close
Share with your friends

Malaysia - Income Tax

Income Tax

Taxation of international executives

1000

Related content

Tax returns and compliance

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. As for individuals who are carrying on business, the deadline for filing the tax returns is 30 June of the following year.

What is the tax year-end?

31 December.

What are the compliance requirements for tax returns in Malaysia?

Residents

The taxpayer who has no business income is required to file their tax return (Form BE) and pay the balance of tax by 30 April of the following year. As for a taxpayer who has business- source income, the deadline for filing the tax return (Form B) and payment of balance of tax payable is 30 June of the following year.

Non-residents

The non-resident taxpayer who derives employment income and/or non-business income is required to file their tax return (Form M) by 30 April of the following year. Any balance of tax payment will be due on 30 April of the following year as well. As for a non-resident taxpayer who has business-source income, the deadline for filing the tax return and payment of tax payable is 30 June of the following year. 

Tax rates

What are the current income tax rates for residents and non-residents in Malaysia?

Residents

Income tax table for 2019/2020 (in Malaysian ringgit (MYR)):

Chargeable income

Base Tax

 2019 Rate

Base Tax

2020 Rate

MYR

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

1,200

 8

On 50,000

1,800

 

1,800

 

Next 20,000

2,800

 14

2,800

 14

On 70,000

 4,600

 

4,600

 

Next 30,000

6,300

21

6,300

21

On 100,000

10,900

 

10,900

 

Next 50,000

12,000

24

12,000

24

On 150,000

 22,900

 

22,900

 

Next 100,000

24.000

24

24,000

24

On 250,000

 46,900

 

46,900

 

 

 

 

 

 

Next 150,000

36,750

24.5

36,750

24.5

On 400,000

 83,650

 

83,650

 

Next 200,000

50,000

25

50,000

25

On 600,000

 133,650

 

133,650

 

Next 400,000

104,000

26

104,000

26

 On 1,000,000

 237,650

28

237,650

 28

Next 1,000,000

280,000

28

280,000

28

Exceeding 2,000,000

517,650

28

517,650

30


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) will be taxed at the rate of 15 percent of the chargeable income. (Applicable for knowledge workers who apply and commence employment in Iskandar, Malaysia between 24 October 2009 and 31 December 2020. However, 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 5 years.

Non-residents

The income of a non-resident individual is subject to income tax at 28 percent (30 percent with effect from Year of Assessment 2020) without personal relief.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Malaysia?

Residence status of an individual is determined by their 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.

  • The individual is in Malaysia in the basis year for a period or periods totaling 182 days or more.
  • The individual is in Malaysia for less than 182 days in that basis year and that period is linked by or to another period of 182 or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which the individual is in Malaysia in the adjoining year. Temporary absences from Malaysia due to service matters, attending conferences, seminars, or study abroad connected with the services in Malaysia, ill-health involving the individual or any immediate member of the family and social visits not exceeding 14 days in aggregate shall be taken to form part of such period or that period, as the case may be, if they are in Malaysia immediately prior to and after that temporary absence.
  • The individual is in Malaysia for a total of 90 days or more in the basis year and in any 3 out of 4 immediately preceding basis years, the individual was either resident or in Malaysia for at least 90 days.
  • The individual will be a resident for the year if they are resident the following year and has been resident for the immediately preceding 3 years.

Is there, a de minimus number of days rule when it comes to residency start and end date? For example, a taxpayer can’t come back to the host country/jurisdiction for more than 10 days after their assignment is over and they repatriate.

No.

What if the assignee enters the country/jurisdiction before their assignment begins?

For the purpose of tax residency, their physical presence in Malaysia before the assignment begins will be considered in the determination of tax residence status.

Termination of residence

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 3 months. The notification is via filing of Form CP21 at least 1 month before the expected date of departure of the employee from Malaysia. 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. A schedule of entries and departures to/from Malaysia and their original passport(s) which should cover the whole employment period in Malaysia have to be submitted to the MIRB for verification of their 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 their 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.

Communication between immigration and taxation authorities

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.

Filing requirements

Will an assignee have a filing requirement in the host country/jurisdiction after they leave the country/jurisdiction and repatriate?

There would be no filing requirement for the assignee if they do not have any trailing income derived from Malaysia after repatriation. However, it is important that the assignee fully settle all outstanding taxes before repatriation.

Economic employer approach

Do the taxation authorities in Malaysia adopt the economic employer approach to interpreting Article 15 of the Organisation for Economic Co-Operation and Development (OECD) treaty? If no, are the taxation authorities in Malaysia considering the adoption of this interpretation of economic employer in the future?

