Taxation of international executives
Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
When are tax returns due? That is, what is the tax return due date?
Tax returns of individuals with no business income (that is employment income and/or investment income) are required to be filed by 30 April of the following year.1 As for individuals who are carrying on business, the deadline for filing the tax returns is 30 June of the following year.2
What is the tax year-end?
What are the compliance requirements for tax returns in Malaysia?
The taxpayer who has no business income is required to file his/her tax return (Form BE) by 30 April of the following year (that is 2017 tax return covering the income period from 1 January 2017 to 31 December 2017 has to be filed by 30 April 2018). Any balance of tax payment would be due on 30 April 2018, as well.4 As for a taxpayer who has business-source income, the deadline for filing the tax return (Form B) is 30 June of the following year. For income year 2017, the balance of a tax payment would be due on 30 June 2018.5
The non-resident taxpayer who derives employment income and/or non-business income is also required to file his/her tax return (Form M) by 30 April of the following year (that is 2017 tax return covering the income period from 1 January 2017 to 31 December 2017 has to be filed by 30 April 2018). Any balance of tax payment would be due on 30 April 2018, as well. As for a non-resident taxpayer who has business-source income, the deadline for filing the tax return is 30 June of the following year. For income year 2017, the balance of tax payment would be due on 30 June 2018.
What are the current income tax rates6 for residents and non-residents in Malaysia?
Income tax table for 2017/2018
|Chargeable income||Base Tax||2017 Rate||Base Tax||2018 Rate|
The employment income of an individual who is a knowledge worker and resides in a specific region (Iskandar, Malaysia) exercising employment with a person who carries on any qualifying activity (namely green technology, biotechnology, educational services, healthcare services, creative industries, financial advisory, and consulting services, logistic services, and tourism) would be taxed at the rate of 15 percent of his chargeable income. (Applicable for knowledge workers who apply and commence employment in Iskandar, Malaysia between 24 October 2009 and 31 December 2020However, prior approval from the Iskandar Regional Development Authority is required before a knowledge worker could enjoy the tax rate of 15 percent.
The employment income of an approved individual under the Returning Expert Programme will be taxed at the rate of 15 percent of that chargeable income. The concession is for a period of five years.
The income of a non-resident individual is subject to income tax at 28 percent without personal relief.
For the purposes of taxation, how is an individual defined as a resident of Malaysia?
The residence7 of an individual is determined by his/her physical presence in Malaysia. An individual may qualify as a resident for the basis year for a particular year of assessment under any one of the following circumstances.
Are there any tax compliance requirements when leaving Malaysia?
It is the employer’s obligation to notify the Malaysian Inland Revenue Board (MIRB) of the termination of employment of an employee who is leaving Malaysia for more than three months. The notification is via filing of Form CP21 at least one month before the expected date of departure of the employee from Malaysia.9 The employer is also required to withhold any money in its possession owing to an employee who has ceased employment or is about to cease employment until the earlier of 90 days after the MIRB has received the Form CP21 or upon receipt of the tax clearance letter from the MIRB.10 A schedule of entries and departures to/from Malaysia and his/her original passport(s) which should cover his/her whole employment period in Malaysia have to be submitted to the MIRB for verification of his/her residence status together with the Form CP21 and duly completed and signed Malaysian tax return. The MIRB would review the documents and if satisfied, issue a tax clearance letter to inform the employee and his employer of any outstanding taxes to be paid.
What if the assignee comes back for a trip after residency has terminated?
The physical presence rule still applies for tax residency determination.11
Do the immigration authorities in Malaysia provide information to the local taxation authorities regarding when a person enters or leaves Malaysia?
Currently, the immigration and tax authorities continue strategic cooperation on taxation matters relating to expatriates. The tax authorities launched the HASIL MY EXPAT system for internal use by the tax authorities to obtain information from the immigration to monitor taxation matters of expatriates in Malaysia.
Will an assignee have a filing requirement in the host country after they leave the country and repatriate?
There would be no filing requirement for the assignee if he/she does not have any trailing income derived from Malaysia after his/her repatriation. However, it is important that the assignee clears his tax fully before he repatriates.
Do the taxation authorities in Malaysia adopt the economic employer approach12 to interpreting Article 15 of the OECD treaty? If no, are the taxation authorities in Malaysia considering the adoption of this interpretation of economic employer in the future?
Are there a de minimus number of days13 before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
Generally, it is 60 days. Under the Malaysian tax law, the income of a non-resident individual from an employment exercised by him/her in Malaysia for not more than 60 days in total in a basis year will be exempt from Malaysian tax.
