Personal Income Tax Malaysia: Complete Information & Income Tax Rate
In the realm of personal income tax Malaysia, we stands apart with its unique territorial approach. Whether you’re a resident or non-resident, the guiding principle here is straightforward: income earned within or derived from Malaysia is subject to income tax Malaysia.
However, beneath this simplicity lie nuanced rules, exemptions, and provisions that every taxpayer should be aware of. One notable development came in 2022 when Malaysia introduced a five-year grace period for residents earning foreign source income (FSI).
During this period, resident individuals enjoy a temporary exemption from Malaysian income tax on their FSI, provided the income has already been taxed in its country of origin.
But come 2027, all FSI will be taxable in Malaysia upon remittance by tax-resident individuals, making it crucial for taxpayers to plan for this impending change.
The Malaysian tax system distinguishes between residents and non-residents, applying a progressive tax rate system with personal income tax relief for the former and a flat top marginal rate for the latter.
Additionally, short-term non-resident workers may claim exemptions on their Malaysian employment income if they meet specific criteria, while those on more extended assignments may find relief through double taxation treaties, albeit subject to treaty conditions.
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.
Read more: All you need to know about Accounting services & Bookeeping Services
What are the Tax Return Deadlines and Compliance Requirements of Personal Income Tax Malaysia?
In Malaysia, tax return due dates and compliance requirements are distinct for residents and non-residents, with specific distinctions based on income sources.
For individuals with no business income, such as employment or investment income, tax returns (Form BE) must be filed by the 30th of April in the following year. On the other hand, individuals engaged in business activities have an extended deadline, with their tax returns (Form B) due by the 30th of June in the subsequent year.
The Malaysian tax year concludes on the 31st of December each year.
1. Compliance Requirements for Residents and Non-Residents
For residents with no business income, tax return submissions (Form BE) and payment of any outstanding tax must be completed by the 30th of April in the following year. For residents earning income from business activities, the deadline for filing tax returns (Form B) and settling any outstanding tax payable is extended until the 30th of June in the subsequent year.
Non-resident taxpayers with employment income or non-business income must also file their tax returns (Form M) by the 30th of April in the following year, with any tax payments due by the same date. Non-resident individuals with business-source income have until the 30th of June in the subsequent year to both file their tax returns and settle any tax payable.
2. Mandatory Electronic Filing
Currently, individual taxpayers have the option to submit their income tax return forms electronically or manually. However, as of the Year of Assessment 2024, individual taxpayers will be required to use electronic filing exclusively. Manual filing will no longer be allowed.
3. Payment by Instalments for Deemed Assessment
Effective from the Year of Assessment 2023, the Director General of Inland Revenue may permit taxpayers with a balance of tax payable under deemed assessment to settle their obligations through instalments. This offers greater flexibility in managing tax liabilities for those eligible.
Read more: All you need to know about Payroll Services
What are the current income tax rates for residents and Non-residents in Malaysia?
| Chargeable income | Base Tax | 2022 Rate | Base Tax | 2023 Rate* |
|---|---|---|---|---|
| MYR | MYR | Percent | MYR | Percent |
| First 5,000 | 0 | 0 | 0 | 0 |
| Next 5,000 | 50 | 1 | 50 | 1 |
| On 10,000 | 50 | 50 | ||
| Next 10,000 | 100 | 1 | 100 | 1 |
| On 20,000 | 150 | 150 | ||
| Next 15,000 | 450 | 3 | 450 | 3 |
| On 35,000 | 600 | 600 | ||
| Next 15,000 | 1,200 | 8 | 900 | 6 |
| On 50,000 | 1,800 | 1,500 | ||
| Next 20,000 | 2,600 | 13 | 2,200 | 11 |
| On 70,000 | 4,400 | 3,700 | ||
| Next 30,000 | 6,300 | 21 | 5,700 | 19 |
| On 100,000 | 10,700 | 9,400 | ||
| Next 50,000 | 12,000 | 24 | 12,500 | 25 |
| On 150,000 | 22,700 | 21,900 | ||
| Next 100,000 | 24,000 | 24 | 25,000 | 25 |
| On 250,000 | 46,700 | 46,900 | ||
| Next 150,000 | 36,750 | 24.5 | 37,500 | 25 |
| On 400,000 | 83,450 | 84,400 | ||
| Next 200,000 | 50,000 | 25 | 52,000 | 26 |
| On 600,000 | 133,450 | 136,400 | ||
| Next 400,000 | 104,000 | 26 | 112,000 | 28 |
| On 1,000,000 | 237,450 | 248,400 | ||
| Next 1,000,000 | 280,000 | 28 | 280,000 | 28 |
| On 2,000,000 | 517,450 | 528,400 | ||
| Exceeding 2,000,000 | 30 | 30 |
What are the Malaysian Tax Residency Rules?
