate of 0%. The full list of taxable and non-taxable goods and services can be found on the website of the Royal Malaysian Customs Department.

GST is said to bring in RM40 billion a year and be keeping Malaysia solvent during recent difficult financial times. In some shops and restaurants, the price you see on the item or the menu will be less than the price you pay at the cashier, so it's important to prepare for this additional cost when you're deciding whether you wish to purchase an item or a service.

Real Property Gains 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 buy 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 S&P Agreement and Loan Agreement when you buy a house. You can calculate the stamp duty that you will owe on a property on the government's Valuation and Property Services Department website.

Road tax

Road tax and car insurance are compulsory in Malaysia. The road tax structure in Malaysia varies depending on the type of car, its engine capacity, the region and the type of ownership. Cars with less than a 1.6 litre engine capacity get charged a fixed base rate, which varies depending on the type of car and whether it's a company-registered or private vehicle. While cars that have bigger than a 1.6 litre engine are subject to a progressive rate, as well as a base rate. Basically, the bigger and more expensive your car, the more you can expect to pay in road tax.

The Road Transport Department needs to know the type of vehicle, the registration number, the engine capacity, the year of manufacture, and the sum insured to calculate how much you will owe for road tax.

  Useful links:

MyEG
Malaysia's tax office
Double taxation agreements
Tax Return Forms
ASEAN briefing on Individual Income Tax in Malaysia for Foreigners
Royal Malaysian Customs Department

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1 Comment
sayanc
sayanc
2 years ago

I gave a gross stay of 185 days in Malaysia this year. But my job requires me to attend some conferences/ client meetings. I also might need to visit my home country. In the end I would end up staying less than 182 days. Are there any clauses to help me?

Reply

See also

As the year draws to a close, it is important to relook at the qualifying tax expenses which will reduce your chargeable income resulting in a lower tax payable. It makes a difference especially if you are in the higher tax brackets. Let us look at some of the reliefs.
Malaysia has a highly developed telecommunications network. Though fibre broadband is limited, internet speeds are quite good. There is also 4G.
There are multiple modes of transport to help you navigate Malaysia, as well as the wider region, from bus and train to flights.
If you wish to travel to Malaysia, you should first inquire about entry requirements in the country, especially in terms of visas.

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