Your guide to expat life in Malaysia

Taxation in Malaysia

The sections below provide the basic information on taxation in Malaysia.

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Local information

  • Tax Authority The Inland Revenue Board of Malaysia (IRBM)
  • Website
  • Tax Year 1 January to 31 December
  • Tax Return due date 30 April (or 30 June if individual has business income)
  • Is joint filing possible Yes
  • Are tax return extensions possible No

Tax rates

2018 Income Tax Rates for Residents

Taxable Income Band MYR National Income Tax Rates
0 - 5,000 0%
5,001 - 20,000 1%
20,001 - 35,000 3%
35,001 - 50,000 8%
50,001 - 70,000 14%
70,001 - 100,000 21%
100,001 - 250,000 24%
250,001 - 400,000 24.5%
400,001 - 600,000 25%
600,001 - 1,000,000 26%
1,000,001 + 28%

Non-residents are subject to withholding taxes on certain types of income. Other income is taxed at a rate of 28%.

If a Malaysian or foreign national "knowledge worker" resides in the Iskandar Development Region and is employed in certain qualifying activities by a designated company and if their employment commences on or after 24 October 2009 but not later than 31 December 2015, the worker may apply to be subject to tax at a reduced rate of 15%. The individual must not have derived any employment income in Malaysia for at least 3 years before the date of the application.

Malaysian professionals returning from abroad to work in Malaysia would be taxed at a rate of 15% for the first five consecutive years following the professional’s return to Malaysia under the Returning Expert Programme (REP).

Employment income received by women who return to the workforce after being unemployed for at least two years as of 27 October 2017 may be exempted from tax for up to 12 consecutive months. An application for the tax exemption can be submitted to Talent Corporation Malaysia Berhad from 1 January 2018 to 31 December 2019.

Additional information

Who is liable?

Residents and non-residents are subject to tax on Malaysian-source income only.

Income subject to tax

Employment income - Gross income from employment includes wages, salary, remuneration, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances (in money or otherwise) arising from employment.

An individual employed in Malaysia is subject to tax on income arising from Malaysia, regardless of where the employment contract is signed or the remuneration is paid. Gross income also includes income for any period of leave attributable to employment in Malaysia and income for any period during which the employee performs duties outside Malaysia incidental to the employment in Malaysia.

Employee benefits and amenities not convertible into money are included in employment income.

Short-term visitors to Malaysia enjoy a tax exemption on income derived from employment in Malaysia if their employment does not exceed any of the following periods:

  • A period totalling 60 days in a calendar year
  • A continuous period or periods totalling 60 days spanning two calendar years
  • A continuous period spanning two calendar years, plus other periods in either of the calendar years, totalling 60 days

Non-citizen individuals working in Operational Headquarters (OHQs), Regional Offices, International Procurement Centres (IPCs) and Regional Distribution Centres (RDCs) are taxed only on that portion of income attributable to the number of days that they were in Malaysia until the expiration of the incentive (generally 10 years) granted by the Malaysian Investment Development Authority. The incentive is granted to the company and begins with the year of assessment stipulated in the approval letter issued by the Malaysian Investment Development Authority.

Self-employment and business income - All profits accruing in Malaysia are subject to tax. Remittances of foreign-source income into Malaysia by tax residents of Malaysia are not subject to Malaysian income tax.

Income from any business source is subject to tax. A business includes a profession, a vocation or a trade, as well as any associated manufacture, venture or concern.

Contract payments to non-resident contractors are subject to a total withholding tax of 13% (10% for tax payable by the noN-resident contractor and 3% for tax payable by the contractor's employees).

Income derived in Malaysia by a non-resident public entertainer is subject to a final withholding tax at a rate of 15%.

Individuals may carry forward business losses indefinitely.

Investment income - Interest income received by individuals from monies deposited in approved institutions is exempt from tax.

Other interest, dividends, royalties and rental income are aggregated with other income and taxed accordingly. Dividends received by individuals are exempt from tax, effective from the 2008 year of assessment.

For the 2018 to 2020 years of assessment, a 50% exemption applies to rental income received from residential homes if the following conditions are met:

  • Rental income does not exceed MYR2,000 per month for each residential home.
  • The residential home must be rented under a legal tenancy agreement between owner and tenant.

The tax exemption is available for a maximum period of three consecutive years of assessment from 2018 to 2020.

Certain types of income derived in Malaysia by non-residents are subject to final withholding tax at the following rates:

Type of income Rate
Use of movable property 10%
Technical advice, assistance or services 10%
Installation services on the supply of plant, machinery and similar assets 10%
Personal services associated with the use of intangible property 10%
Royalties for the use or conveyance of intangible property 10%
Interest 15%

Directors' fees - Directors’ fees are considered employment income; therefore, fees derived from Malaysia are taxable. Fees are deemed to be derived from Malaysia if the company is resident in Malaysia for the year of assessment. If the fees are derived from a country other than Malaysia, they are not taxed. Remittances of foreign-source income into Malaysia by tax residents of Malaysia are not subject to Malaysian income tax.

Employer-provided stock options - Tax legislation governs the taxation of employer-provided stock options. Under the tax legislation, employer-provided stock options are subject to tax as employment income. The taxable income is calculated based on the difference between the fair market value of the underlying stock at the exercise date or exercisable date, whichever is lower, and the option price. This amount is recognised at the time the option is exercised, and is taxed as current-year income.

