Introduction to Taxation Malaysia
Taxation Malaysia is a complex and multifaceted one, encompassing a broad spectrum of taxes that impact individuals, businesses, and the overall economy. This comprehensive article delves into key aspects of taxation in Malaysia, shedding light on corporate and individual income taxes, sales and service tax, digital service tax, withholding tax, real property gains tax, and stamp duty.
By exploring these topics in detail, readers will gain a deeper understanding of the Malaysian tax system, its rates, exemptions, and essential compliance requirements. With these complexities in mind, follow RS 36 Solutions to delve into the intricacies of Malaysia’s tax planning landscape to help you navigate this financial terrain effectively.
Corporate Income Tax Malaysia
For both resident and non-resident companies, Corporate Income Tax (CIT) is levied on income accruing in or derived from Malaysia. Additionally, resident companies face taxation on foreign-sourced income received within Malaysia. Refer to the table below for the current CIT rates:
Corporate Tax Rates in Malaysia
| Type of Company | Chargeable Income (MYR) | CIT Rate for Year 2023 of Assessment (%) |
|---|---|---|
| Resident company (other than company described below) | 24 | |
Resident company:
|
On the first 150,000 | 15 |
| On the next 450,000 | 17 | |
| In excess of 600,000 | 24 | |
| Non-resident company | 24 |
Tax Residency of a Company and Basis of Taxation Malaysia
A company is deemed a tax resident in Malaysia if, during the basis period of the assessment year, the management and control of its affairs or at least one meeting of the Board of Directors occurs within Malaysia.
Malaysia operates under a territorial tax system, whereby both resident and non-resident companies are taxed on income derived from Malaysia. Foreign-sourced income is exempt from taxation unless the company engages in specific business activities within sectors such as banking, insurance, air transport, or shipping.
Personal Income Tax Malaysia
In Malaysia, the realm of personal income tax (PIT) features a combination of progressive and flat rates, contingent on an individual’s residency status and employment type. Understanding Malaysia’s fundamental tax structure is vital for both residents and expatriates.
The Income Tax Act of 1967 serves as the foundation for personal income taxation in Malaysia, subject to potential changes during the government’s annual budget deliberations.
Taxable Incomes
Taxable income in Malaysia encompasses various sources, including:
- Employment income
- Gains or profits from a business
- Dividends, interest, or discounts
- Rent, royalties, or premiums
- Pension or annuities
- Perquisites, which encompass items like bill claims, company credit cards, loans from a company, sponsored child tuition fees, or any employer-provided benefits convertible to cash.
Individual Income Tax Rates
For the year of assessment (YA) 2023, individual income tax rates in Malaysia are structured as follows:
| Category | Chargeable Income | Calculations (RM) | Rate % | Tax(RM) |
|---|---|---|---|---|
| A | 0 - 5,000 | On the First 5,000 | 0 | 0 |
| B | 5,001 - 20,000 | On the First 5,000 | 1 | 0 |
| Next 15,000 | 150 | |||
| C | 20,001 - 35,000 | On the First 20,000 | 3 | 150 |
| Next 15,000 | 450 | |||
| D | 35,001 - 50,000 | On the First 35,000 | 6 | 600 |
| Next 15,000 | 900 | |||
| E | 50,001 - 70,000 | On the First 50,000 | 11 | 1,500 |
| Next 20,000 | 2,200 | |||
| F | 70,001 - 100,000 | On the First 70,000 | 19 | 3,700 |
| Next 30,000 | 5,700 | |||
| G | 100,001 - 400,000 | On the First 100,000 | 25 | 9,400 |
| Next 300,000 | 75,500 | |||
| H | 400,001 - 600,000 | On the First 400,000 | 26 | 84,400 |
| Next 200,000 | 52,000 | |||
| I | 600,001 - 2,000,000 | On the First 600,000 | 28 | 136,400 |
| Next 1,400,000 | 392,000 | |||
| J | Exceeding 2,000,000 | 30 | 528,400 |
Deductions and Tax Reliefs
Resident individuals in Malaysia are eligible for several tax reliefs, including but not limited to:
- Self: RM9,000
- Spouse (under joint assessment): RM4,000
- Child under 18: RM2,000
- Child over 18 receiving full-time education: RM8,000
- Disabled individuals: Self (RM6,000), Spouse (RM5,000), and each physically or mentally handicapped child (RM6,000). An additional relief of RM8,000 applies if the child is over 18 and receiving higher education.
Individual Income Tax Return
Malaysia operates under a self-assessment system, requiring taxpayers to calculate their own chargeable income and tax liability, and subsequently make tax payments. Tax returns must be submitted by 30 April for individuals with non-business income and by 30 June for those with business income for the following calendar year.
