Do foreigners have to pay tax in Malaysia? If so, what are the different types of taxes that exist and rates that apply? Find out in this article.
If you have settled in Malaysia and you are working there, you will probably have to pay tax. There are different types of taxes in Malaysia, namely income tax, corporate tax, property tax, consumption tax, road tax, among others. Hence, it is best to inquire about these beforehand so as to avoid surprises on the long term. Some people may even be eligible to exemptions.
Income tax is universal in Malaysia, that is all people working there are required to pay income tax. The tax year lasts from the 1st January to the 31st December. Income tax should be declared at the latest on the 30th April of each year. You are advised not to miss this date.
Note that there are two categories of tax payers in Malaysia: residents and non-residents. If you have stayed in the country for a period of 182 days during a calendar year, you will be considered as a resident. Thus, you will have to pay income tax at different ranges, classified into eight groups and ranging from 0 to 26%.
Foreigners living in Malaysia for less than 182 days are not considered as residents. Therefore, non-residents pay a different type of income tax which ranges between 26%, 15% and 10%.
Good to know:
Foreigners may be eligible to certain deductions, for instance, for medical expenses, purchase of books, computers and sports equipment or tuition fees, etc.
In general, the Malaysian tax office will send you a tax declaration form. Residents will receive a BE form while non-residents will have the M form. These documents are also available on the Tax Office website. Thereafter, you are required to duly fill and sign the tax declaration form and to return to the nearest tax office branch.
More than 55 years old retirees and those working in Malaysia for less than 60 days a year are exempted from income tax. This also applies to those receiving unemployment allowance or bank interest. Foreigners living in the country with a Malaysia My Second Home visa (MM2H) do not have to pay tax abroad.
Finally, Malaysia has also signed non-double taxation agreements with several countries. The list of countries is available on the Tax Office website.
Corporate income tax
Corporate tax in Malaysia is deducted at a 25% rate. Small and medium enterprises whose capital does not exceed 2.5 million ringgit have to pay a 20% tax on the first 500,000 ringgits and 25% on the rest.
Good to know:
Corporate tax can be paid all at once or in monthly installments as from the second month of the fiscal year. Newly created companies are eligible to a six months delay. In all cases, tax payment has to be settled not later than the 10th of the month.
Value added tax (VAT) does not exist in Malaysia. However, there are two types of consumption taxes: the services tax and the tax on non-essential products such as cigarettes, alcoholic beverages, etc. The services tax is applied at a 6% rate and particularly applies to restaurants and hotel bills. The tax on non-essential products is applied at different rates ranging between 5, 10% and 15% according to the type of product.
Shops, factories and agricultural lands are deemed to be taxable properties. Therefore, property tax has to be made to the local authorities. Note that rates vary.
There are also taxes on annuities. Rates are determined by local authorities and, in general, rate at 6% for residential properties. Payment can be made in two installments during the year. Another tax applies to all types of properties depending on their surface area. Rates vary between 0.03 and 0.06 ringgits per square meter.
Moreover, you will have to pay a stamp duty at the time of transfer on purchasing a property. The amount is generally proportional to the property price: 1% of the first 100,000 ringgits, 2% for the next 400,000 ringgits and 3% for more than 500,000 ringgits.
Vehicle taxes in Malaysia generally depend on the vehicle's brand and comfort level. Hence, the more impressive your car is, the more tax you will pay. Thus, the road tax contribution, as it is called in Malaysia, is used for the road network's maintenance. Specific factors are taken into account in calculating the rate to be paid: type of vehicle, diesel or gasoline, capacity, use (personal car or function). You can have more information about these on the MyEG website. This agency handles online payments on behalf of the Malaysian authorities.
Tax office www.hasil.gov.my
Tax office - Double taxation agreements
Tax office - Tax Return Forms