Yes.

De minimus number of days

Are there a de minimus number of days 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 them in Malaysia for not more than 60 days in total in a basis year or overlapping years will be exempt from Malaysian tax.

Types of taxable compensation

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. Therefore, an employee’s income in respect of the employment in Malaysia will be subject to Malaysian tax regardless of whether it is paid in Malaysia or outside Malaysia.

Gains or profits from an employment includes the following:

  • Cash remuneration, allowances and perquisites
  • Benefits-in-kind
  • Value of living accommodation
  • Refund from Unapproved pension or Provident Funds Scheme or Society
  • Compensation for loss of employment

Intra-group statutory directors

Will a non-resident of Malaysia who, as part of their employment within a group company, is also appointed as a statutory director (i.e. member of the Board of Directors in a group company situated in Malaysia) trigger a personal tax liability in Malaysia, even though no separate director's fee/remuneration is paid for their duties as a board member?

Director fee or any remuneration received by a statutory director from a company resident in Malaysia in respect of their directorship is liable to Malaysian tax.

a)   Will the taxation be triggered irrespective of whether or not the board member is physically present at the board meetings in Malaysia?

Yes, where director fees are received.

b)  Will the answer be different if the cost directly or indirectly is charged to/allocated to the company situated in Malaysia (i.e. as a general management fee where the duties rendered as a board member is included)?

No.

c)   In the case that a tax liability is triggered, how will the taxable income be determined?

Refer to Section on “Non-Residents”.

Tax-exempt income

Are there any areas of income that are exempt from taxation in Malaysia? If so, please provide a general definition of these areas.

  • One leave passage outside Malaysia is tax-free up to a maximum amount of MYR3,000 per year while three trips per year within Malaysia remains tax-free.
  • Medical or dental treatment, including a benefit for childcare.
  • Any sum received by way of gratuity on retirement from an employment due to ill health or if the retirement takes place on or after reaching the age of 55 or on reaching the compulsory retirement age of 50 but before 55 and that person has served more than 10 years with the same employer is exempted from tax. A partial exemption of MYR1,000 for each completed year of service is granted with respect to any gratuity payment which does not fall under the above category.
  • Compensation for loss of employment is given full or partial exemption:
    • Whole sum of compensation if due to ill health; or
    • MYR10,000 for every completed year of service with the same employer or with companies in the same group.
  • Employment income for a maximum of 12 consecutive months for women who return to work after career break.
  • Long service for employees who have served the same employer for more than 10 years, past achievement, service excellence, innovation, or productivity awards of up to MYR2,000.
  • Travelling allowance, petrol card, petrol allowance, or toll payment for travelling in exercising an employment is exempted up to an amount of MYR6,000 per year.
  • Allowance or fees for parking.
  • Allowance or subsidies for childcare of up to MYR2,400 per year for children up to 12 years of age.
  • Gifts and bills of fixed line phone, mobile phone, tablet, pager personal digital assistance, and internet subscription. The exemption given is limited to one unit for each asset.
  • Employers’ own goods which are consumable business products provided free of charge or at a discounted value where the value of the discount does not exceed MYR1,000 per year.
  • Employers’ own services provided free or at a discount provided such benefits are not transferable.
  • Subsidies on interest on loans totaling up to MYR300,000 for housing, passenger motor vehicles and education.

Expatriate concessions

Are there any concessions made for expatriates in Malaysia?

Non-Malaysian Citizen employed in a managerial capacity with a Labuan entity in Labuan is granted an exemption of 50 percent of their gross income from such employment up to YA2020, provided the employment is exercised in Labuan. The exemption is also extended to non- Malaysian citizen exercising an employment with a co-located office or marketing office of the Labuan entity approved by the Labuan Financial Services Authority which operates in other parts of Malaysia.

Non-Malaysian Citizen would be taxed on the portion of employment income attributable to the number of days in Malaysia in respect of income derived from an employment with an approved operational headquarters, an approved regional office, International Procurement Centers, Regional Distribution centers or an approved Treasury Management Center.

 Non-Malaysian Citizen 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 2020.

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 YA 2007. MTCP is a technical co-operation program approved by the Economic Planning Unit Prime Minister’s Department of Malaysia.

Salary earned from working abroad

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.

Taxation of investment income and capital gains

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.

Distributions received from certain approved unit trusts are tax-exempt.

Certain specific types of interest (such as government savings certificates) are exempted from income tax.

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

Distributions from real estate investment trusts (REITs) listed in Bursa Malaysia received by individuals will be subject to a final withholding tax.