In Malaysia, determining your tax residency is pivotal, and it boils down to your physical presence within the country during specific periods. Here’s a simplified breakdown to make sense of it all:
182-Day Rule: Spend 182 days or more in Malaysia during a tax year, and you’re a resident for tax purposes.
Linked Periods: Even if you fall short of 182 days, if your stay connects to another 182+ day period in the following year, you’re still a resident.
90-Day Rule: If you’re in Malaysia for 90 days or more in a year and met this threshold for at least three of the past four years, you’re a resident.
Three-Year Resident: Maintain residency for the current year and the preceding three years, and you’re considered a resident.
No De Minimus Rule: There’s no set limit on how long you can return to Malaysia after your assignment ends or you repatriate.
Early Birds Count: Any time you spend in Malaysia before your official assignment start date is counted in your tax residency assessment
How does Termination of Tax Residency in Malaysia works?
What is the economic employer approach in Individual Income Tax Malaysia?
In Malaysia, the taxation authorities have indeed adopted the economic employer approach for interpreting Article 15 of the OECD treaty.
Typically, a de minimus rule of 60 days applies in Malaysia. Under Malaysian tax law, non-resident individuals can enjoy an exemption from Malaysian tax for income earned from employment exercised in Malaysia, provided it doesn’t exceed a total of 60 days in a basis year or overlapping years. This rule simplifies tax considerations for short-term stays and is a notable feature of Malaysia’s tax framework.
Read more: All you need to know about SST Submission
What are the types of taxable compensation of Income Tax Malaysia?
When it comes to income tax Malaysia, almost everything related to your job is taxable. Here’s a simple breakdown:
-
Cash Earnings: Your salary, allowances, and any perks provided by your employer count as taxable income.
-
Benefits Beyond Cash: If your job comes with non-cash benefits like housing allowances or other work-related perks, these also add to your taxable income.
-
Pension and Provident Funds: Any refunds you get from pension or provident fund schemes are considered taxable.
-
Termination Pay: If your job ends and you receive compensation, that’s also subject to taxation.
So, whether you earn inside or outside Malaysia, the taxman keeps an eye on most of your work-related income. Understanding these categories helps you stay on the right side of Malaysian tax law.
Read more: All you need to know about Tax planning
What types of income can enjoy Tax-Exempt in Individual Income Tax Malaysia?
What is the Tax Concessions for Expatriates in Malaysia
Malaysia offers various tax concessions to expatriates, making the country an appealing destination for international talent. These concessions aim to encourage foreign professionals to work in Malaysia and contribute to the country’s economic growth.
1. Non-Malaysian citizens working in specific roles, such as those within approved operational headquarters, regional offices, International Procurement Centers, Regional Distribution centers, or Treasury Management Centers, are taxed based on the portion of their employment income attributable to the number of days they work in Malaysia.
2. Non-Malaysian citizen directors of Labuan entities enjoy a significant benefit. They are exempt from income tax on the directors’ fees they receive from the tax year 2007 until the tax year 2025.
3. Non-resident individuals who are non-Malaysian citizens and participate in the Malaysian Technical Co-operation Programme (MTCP) receive tax exemptions. MTCP is an approved technical co-operation program by the Malaysian government and provides opportunities for international cooperation.