Special Income Tax Rates for Non-Citizens in Key Positions
Non-citizens holding prominent positions in companies considering relocation to Malaysia are eligible for a flat income tax rate of 15%. To qualify, these individuals must meet the following criteria:
- Receive a minimum monthly salary of RM25,000
- Maintain the key position for five consecutive years
- Maintain Malaysian tax residency for each year of assessment throughout the flat tax rate treatment.
Sales and Service Tax (SST)
The Sales and Service Tax (SST) in Malaysia is a consumption tax consisting of two components:
Sales Tax
Sales tax is a single-stage tax applied to products that are either locally manufactured or produced, as well as taxable goods imported into Malaysia.
Service Tax
Service tax, on the other hand, is a consumption tax imposed on taxable services provided within Malaysia by registered service providers operating their businesses.
Sales & Service Tax Rates
Sales tax rates are as follows:
5%: Applicable to a range of goods, including basic foodstuffs, building materials, fruit juices, personal computers, mobile phones, and watches.
10%: Levied on other goods, with exceptions for petroleum products subject to specific rates and goods that are not exempted.
The service tax rate is uniformly set at 6% for all taxable services. Import and export services are exempt from this tax.
SST Registration Requirements
Businesses that provide taxable goods and services are obligated to register for SST if they meet the following conditions:
Sales Tax
For businesses involved in the manufacturing of taxable goods, registration is necessary if the total sales value over the past 12 months exceeds RM 500,000.
Service Tax
Service providers offering taxable services must register if the total value of their taxable services within 12 months surpasses the prescribed threshold, which is typically RM 500,000. However, certain services may have different thresholds.
Additional Thresholds
In addition to the standard requirements, specific businesses must consider the following additional thresholds:
Taxable service providers operating restaurants, bars, snack-bars, canteens, coffee houses, or any establishments providing food and drinks for eat-in or take-away purposes: Registration is mandatory if the threshold of RM 1.5 million in sales is reached.
Taxable service providers regulated by Bank Negara Malaysia that offer credit card or charge card services: These entities have no prescribed threshold; registration is required regardless of sales volume.
Taxable service providers who are approved customs agents: There is no specified threshold for these businesses, and they must register for SST regardless of their sales volume.
Digital Service Tax (DST)
Since January 1, 2020, the Malaysian government has introduced a Digital Service Tax (DST) of six percent targeting foreign digital service providers (FSPs) operating in Malaysia.
Defining Digital Services
The Royal Malaysian Customs Department (RMCD) guide outlines digital services as services that are either subscribed to or delivered over the internet or other electronic networks with minimal human intervention from the service provider. The guide provides various examples of digital services, such as:
- Online licensing of software
- Firewalls
- Mobile applications and video games
- Provision of e-books, films, music, streaming services, and subscription-based media
- Search engines and social networks
- Website hosting services and cloud storage services
- Online advertising platforms
- Internet-based communications
- Online learning services
The guide also defines foreign digital service providers (FSPs) as:
- Individuals or entities selling digital products to consumers in Malaysia
- Individuals or entities selling digital products through intermediaries
- Online platforms facilitating the sale of digital products on behalf of overseas providers
Revenue Threshold
Foreign digital service providers with an annual turnover of at least RM500,000 are required to register to collect and remit the six percent service tax. The application process for registration commenced on October 1, 2019.
Registered FSPs are responsible for issuing invoices and filing tax returns on a quarterly basis, concluding on the last day of any month in the calendar year.
Withholding Tax
In accordance with the Inland Revenue Board of Malaysia, withholding tax is the amount retained by the party making a payment (payer) on income earned by a non-resident (payee) and remitted to the Inland Revenue Board of Malaysia.
The payer, in this context, can be an individual or an entity engaged in business activities within Malaysia. They are obligated to withhold tax on payments made for services rendered or other disbursements under agreements involving the use of movable property, and these payments are directed to non-resident entities or individuals.
The payee is the non-resident entity or individual who receives these payments.
Withholding Tax Rates
Withholding tax is applicable exclusively to non-resident companies or individuals who generate income from sources in Malaysia. When a payer is required to make payments to a non-resident, the payer must withhold tax at the following prescribed rates:
For contract payments, the withholding tax rates are 3% or 10%, depending on the nature of the payment.
In the case of interest payments, a withholding tax rate of 15% applies, unless a lower rate is established by a tax treaty.
Royalty payments are subject to a withholding tax rate of 10%.
Payments for technical fees, services, rent, or the use of movable property are also subject to a withholding tax rate of 10%.
Interest payments made by approved financial institutions are subject to a 5% withholding tax rate.