Under the Real Property Gains Tax Act (“RPGT”) 1976, for disposals by an individual who is a Malaysian citizen or permanent resident, chargeable gains will be taxed as follows:

  • 30 percent for disposals within 3 years after acquisition;
  • 20 percent for disposals in the fourth year after acquisition;
  • 15 percent for disposals in the fifth year after acquisition; and
  • 5 percent for disposals in the sixth year after acquisition or thereafter ;

There is a RPGT exemption on the disposal of a chargeable asset (other than shares) with consideration of MYR200,000 and below that is made in the sixth year after the date of acquisition by a Malaysian citizen disposer. This is effective from 1 January 2019.

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 percent for disposals within 5 years after acquisition and 10 percent for disposals more than 5 years after acquisition.

Stamp duty

Stamp duty is chargeable on certain documents or instruments such as sale and purchase agreements, loan agreement and transfer of property etc. However, there are exemptions or remission available.

Rental Income

Rental income is assessed to tax on accrual basis for a calendar year. 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.

Foreign exchange gains and losses

Not applicable.

Personal use items

Not applicable.

Gifts

There is no such tax in Malaysia. Note that estate duties have been repealed with effect from 1 November 1991.

Additional capital gains tax (CGT) issues and exceptions

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?

Not applicable.

Pre-CGT assets

Not applicable.

Deemed disposal and acquisition

Not applicable.

General deductions from income

What are the general deductions from income allowed in Malaysia?

The following deductions are allowed.

  • Expenses wholly and exclusively incurred in the production of income (such as subscriptions to professional bodies, entertainment expenditure and travelling expenditure where entertainment or travelling allowances are provided).
  • Personal relief (available to resident individuals only).

 

2019
MYR

2020
MYR

Child under 18 years old

2,000

2,000

Child 18 years and above, and receiving full time education

2,000

2,000

Child 18 years and above, 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 their income aggregated with their spouse for assessment purposes

4,000

4,000

Personal

9,000

9,000

Further relief for disabled person

6,000

6,000

Spouse living with or maintained by spouse

4,000 (if spouse’s income derived from outside Malaysia does not exceed MYR4,000)

4,000 (if spouse’s income derived from outside Malaysia does not exceed MYR4,000)

Further relief for disabled spouse

3,500

3,500

Life insurance premiums//contributions to approved provident fund or Takaful (maximum)

6,000 

4,000 (Contributions to approved provident fund such as EPF).

3,000 (life insurance premium).

Private Retirement Scheme/Annuity Premium

3,000

3,000

Educational or medical insurance premiums for taxpayer, spouse, or child

3,000

3,000

Supporting equipment for disabled taxpayer, spouse, children, or parent (maximum)

6,000

6,000

Medical treatment, special needs and carer expenses for parents (maximum)

5,000

5,000 

Medical expenses for taxpayer, spouse and children on serious diseases (include maximum of MYR500 for complete medical examination)

6,000

6,000 (include the cost of fertility treatment for married couples)

Fees for acquiring skills or qualifications at tertiary level or any course of study at post graduate level for taxpayer (maximum)

7,000

7,000

Net deposit in Skim

Simpanan Pendidikan Nasional for child (maximum)

6,000

 

 8,000

Parental care

1500 each

1500 each

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)

2,500

2,500

Breastfeeding equipment for own use for a child aged 2 years and below (maximum)

1,000 (once every 2 years)

1,000 (once every 2 years)

Fees paid to childcare centers and kindergartens for a child aged 6 years and below (maximum)

1,000

2,000

  • Cash donations made to the government, a state government, a local authority, or an approved institution or organization or social enterprise. The restriction on deduction of 7 percent (increased to 10 percent effective YA 2020) of the aggregate income , is applicable to interalier individuals in respect to gift of money made to approved institution or organization or social enterprise and gift of money or cost of contribution in kind for any approved sport activity or Sports Body, approved project of national interest approved by Ministry of Finance. However, restriction on deduction of 7 percent does not apply to donations to the government and state government. With effect from YA 2020, the tax deduction be expanded to include cash wakaf or endowment made to a state religious, body or public university.
  • Cash donations of up to MYR20,000 on the provision of library facilities that are accessible to the public, and to libraries of schools and institutions of higher education.

Tax reimbursement methods

What are the tax reimbursement methods generally used by employers in Malaysia?

The tax reimbursement methods generally used by employers in Malaysia are 1-year rollover methods or current-year grossed up.

Calculation of estimates/prepayments/withholding

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 PAYE, herein refers to Monthly Tax Deduction (“MTD”). 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, tips, benefits-in-kind (“BIK”) and value of living accommodation (“VOLA”). The tax deducted is to cover the tax on the remuneration earned for the month.