What categories are subject to income tax in general situations?
The definition of employment income covers all forms of remuneration including benefits, whether in-cash or in-kind, received by an individual for exercising or having an employment in Malaysia.14 Therefore, an employee’s income in respect of his/her employment in Malaysia will be subject to Malaysian tax regardless of whether it is paid in Malaysia or outside Malaysia.
Typical items of compensation received by an expatriate employee in Malaysia are taxed as follows.
Are there any areas of income that are exempt from taxation in Malaysia? If so, please provide a general definition of these areas.
Income tax exemption on perquisite in relation to long service, past achievement, service excellence, innovation, or productivity awards of up to a maximum amount or value of MYR2,000 . The exemption in respect of long service award shall only be given to employees who have served the same employer for more than 10 years.39
Are there any concessions made for expatriates in Malaysia?
Expatriates employed in a managerial capacity with a Labuan entity in Labuan is granted an exemption of 50% of their gross income from such employment up to YA 2010, provided the employment is exercised in Labuan. The exemption has been extended to YA 2020. The exemption is also extended to an individual non- Malaysian citizen exercising an employment with a co-located office or marketing office of a Labuan entity approved by the Labuan Financial Services Authority which operates in other parts of Malaysia. Co-Located office means a co-located office of a Labuan entity approved by the Labuan Financial Services Authority which operates in other parts of Malaysia to perform the functions assigned by the Labuan entity. The marketing office must be an office to facilitate meetings with clients and establish contacts with potential clients except exercising trading activities on behalf of the Labuan entity.40
Effective from year of assessment 2003, expatriates would be exempted from payment of income tax in respect of income derived from an employment with an approved operational headquarters or an approved regional office. They will only be taxed on the portion of their income attributable to the number of days they are in Malaysia and out of Malaysia for social visits.41
Effective year of assessment 2008, the income tax treatment for expatriates working for international procurement centers (IPC) and regional distribution centers (RDC) is streamlined with that available for operational headquarters and regional offices. Only the portion of employment income attributable to the number of days of employment exercised in Malaysia is taxed.42
Effective from YA 2012, expatriates working for an approved Treasury Management Centre are taxed on the portion of their employment income attributable to the number of days they are in Malaysia and out of Malaysia for social visits pursuant to the Income Tax (Exemption) (No.3) Order 2012.
Expatriates acting in the capacity of a director of a Labuan entity are exempted from payment of income tax in respect of directors’ fees received from YA 2007 until YA 2010. The exemption has been extended to YA 2020.43
Any payment received from participating in the Malaysian Technical Co-operation Programme (MTCP) by a non-resident individual who is non-Malaysian citizen is exempted from tax with effect from year of assessment 2007. MTCP is a technical co-operation program approved by the Economic Planning Unit Prime Minister’s Department of Malaysia.44
Is salary earned from working abroad taxed in Malaysia? If so, how?
The salary earned from working abroad would not be taxable unless the income received is in respect of duties incidental to the exercise of employment in Malaysia.45
Are investment income and capital gains taxed in Malaysia? If so, how?
Malaysia adopts the single-tier system, where dividends paid by a resident company would be tax exempt in the hands of its shareholders.47
Distributions received from certain approved unit trusts are tax-exempt.49
Certain specific types of interest (such as government savings certificates) are exempted from income tax.50
Interest income received by individuals resident in Malaysia from monies deposited in all approved institutions is tax-exempt.52
Interest derived from Malaysia by non-resident individuals and paid or credited by any person carrying on the business of banking or finance in Malaysia and licensed under the Banking and Financial Institutions Act 1989 is not subject to Malaysian tax.54
Distributions from real estate investment trusts (REITs) listed in Bursa Malaysia will be subject to a final withholding tax at the rate of 10 percent ,
Under the Real Property Gains Tax Act 1976, for disposals by an individual who is a Malaysian citizen or permanent resident, chargeable gains will be taxed as follows:
For disposals by non-citizens, or an executor of the estate of a deceased person who is not a Malaysian citizen or permanent resident, the rate is 30% for disposals within 5 years after acquisition and 5% for disposals more than 5 years after acquisition. 56
To strengthen family values and provide financial security, the instruments for the transfer of properties between spouses on the basis of love and affection are exempted from stamp duty.57
Pursuant to the Stamp Duty (Remission) Order (No.2) 2016, 100% is remitted from the stamp duty chargeable on a loan agreement relating to a sale and purchase agreement executed from 1 January 2017 to 31 December 2018. This is applicable for the purchase of only one unit of residential property valued not more than RM500,000 and where the loan amount does not exceed RM300,000.
