Taxation in Malaysia
The sections below provide the basic information on taxation in Malaysia.
The sections below provide the basic information on taxation in Malaysia.
|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%|
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.
Residents and non-residents are subject to tax on Malaysian-source income only.
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:
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:
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%|
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.
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.
Individuals are considered resident in any of the following circumstances:
For the purposes of determining residence, presence during part of a day is counted as a whole day.
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:
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.
Malaysia does not impose estate, gift or net worth taxes.
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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