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 MTD.

An employee joining a new employer in the current year is required to complete a prescribed form (Form TP3) to disclose their remuneration from their previous employer(s) to enable the new employer to correctly calculate the MTD.

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 online Statement of Tax Deduction by an Employer (e-CP39).

Relief for foreign taxes

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.

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.

General tax credits

What are the general tax credits that may be claimed in Malaysia? Please list below.

The following tax rebates can be deducted against the individual’s tax liability:

  • 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 their 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.
  • A rebate for departure levy imposed on outbound air passenger performing umrah and pilgrimage to holy places (limited up to twice in a lifetime) is granted to a resident individual, with effect from YA 2019.
  • A rebate is granted to a resident individual on any zakat, fitrah or any other Islamic religious dues which are obligatory.

Sample tax calculation

This calculation assumes a married taxpayer resident in Malaysia with two children whose 3-year assignment begins 1 January 2018 and ends 31 December 2020. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.

 

 2018

USD

 2019

USD

 2020

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


Exchange rate used for calculation: USD1.00 = MYR4.1994 (MIRB’s foreign exchange rate for 2019).

Other assumptions

  • All earned income is attributable to local sources.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • Interest income is not remitted to Malaysia.
  • The company car is used for business and private purposes and originally cost USD45,000 and no fuel is provided.
  • Tax treaties and totalization agreements are ignored for the purpose of this calculation.
  • Both children are under 18 years old and spouse does not derive income exceeding MYR4,000 or its equivalent outside Malaysia.
  • Tax borne by individual.

Calculation of taxable income

Year ended

 2018

MYR

 2019

MYR

 2020

MYR

Days in Malaysia during year

 365

365

 366

Earned income subject to income tax

 

 

 

Salary

 

419,940

 

419,940

 

419,940

Bonus

 

83,988

 

83,988

 

83,988

Cost-of-living allowance

 

41,994

 

41,994

 

41,994

Housing allowance

 

50,393

 

50,393

 

50,393

Benefit in Kind on Company car

7,000

7,000

7,000

Moving expense reimbursement

0

0

0

Home leave

0

 

17,997 (after MYR3,000 tax exemption)

 

17,997 (after MYR3,000 tax exemption)

Education allowance

 

12,598

 

12,598

 

12,598

Total earned income

 

615,913

 

633,910

 

633,910

Other income

0

0

0

Total income

 

615,913

 

633,910

 

633,910

Deductions

 

17,000

17,000

17,000

Total taxable income

 

598,913

 

616,910

 

616,910


Calculation of tax liability

 

 2018

MYR

 2019

MYR

 2020

MYR

Taxable income as above

 

598,913

 

616,910

 

616,910

Malaysian tax thereon

 

133,378

 

138,047

 

138,047

Less:

 

 

 

Domestic tax rebates (dependent spouse rebate)

0

0

0

Foreign tax credits

0

0

0

Total Malaysian tax

133,378 138,047 138,047


Notes:

  • Benefit in kind on company car is calculated based on the prescribed value provided by the MIRB of car cost between MYR150,001 to MYR200,000 where annual value of private usage of car is MYR7,000.
  • Home leave provided by company consists of fares only. One home leave passage outside Malaysia is tax-free up to a maximum of MYR3,000 per year.

Footnote

1 Schedule 1 (Section 6) of the Act.

2 Sections 7(1)(a) to 7(1)(d)

3 Sections 13 of the Act .

4 Sample calculation generated by KPMG Tax Services Sdn Bhd., the Malaysian member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on various tax codes quoted within this publication

Disclaimer:

All information contained in this publication is summarized by KPMG Tax Services Sdn Bhd., the Malaysian member firm member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the Malaysian Income Tax Act, 1967 (the Act); Section 28, Schedule 6 of the Act., Schedule 1 of the Act, Section 21, Schedule 6 of the Act., Schedule 1 (Section 6) of the Act., Sections 7(1)(a) to 7(1)(d), Sections 13 of the Act., Employees Social Security Act, 1969. 2 Employees Provident Fund Act, 1991, and the Stamp Act, 1949.

© 2021 KPMG PLT, a limited liability partnership established under Malaysian law and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative ("KPMG International"), a Swiss entity. All rights reserved.

KPMG International Cooperative (“KPMG International”) is a Swiss entity.  Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.

Connect with us

 

Want to do business with KPMG?

 

loading image Request for proposal

Stay up to date with what matters to you

Gain access to personalized content based on your interests by signing up today

Sign up today