For income earned by non-resident public entertainers, the withholding tax rate is 15%.
Notably, dividends do not incur withholding tax and are taxed at a 0% rate when paid to non-resident entities or individuals.
Real Property Gains Tax (RPGT)
Historical Context:
The administration of Real Property Gains Tax (RPGT) falls under the jurisdiction of the Inland Revenue Board of Malaysia, governed by the Real Property Gains Tax Act 1976 (RPGTA 1976). This act, initiated on November 7, 1975, replaced the Land Speculation Tax Act 1974. Both legislations were introduced to curb speculative activities within the real estate sector.Scope of RPGT:
RPGT is applicable to the chargeable gain resulting from the disposal of assets such as residential properties, commercial buildings, farms, vacant land, and shares in real property companies (RPC) since October 21, 1988. The term “ASSET” includes any land located in Malaysia, along with any related interests, options, or rights. Meanwhile, “GAIN” refers to profits not chargeable or exempted under the Income Tax Act 1967 (ITA 1967) or, in the case of unit trusts, gains not treated as income under the ITA 1967.Taxation Timing:
RPGT is levied on disposers during the assessment year in which the disposal transaction occurs, aligning with the calendar year.Taxable Entities:
Disposers, whether residents of Malaysia or not, are subject to taxation on gains accrued from the disposal of chargeable assets situated within Malaysia. Disposers encompass individuals, companies, partnerships, organizations, trustees, and other entities liable to RPGT.Guidance and References:
For detailed information on RPGT, the RPGT Guidelines dated January 6, 2023, serve as a comprehensive reference.
Part-wise Categorization
Part 1 Schedule 5 RPGT Act:
This category encompasses individuals, specifically Malaysian citizens, and partners. It excludes Part II and Part III disposer classifications.Part II Schedule 5 RPGT Act:
Disposers falling under this part are companies incorporated in Malaysia or trustees of trusts or bodies of persons registered under any written law in Malaysia.Part III Schedule 5 RPGT Act:
This part applies to disposers who are neither citizens nor permanent residents, executors of the estates of non-citizens and non-permanent residents, or companies not incorporated in Malaysia.
Holding Period Specifics
Disposal in the Sixth Year (1.1.2014 – 31.12.2018):
During this period, disposal of chargeable assets in the sixth year after acquisition incurred a nil RPGT rate.Disposal in the Sixth Year (1.1.2019 – 31.12.2021):
The RPGT rate for disposal in the sixth year after asset acquisition was set at 5% during this timeframe.Disposal in the Sixth Year (1.1.2022 Onwards):
Subsequent to 1.1.2022, the RPGT rate for disposal in the sixth year reverted to nil. However, it’s crucial to note that RPGT rates for other categories remain unchanged during this period.
RPGT rate for disposal of chargeable asset under Part I Schedule 5 RPGT Act:
| Disposal period | Rate (%) | |||||
|---|---|---|---|---|---|---|
| 1.1.2010 - 31.12.2011 | 1.1.2012 - 31.12.2012 | 1.1.2013 - 31.12.2013 | 1.1.2014 - 31.12.2018 | 1.1.2019 - 31.12.2021 | W.e.f. 1.1.2022 | |
| Within two years | 5 | 10 | 15 | 30 | 30 | 30 |
| In the third year | 5 | 5 | 10 | 30 | 30 | 30 |
| In the fourth year | 5 | 5 | 10 | 20 | 20 | 20 |
| In the fifth year | 5 | 5 | 10 | 15 | 15 | 15 |
| In the sixth year and thereafter | 5 * | 5 ** | 5 *** | 0 | 5 | Nil |
RPGT rate for disposal of chargeable asset under Part II Schedule 5 RPGT Act:
| Disposal period | Rate (%) | ||||
|---|---|---|---|---|---|
| 1.1.2010 - 31.12.2011 | 1.1.2012 - 31.12.2012 | 1.1.2013 - 31.12.2013 | 1.1.2014 - 31.12.2018 | W.e.f. 1.1.2019 | |
| Within two years | 5 | 10 | 15 | 30 | 30 |
| In the third year | 5 | 5 | 10 | 30 | 30 |
| In the fourth year | 5 | 5 | 10 | 20 | 20 |
| In the fifth year | 5 | 5 | 10 | 15 | 15 |
| In the sixth year and thereafter | 5 * | 5 ** | 5 *** | 5 | 10 |
RPGT rate for disposal of chargeable asset under Part III Schedule 5 RPGT Act:
| Disposal period | Rate (%) | ||||
|---|---|---|---|---|---|
| 1.1.2010 - 31.12.2011 | 1.1.2012 - 31.12.2012 | 1.1.2013 - 31.12.2013 | 1.1.2014 - 31.12.2018 | W.e.f. 1.1.2019 | |
| Within two years | 5 | 10 | 15 | 30 | 30 |
| In the third year | 5 | 5 | 10 | 30 | 30 |
| In the fourth year | 5 | 5 | 10 | 30 | 30 |
| In the fifth year | 5 | 5 | 10 | 30 | 30 |
| In the sixth year and thereafter | 5 * | 5 ** | 5 *** | 5 | 10 |
Notes:
* Exemption for the Period 1.1.2010 – 31.12.2011: Granted through RPGT Order (Exemption) (No.2) 2009 [P.U.(A) 486/2009].