4. Non-citizen individuals holding key positions (C-suite) in strategic new investments under the Pelan Jana Semula Ekonomi Negara (“PENJANA”) incentive package are eligible for a preferential tax rate of 15% for a consecutive five-year period.
To avail of this benefit, eligible individuals must submit their applications to the Malaysian Investment and Development Authority (“MIDA”) within a specified timeframe. Importantly, these non-citizen individuals must be Malaysian tax residents throughout the entire flat-rate tax treatment period.
Starting from the tax year 2021, special tax rates (not exceeding 20%, subject to conditions prescribed by the Ministry of Finance) under the Approved Incentive Scheme (“AIS”) apply to individual residents who are not citizens. These rates are applicable when they work in companies engaged in qualifying activities under the AIS.
These concessions demonstrate Malaysia’s commitment to welcoming and incentivizing foreign talent participation in specific business activities and key roles, ultimately fostering international business relations and growth in the country.
How is the taxation of Salary Earned from Working Abroad in Individual Income Tax Malaysia?
In Malaysia, salary earned from working abroad is typically not subject to taxation, unless the income received is related to duties incidental to the exercise of employment within Malaysia. This means that income earned while working abroad is generally exempt from Malaysian tax, but any earnings directly tied to work conducted in Malaysia may be subject to taxation in the country.
How is the taxation of Investment Income and Capital Gains in Personal Income Tax Malaysia?
Malaysia’s tax system encompasses various aspects of investment income and capital gains, providing both exemptions and taxation, as outlined below:
1. Single-Tier System: In Malaysia, dividends paid by a resident company are tax-exempt in the hands of its shareholders, adopting a single-tier system.
2. Tax-Exempt Interest Income: Certain specific types of interest, such as government savings certificates, are exempted from income tax.
3. Tax-Exempt Interest from Deposits: Interest income received by individuals in Malaysia from monies deposited in all approved institutions is tax-exempt.
4. Real Estate Investment Trusts (REITs): Distributions from REITs listed on Bursa Malaysia, received by individuals, are subject to a final withholding tax.
5. Real Property Gains Tax (RPGT): RPGT applies to disposals of property, with varying tax rates based on the holding period. For Malaysian citizens or permanent residents, it ranges from 30% (within the third year of acquisition) to nil (after the sixth year of acquisition). Non-citizens or executors of non-citizens’ estates face a 30% rate within 5 years of acquisition and 10% after 5 years.
6. Stamp Duty: Stamp duty is applicable to specific documents or instruments like sale and purchase agreements and loan agreements. However, exemptions and remissions are available.
7. Rental Income: Rental income is assessed on a calendar year basis. When rental is received in advance, it’s taxed in the year of receipt. Deductions for expenses directly related to producing rental income are allowed to calculate net rental income.
8. Foreign Exchange Gains and Losses: Not applicable for taxation.
9. Personal Use Items: Not applicable for taxation.
10. Gifts: Malaysia does not impose gift tax. Estate duties were repealed with effect from November 1, 1991.
This comprehensive system seeks to balance tax collection and incentivize investments, making Malaysia an attractive destination for individuals and businesses looking to manage their finances efficiently.
What are the general tax deductions from income in Malaysia?