Where the loan amount is more than RM300,000 but not exceeding RM500,000, the amount remitted would be RM1,500 from the total amount of stamp duty chargeable. This stamp duty exemption is only applicable for Malaysian citizens who have yet to own a home.
Pursuant to the Stamp Duty (Remission) Order 2016, 100% is remitted from the stamp duty chargeable on an instrument of transfer relating to a sale and purchase agreement executed from 1 January 2017 to 31 December 2018. This is applicable for the purchase of only one unit of residential property valued not more than RM300,000.
Where the residential property is valued more than RM300,000 but not exceeding RM500,000, the amount remitted would be RM5,000 from the total amount of stamp duty chargeable. This stamp duty exemption is only applicable for Malaysian citizens who have yet to own a home.
Rental income is assessed to tax on accrual basis for a calendar year.59 However, when the rental is received in advance, the advance rental would be taxed in the year of receipt. The expenses wholly and exclusively incurred in the production of the rental income are allowable as a deduction to arrive at a net rental income.
With effect from YA 2018 to YA 2020, there will be 50% income tax exemption on rental income from residential homes for Malaysian resident individuals where the legal tenancy agreement is between owner and tenant, and the rental income is less than RM2,000 per month per residential home.
There is no such tax in Malaysia. Note that estate duties have been repealed with effect from 1 November 1991.
Are there additional capital gains tax (CGT) issues in Malaysia? If so, please discuss?
Other than real property gains tax, there is no other CGT.
Are there capital gains tax exceptions in Malaysia? If so, please discuss?
What are the general deductions from income allowed in Malaysia?
The following deductions are allowed.
|Child under 18 years old||2,000||2,000|
|Child above 18 years old and receiving full time education||2,000||2,000|
|Child above 18 years old and receiving full time education for the course and university recognized by the Government of Malaysia||8,000||8,000|
|Relief for disabled child irrespective of age||6,000||6,000|
Spouse elects to have his/her income aggregated with his/her spouse for assessment purposes65
Further relief for disabled person68
Spouse living with or maintained by spouse69
4,000 (if spouse’s income derived from outside Malaysia does not exceed RM4,000)
4,000 (if spouse’s income derived from outside Malaysia does not exceed RM4,000)
Further relief for disabled spouse70
|Life insurance premiums/annuity/contributions to approved provident fund or Takaful71||
|Private Retirement Scheme/Annuity Premium||3,000||
3,000 (effective from YA2012 to 2021)
|Educational or medical insurance premiums for the taxpayer, spouse, or child72||
|Supporting equipment for disabled taxpayer, spouse, children, or parent (maximum)73||
|Medical expenses for parents (maximum)74||
5,000 [extended to include expenses to care for parents (i.e. treatment and care at home, day/home care centres). Such claims must be evidenced by a medical practitioner certifying the medical condition that requires medical treatment or special needs.]
|Medical expenses for taxpayer, spouse and children on serious diseases (include maximum of MYR500 for medical examination expenses)75||
|Purchase of computer for personal use (per individual and once in three years) (maximum)76||
- (Refer to "Lifestyle")
|Purchase of sports equipment (maximum)77||
- (Refer to "Lifestyle")
|Net amount deposited into Skim Simpanan Pendidikan Nasional for child (maximum)78||
1500 each (2016 - 2020)
|Social Security Organization (SOCSO) Scheme||250||250|
|Lifestyle (Purchase of reading materials, purchase of sports equipment, purchase of computer, smartphone or tablet and subscription of broadband internet and gymnasium membership fees) (maximum)
The taxpayer is also given the option to elect for joint assessment under the spouse’s name. A tax rebate of MYR400 is available to a taxpayer provided his/her chargeable income does not exceed MYR35,000. A further rebate of MYR400 is available for the spouse where the taxpayer has been allowed a deduction for spouse relief and their total chargeable income does not exceed MYR35,000.89
What are the tax reimbursement methods generally used by employers in Malaysia?
The tax reimbursement methods generally used by employers in Malaysia are one-year rollover methods or current-year grossed up.
How are estimates/prepayments/withholding of tax handled in Malaysia? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
As a general rule, all employees whether local or expatriate, are subjected to Pay-As-You-Earn (PAYE). It is mandatory for an employer to deduct tax on a monthly basis from the employee’s remuneration based on the prescribed tables or formula issued by the MIRB. For this purpose, remuneration includes salaries, allowance, arrears, wages, fees, bonus, gratuity, commission, perquisite, and tips, but excludes benefits-in-kind.90 The tax deducted is to cover the tax on the remuneration earned for the month.