** Exemption for the Period 1.1.2012 – 31.12.2012: Granted through RPGT Order (Exemption) 2011 [P.U.(A) 434/2011].
*** Exemption for the Period 1.1.2013 – 31.12.2013: Granted through RPGT Order (Exemption) 2012 [P.U.(A) 415/2012].
Real Property Gains Tax Exemptions
Several exemptions apply to RPGT, including:
Once-in-a-lifetime exemption: This provides relief on chargeable gains from the sale of a private residence. The exemption amount is either RM 10,000 or 10% of the chargeable gain, whichever is higher. It is available to Malaysian citizens and permanent residents.
Family property transfer exemption: Gains are exempt when property is transferred within the family, which includes transfers between spouses, parents and children, or grandparents and grandchildren (excluding transfers between siblings). This exemption grants a 100% relief on the chargeable gain and is applicable to Malaysian citizens and permanent residents.
Exemption for low-cost residential homes: This exemption applies to the disposal of low-cost residential properties valued at RM 200,000 or less, in the sixth year and subsequent years. It provides a 100% relief on the chargeable gain and is applicable exclusively to Malaysian citizens.
When to Pay Real Property Gains Tax
Upon the disposal of your property, the RPGT return must be submitted within 60 days from the date of disposal. Failure to meet this deadline may result in an additional 10% penalty.
Stamp Duty
Stamp duty in Malaysia is a tax levied on legal documents, and it is categorized into two primary types.
Types of Stamp Duty
The two main categories of stamp duty in Malaysia are:
Fixed Duties: These duties are charged at a predetermined, fixed price. They cover items such as individual policies or document copies.
Ad Valorem Duties: Ad valorem duties are variable costs based on the value of the transaction or the significance of the legal document in question.
Documents Subject to Stamp Duty
Various documents are subject to stamp duty in Malaysia, including but not limited to:
- Transfer of real properties
- Share transfers
- Business transfers
- Rental or lease agreements
- Securities-related documents
- Annuity sales
- General stamping of documents
- Payments related to company duties
- Repayments
- Appeals and other relevant legal documents.
Conclusion:
In conclusion, navigating Malaysia’s taxation framework is essential for individuals and businesses alike. Understanding the intricacies of corporate and individual income tax, the implications of sales and service tax, digital service tax requirements for foreign providers, withholding tax obligations, real property gains tax rates, and the various documents subjected to stamp duty is crucial for sound financial management and compliance with Malaysian tax laws. This article has provided a comprehensive overview, serving as a valuable resource for those seeking clarity in the realm of Malaysian taxation.
Frequently Asked Questions (FAQs)
What is the standard corporate income tax rate in Malaysia?
The standard corporate income tax rate in Malaysia is 24%.
How is an individual's tax residency determined in Malaysia?
An individual is considered a tax resident in Malaysia if they stay in the country for 182 days or more in a calendar year.
What are the key categories of taxable income in Malaysia?
Taxable income in Malaysia includes employment income, business gains, dividends, interest, rent, pensions, perquisites, and more.
What is the tax rate for non-resident individuals in Malaysia?
Non-resident individuals in Malaysia are generally subject to a flat tax rate of 30%.
What is the digital service tax rate in Malaysia?
The digital service tax rate is 6% and applies to foreign digital service providers.
What types of services are considered digital services under Malaysian tax law?
Digital services include online software licensing, e-books, streaming services, search engines, and online advertising platforms, among others.
Who is responsible for withholding tax in Malaysia?
Withholding tax is withheld by the payer and paid to the Inland Revenue Board of Malaysia when making payments to non-resident individuals or companies.
What is the penalty for failing to submit a real property gains tax return on time?
Failure to submit the return within 60 days of property disposal results in a 10% penalty.
Which documents are subjected to stamp duty in Malaysia?
Documents such as real property transfers, share transfers, rental or lease agreements, and company duties are among those subject to stamp duty.
Are dividends subject to withholding tax in Malaysia?
No, dividends are not subject to withholding tax for non-resident entities or individuals, and they are taxed at a 0% rate.