| Items | 2022 MYR | 2023 MYR* |
|---|---|---|
| Unmarried child under 18 years old | 2,000 | 2,000 |
| Unmarried child 18 years and above, and receiving full-time education | 2,000 | 2,000 |
| Unmarried child 18 years and above, and receiving full-time education at diploma (in Malaysia) or degree level (in overseas) for the course and university recognized by the Government of Malaysia | 8,000 | 8,000 |
| Relief for disabled unmarried child irrespective of age | 6,000 | 6,000 |
| Personal | 9,000 | 9,000 |
| Further relief for disabled person | 6,000 | 6,000 |
| Spouse living with or maintained by spouse (if spouse's income derived from outside Malaysia does not exceed MYR 4,000) | 4,000 | 4,000 |
| Further relief for disabled spouse | 5,000 | 5,000 |
| Contributions to approved provident fund (maximum) | 4,000 (Contributions to approved provident fund such as EPF) | 4,000 (Contributions to approved provident fund such as EPF) |
| Life Insurance Premium or Takaful Contribution on life insurance policy (maximum) | 3,000 (Takaful or life insurance premium) | 3,000 (Takaful or life insurance premium) or additional voluntary contribution to EPF (with effect from YA 2023) |
| Private Retirement Scheme/Annuity Premium (maximum) | 3,000 | 3,000 |
| Educational or medical insurance premiums for taxpayer, spouse, or child (maximum) | 3,000 | 3,000 |
| Supporting equipment for disabled taxpayer, spouse, children, or parents (maximum) | 6,000 | 6,000 |
| Medical treatment, special needs and care expenses for parents (maximum) | 8,000 | 8,000 |
How to perform Tax Reimbursement in Income Tax Malaysia?
In Malaysia, employers typically employ two primary tax reimbursement methods: the 1-year rollover method and the current-year grossed-up method. These methods are employed to ensure that employees receive adequate reimbursement for the taxes they owe based on their income.
choice of method may vary depending on the employer’s policy and the specific circumstances of the individual employees.
If you are seeking for professional submission of personal income tax Malaysia or corporate income tax Malaysia, RS36 Solutions is a trusted expert in handling personal income tax matters.
What are the relief for Foreign Taxes in Malaysia?
In Malaysia, relief for foreign taxes is available to address the issue of double taxation. This relief can be obtained through the application of double taxation treaties, if they exist between Malaysia and the foreign country in question. When such a treaty is in place, a person resident in Malaysia can claim bilateral credit for foreign taxes paid.
The amount of bilateral tax credit that can be claimed is determined as the lower of the actual foreign tax payable or the Malaysian tax payable on the foreign income that has been subject to taxation in both countries.
In cases where there is no double taxation treaty, unilateral tax credit is permitted but is subject to limitations. Under this scenario, the tax credit is limited to the lower of one-half of the foreign tax payable on the foreign income for the year or the Malaysian tax payable on the foreign income that has been subject to taxation in both jurisdictions. This relief mechanism aims to prevent the double taxation of income and encourages international tax cooperation.
What are the General Tax Credits in Malaysia
MYR 400 Tax Rebate: Resident individuals with chargeable income not exceeding MYR 35,000 can claim a tax rebate of MYR 400. Additionally, they have the option to choose joint assessment under their spouse’s name. If the spouse’s total chargeable income is also below MYR 35,000, they can claim an additional rebate of MYR 400.
Departure Levy Rebate: Resident individuals who are outbound air passengers performing umrah (pilgrimage to Mecca) and visiting holy places can claim a rebate for the departure levy. This rebate is limited to twice in a lifetime.
Religious Dues Rebate: Resident individuals can also receive a rebate for zakat, fitrah, or other Islamic religious dues that are obligatory.
Example of Income Tax Calculation in Malaysia
The calculation is based on a scenario involving a married taxpayer who is a resident of Malaysia and has two children. The assignment duration spans three years, starting from January 1, 2021, and concluding on December 31, 2023. The taxpayer’s base salary amounts to 100,000 US dollars (USD), and the calculation encompasses this three-year period.
| 2021 USD | 2022 USD | 2023 USD | |
|---|---|---|---|
| Salary | 100,000 | 100,000 | 100,000 |
| Bonus | 20,000 | 20,000 | 20,000 |
| Cost-of-living allowance | 10,000 | 10,000 | 10,000 |
| Housing allowance | 12,000 | 12,000 | 12,000 |
| Company car | 6,000 | 6,000 | 6,000 |
| Moving expense reimbursement | 20,000 | 0 | 10,000 |
| Home leave | 0 | 5,000 | 5,000 |
| Education allowance | 3,000 | 3,000 | 3,000 |
| Interest income from non-local sources | 6,000 | 6,000 | 6,000 |
Other Assumptions Simplified:
- All income is earned locally.