Employees may make an irrevocable election (subject to employer’s agreement) to include benefits-in-kind and value of living accommodation as part of the remuneration to be subject to monthly tax deduction by completing a prescribed form (Form TP2) and submit to the employer.
Effective from 1 January 2015, pursuant to the Income Tax (Deduction from Remuneration) (Amendment) (No. 2) Rules 2014, benefits-in-kind and value of living accommodation as part of the remuneration would be subject to monthly tax deduction mandatorily.
Further, prior to 1 January 2015 employees may make an irrevocable election (subject to employer’s agreement) in a prescribed form (Form TP1) for additional deductions (other than the standard deductions on individual, spouse, child, and contribution to Employees Provident Fund or other approved schemes) and submit it to the employer in determining the amount of monthly tax deduction.91
Effective from 1 January 2015, pursuant to the Income Tax (Deduction from Remuneration) (Amendment) (No. 2) Rules 2014, it is mandatory for an employer to allow the employees to claim additional deductions via Form TP1 at a minimum twice a year when determining the amount of monthly tax deductions.
An employee joining a new employer in the current year is required to complete a prescribed form (Form TP3) to disclose his remuneration from his previous employer(s) to enable the new employer to correctly calculate the monthly tax deductions.
When are estimates/prepayments/withholding of tax due in Malaysia? For example: monthly, annually, both, and so on.
The monthly tax deducted from the remuneration of the employees during a calendar month has to be remitted to the MIRB not later than the 15th day of the following calendar month via the Statement of Tax Deduction by an Employer (Form CP39).92
Is there any Relief for Foreign Taxes in Malaysia? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
Where there is a double taxation treaty, bilateral credit could be claimed. Bilateral credit shall only be given to a person resident in Malaysia. The bilateral tax credit allowable would be the lower of actual foreign tax payable or the Malaysian tax payable on the foreign income that has been subject to tax twice.93
Where there is no double taxation treaty, unilateral tax credit is allowed but 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 tax twice.94
Malaysia has concluded double taxation treaties with more than 70 countries, which generally provide for an exemption from Malaysian tax for remuneration for personal services in Malaysia performed for or on behalf of a foreign employer for a period of not more than 183 days during a tax year or twelve months period and the remuneration is not directly deductible from the income of a permanent establishment (PE) which the foreign employer has in Malaysia.
What are the general tax credits that may be claimed in Malaysia? Please list below.
The general tax credits available in Malaysia for tax resident individuals are tax rebates and personal reliefs. The tax relief is deductible against the individual’s total income and the tax rebates can be deducted against the individual’s tax liability.
This calculation assumes a married taxpayer resident in Malaysia with two children whose three-year assignment begins 1 January 2016 and ends 31 December 2018 . The taxpayer’s base salary is USD100,000 and the calculation covers three years.
|Moving expense reimbursement||20,000||0||10,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = MYR4.3444 (MIRB’s foreign exchange rate for 2017).
|Days in Malaysia during year||366||365||365|
|Earned income subject to income tax|
|Moving expense reimbursement||0||0||0|
|Total earned income||616,000||634,000||634,000|
|Total taxable income||602,000||617,000||617,000|
Calculation of tax liability
|Taxable income as above||619,938
|Malaysian tax thereon||139,834
|Domestic tax rebates (dependent spouse rebate)||0||0||0|
|Foreign tax credits||0||0||0|
|Total Malaysian tax||139,834
1 Section 77(1)(b) of the Act.
2 Section 77(1)(a) of the Act.
3 Section 20 of the Act.
4 Section 103(1) and 103(12)(c) of the Act.
5 Section 103(1) and 103(12)(b) of the Act.
6 Schedule 1 (Section 6) of the Act.
7 Sections 7(1)(a) to 7(1)(d) of the Act.
8 Sections 7(1)(a) to 7(1)(d) and Section 7(1A) of the Act.
9 Section 83(4) of the Act.
10 Section 83(5) of the Act.
11 Sections 7(1)(a) to 7(1)(d) of the Act.
12 Certain tax authorities adopt an "economic employer" approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the "economic employer" and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.