Tax treaties

Malaysia has entered into double tax treaties with 75 countries, some of which are not yet in force at the time of writing.

Under the treaties, a foreign tax credit is available for the lesser of Malaysian tax payable on the foreign income or the amount of foreign taxes paid. For non-treaty countries, the foreign tax credit available is limited to one-half of the foreign tax paid.

Agreements with some countries provide for reduced withholding taxes under certain conditions.

Residence for tax purposes

Individuals are considered resident in any of the following circumstances:

  • They are physically present in Malaysia for 182 days or more during the calendar year.
  • They are physically present in Malaysia for less than 182 days during the calendar year, but are physically present in Malaysia for at least 182 consecutive days in the second half of the immediate preceding calendar year or in the first half of the immediate following calendar year. Periods of temporary absence are considered part of a period of consecutive presence if the absence is related to the individual's service in Malaysia, personal illness, illness of an immediate family member or social visits not exceeding 14 days.
  • They are present in Malaysia during the calendar year for at least 90 days and have been resident or present in Malaysia for at least 90 days in any 3 of the four preceding years.
  • They have been resident for the 3 preceding calendar years and will be resident in the following calendar year. This is the only case in which an individual may qualify as a resident even though he or she is not physically present in Malaysia during a particular calendar year.

For the purposes of determining residence, presence during part of a day is counted as a whole day.

Capital gains

In general, capital gains are not taxable. However, gains derived from the disposal of real property located in Malaysia and gains derived from the sale of shares in closely controlled companies with substantial real property interests are subject to real property gains tax (RPGT).

Effective from 1 January 2014, capital gains derived from disposals of chargeable assets by individuals who are Malaysian citizens and permanent residents are subject to tax at the following rates:

  • 30% for a holding period of up to three years
  • 20% for a holding period exceeding three years and up to four years
  • 15% for a holding period exceeding four years and up to five years

All disposals made after such 5-year period are exempt from RPGT.

Individuals who are not Malaysian citizens are subject to RPGT at a rate of 30% for a holding period up to five years and 5% for a holding period exceeding five years.

Other taxes

Malaysia does not impose estate, gift or net worth taxes.

Social security

Employer and employee contributions to the Social Security Organisation (SOCSO) of Malaysia are compulsory for Malaysian citizens only. Various rates are specified for these contributions.

Employees who are Malaysian citizens are required to contribute to the Employees' Provident Fund (EPF). The EPF is a statutory savings scheme to provide for employees' old-age retirement in Malaysia.

Under the Employees' Provident Fund Act 1951, all employers and employees are required to make monthly contributions to the EPF.

The statutory contribution rate is 23% or 24% of monthly wages. The employer pays at rate of 12% if the employee’s monthly wages are above MYR 5,000 per month or 13% if the employee’s monthly wages are below MYR 5,000 per month. The employee contributes 11% of monthly wages.

Employees' contributions are deducted at source. No ceiling applies to the amount of wages subject to EPF contributions. Expatriates are not required to contribute to the EPF, but may elect to contribute to take advantage of the available tax relief.

Self-employed persons may elect to contribute to the EPF. The individual may make voluntary contributions at a fixed monthly rate of any amount from MYR 50 to MYR 5,000.

Tax filing and payment procedures

A self-assessment system of taxation for individuals is in effect in Malaysia. A notice of assessment is deemed served on the submission of the tax return to the tax authorities. An appeal must be filed within 30 days from the date of the deemed notice of assessment (that is, within 30 days of the date of submission of the tax return).

Non-residents who are subject to final withholding taxes do not need to file tax returns unless required to do so by the tax authorities.

An individual arriving in Malaysia who is subject to tax in the following year of assessment must notify the tax authorities of chargeability within one month after arrival.

For employees, tax payment is made through mandatory monthly withholdings under the Monthly Tax Deduction Scheme (MTDS). All employers must deduct tax from cash remuneration, which includes wages, salaries, overtime payments, commissions, tips, allowances, bonuses and gratuities, based on tax tables provided by the Inland Revenue authorities. Effective from 1 January 2015, benefits-in-kind (BIK) and the value of living accommodation (VOLA) are subject to the MTDS. The date for payment of the taxes withheld to the tax authorities is extended from the 10th day to the 15th day of the following calendar month. Employers must withhold tax at a rate of 28% from wages, BIK and VOLA paid to non-resident employees.

Effective from 2014, taxpayers have the option to treat the amount of the monthly tax deduction as the final tax paid. If they exercise this option, they are not required to submit their annual income tax returns. However, this applies only if certain conditions are fulfilled.

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The Tax section is provided by EY in accordance with their Terms and Conditions This link opens in a new window. Neither HSBC nor EY accepts any responsibility for the accuracy of any of this information. By using this information you are accepting the terms under which EY is making the content available to you based on the legislation and practices of the country concerned as of April 2017 by EY and published in its Worldwide personal tax guide, 2017-18. Tax legislation and administrative practices may change, and this document is a summary of potential issues to consider. This document should not be used as a substitute for professional tax advice which should be sought for the country of arrival and departure in advance of moving in order to discuss your circumstances. It is your responsibility to disclose your income to the tax authorities.

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