- Bonuses are given annually and accumulate evenly.
- Interest income isn’t sent to Malaysia.
- The company car costs USD 45,000 and is used for work and personal use, with no fuel provided.
- The employee is considered a resident for the entire assignment.
- Tax treaties and agreements are not considered.
- Both children are under 18, and the spouse’s income outside Malaysia doesn’t exceed MYR 4,000.
- Tax borne by individual
Exchange rate used for calculation: USD1.00 = MYR4.00.
Calculation of taxable income based on Income Tax Malaysia
| Year ended | 2021 MYR | 2022 MYR | 2023 MYR |
|---|---|---|---|
| Days in Malaysia during year | 365 | 365 | 365 |
| Earned income subject to income tax | |||
| Salary | 400,000 | 400,000 | 400,000 |
| Bonus | 80,000 | 80,000 | 80,000 |
| Cost-of-living allowance | 40,000 | 40,000 | 40,000 |
| Housing allowance | 48,000 | 48,000 | 48,000 |
| Benefit in Kind on Company car | 7,000 | 7,000 | 7,000 |
| Moving expense reimbursement | 0 | 0 | 0 |
| Home leave | 0 | 17,000 (after MYR 3,000 tax exemption) | 17,000 (after MYR 3,000 tax exemption) |
| Education allowance | 12,000 | 12,000 | 12,000 |
| Total earned income | 587,000 | 604,000 | 604,000 |
| Other income | 0 | 0 | 0 |
| Total income | 587,000 | 604,000 | 604,000 |
| Deductions | 17,000 | 17,000 | 17,000 |
| Total taxable income | 570,000 | 587,000 | 587,000 |
Calculation of taxable liability based on Malaysia Income Tax
| 2021 MYR | 2022 MYR | 2023 MYR | |
|---|---|---|---|
| Taxable income as above | 570,000 | 587,000 | 587,000 |
| Malaysian tax thereon | 125,950 | 130,200 | 133,020 |
| Less: | |||
| Domestic tax rebates (dependent spouse rebate) | 0 | 0 | 0 |
| Foreign tax credits | 0 | 0 | 0 |
| Total Malaysian tax | 125,950 | 130,200 | 133,020 |
Source: KPMG
Frequently Asked Questions (FAQs)
What are the tax return deadlines for personal income tax in Malaysia?
The deadline for tax return submissions varies for residents and non-residents but is generally in April or June of the following year.
How is tax residency determined in Malaysia?
Tax residency is determined based on factors like the number of days spent in Malaysia during a tax year, linked periods, and other criteria outlined in the article.
Are there tax concessions for expatriates in Malaysia?
Yes, Malaysia offers various tax concessions to encourage foreign professionals to work in the country, as detailed in the article.
Is salary earned from working abroad subject to taxation in Malaysia?
Generally, no, but income related to duties in Malaysia may be taxable.
How is investment income and capital gains taxed in Malaysia?
Investment income and capital gains are subject to various rules, with dividends often being tax-exempt and property gains taxed under the Real Property Gains Tax (RPGT).
Are there any exceptions to capital gains tax in Malaysia?
Malaysia primarily imposes capital gains tax through RPGT, and there are generally no exceptions for other assets.
What are the common types of income tax deductions in Malaysia?
Deductions include relief for dependents, personal relief, contributions to approved provident funds, and various other allowances and exemptions listed in the article.
How are taxes reimbursed to employees in Malaysia?
Employers in Malaysia often use the 1-year rollover method or current-year grossed-up method to reimburse employees for taxes.
What relief is available for foreign taxes in Malaysia?
Relief for foreign taxes in Malaysia can be obtained through double taxation treaties or unilateral tax credit, as described in the article.
What are the general tax credits available to taxpayers in Malaysia?
General tax credits in Malaysia include rebates for low-income individuals, departure levy, religious dues, property rental income, life insurance premiums, and contributions to the Private Retirement Scheme (PRS).