13 For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.
14 Section 13 of the Act.
15 Section 13(1)(a) of the Act.
16 Section 13(1)(a) of the Act.
17 Sections 13(1)(c) and 32(2) of the Act, Public Ruling No. 3/2005.
18 Sections 13(1)(c) and 32(2) of the Act, Public Ruling No. 3/2005.
19 Section 13(1)(a) of the Act.
20 Section 13(1)(a) of the Act, Public Ruling No. 2/2013 on Perquisite from Employment.
21 Section 13(1)(b) of the Act, Public Ruling No. 3/2013 on Benefits-in-Kind.
22 Section 13(1)(b) of the Act, Public Ruling No. 3/2013 on Benefits-in-Kind
23 Section 13(1)(a) and Section 33(1) of the Act.
24 Section 13(1)(a) and Section 38A of the Act.
25 Section 13(1)(a) and Section 33(1) of the Act.
26 Section 13(1)(d) of the Act.
27 Public Ruling No 4/2004 on ESOS.
28 Section 25(1A) of the Act.
29 Section 32(1A)(a) of the Act.
30 Section 32(1A)(b) of the Act.
31 Press statement by the Ministry of Finance.
32 Section 39(1)(m) of the Act; Public Ruling No. 1/2003.
33 Section 13(1)(b)(ii)(A) of the Act.
34 Section 13(1)(b)(i) of the Act, Public Ruling No. 3/2013 on Benefits-in-Kind.
35 Income Tax (Exemption)(No.6) Order 2004.
36 Para 32E, Schedule 6 of the Act.
38 Schedule 6 Para 25(1).
39 Schedule 6 Para 25C.
40 Income Tax (Exemption)(No.8) Order 2011.
41 Income Tax (Exemption)(No.60) Order 2003.
42 Income tax (Exemption)(No.2) Order 2008.
43 Income tax (Exemption)(No.7) Order 2011.
44 Income Tax (Exemption) Order 2008.
45 Section 13(2)(c) of the Act.
46 Section 26 and Section 110 of the Act.
47 Section 12B, Schedule 6 of the Act.
48 Section 52 of the Finance Act 2007.
49 Income Tax (Exemption)(No.12) Order 1985.
50 Para 19, Schedule 6 of the Act.
52 Income Tax (Exemption)(No.7) Order 2008.
53 Part II, Schedule 1 of the Act.
54 Para 33, Schedule 6 of the Act.
55 Part X, Schedule 1 and Section 6(1)(i) of the Act.
56 Part I, II and III, Schedule 5 of the Real Property Gains Tax Act, 1967.
57 Stamp Duty (Exemption)(No.10) Order 2007.
58 Stamp Duty (Remission)(No.3) Order 2012 and Stamp Duty (Remission)(No.4) Order 2012.
59 Section 27 of the Act.
60 Section 32(1A) of the Act.
62 Schedule 2 Para 12 of the Real Property Gain Tax.
63 Section 33(1) of the Act.
64 Section 46 of the Act.
65 Sections 45 and 45A of the Act.
66 Section 46(1)(a) of the Act.
67 Section 46(1)(i) of the Act.
68 Section 46(1)(e) of the Act.
69 Section 47 and Section 45A of the Act.
70 Section 47(1)(b) and Section 45A of the Act.
71 Section 49(1A) of the Act.
72 Section 49(1B)(e) of the Act.
73 Section 46(1)(d) of the Act.
74 Section 46(1)(c) of the Act.
75 Section 46(1)(g) and Section 46(1)(h) of the Act.
76 Section 46(1)(i) of the Act.
77 Section 46(1)(i) of the Act.
78 Section 46(1)(k) of the Act.
79 Income Tax Exemption (No. 14) Order 2013.
80 Section 48 of the Act.
82 Section 46(1)(f) of the Act.
83 Section 46(B) Income Tax (Amendment) Act 2009 gazetted on 23 April 2009.
84 Section 48(1)(d) of the Act.
85 Section 48(3)(a)(ii) of the Act.
86 Section 44(6) of the Act.
87 Section 44(8) of the Act.
88 Section 44(6) of the Act.
89 Section 6A(2) of the Act.
90 Income Tax (Deduction From Remuneration) (Amendment) Rules 2014.
91 Income tax (Deduction From Remuneration)(Amendment) Rules 2014.
92 Income Tax (Deduction From Remuneration) (Amendment) Rules 2014.
93 Section 132 and Schedule 7 of the Act.
94 Section 133 and Schedule 7 of the Act.
95 Sample calculation generated by KPMG Tax Services Sdn. Bhd., the Malaysian member firm of KPMG International, based on various tax codes quoted within this document.
96 As prescribed by the MIRB, Public Ruling 3/2013 on Benefits-in-Kind.
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