Malaysia – Taxation of international executives

Taxation of international executives

Taxation of international executives

  

Overview and Introduction

Income tax is imposed on a territorial basis. Individuals, whether resident or non-resident in Malaysia, are taxed on income accruing in or derived from Malaysia. Foreign income remitted into Malaysia is exempted from tax.1

The income of a resident individual is subject to income tax at progressive rates after personal relief while the income of a non-resident individual is subject to income tax at the top marginal rate without personal relief.2

Non-resident individuals may claim tax exemption on their Malaysian employment income if they exercise employment in Malaysia for a period or periods of 60 days or less in a calendar year or for a period of not more than 60 days if such period overlaps 2 calendar years.3 If the individuals are exercising employment in Malaysia for more than 60 days but less than 183 days, and are tax residents of a country/jurisdiction in which Malaysia has a double taxation treaty, exemption may be available provided other conditions as stipulated in the double taxation treaty are met.

Malaysia has a current year basis of assessment. The basis period for a year of assessment coincides with the calendar year. The official currency of Malaysia is the Malaysian Ringgit (MYR).

Herein, the host country/jurisdiction refers to the country/jurisdiction to which the employee is assigned. The home country/jurisdiction refers to the country/jurisdiction where the employee lives when the employee is not on assignment.

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Footnotes

1Section 28, Schedule 6 of the Act.

2Schedule 1 of the Act.

3Section 21, Schedule 6 of the Act.

  

Income Tax

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 taxpayers who have no business income are required to file their tax return (Form BE) and pay the balance of tax by 30 April of the following year. As for taxpayers who have 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 taxpayers who derive employment income and/or non-business income are 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 taxpayers who have 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?1

Residents

Income tax table for 2020/2021 (in Malaysian ringgit (MYR)):

Chargeable income

Base Tax

 2020 Rate

Base Tax

2021 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

2,600

 13

On 70,000

 4,600

 

4,400

 

Next 30,000

6,300

21

6,300

21

On 100,000

10,900

 

10,700

 

Next 50,000

12,000

24

12,000

24

On 150,000

22,900

 

22,700

 

Next 100,000

24.000

24

24,000

24

On 250,000

 46,900

 

46,700

 

Next 150,000

36,750

24.5

36,750

24.5

On 400,000

83,650

 

83,450

 

Next 200,000

50,000

25

50,000

25

On 600,000

133,650

 

133,450

 

Next 400,000

104,000

26

104,000

26

 On 1,000,000

237,650

 

237,450

 

Next 1,000,000

280,000

28

280,000

28

First 2,000,000

Exceeding 2,000,000

517,650

 

30

517,450

 

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 30 percent without personal relief.

Residence rules

For the purposes of taxation, how is an individual defined as a resident of Malaysia?2

Residence status of an individual is determined by his 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 he is 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 he is 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, his 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 not less than 30 days 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 his original passport(s) which should cover the whole employment period in Malaysia have to be submitted to the MIRB for verification of his residence status together with the Form CP21 and Malaysian tax return. The MIRB would review the documents and 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.

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 he does not have any trailing income derived from Malaysia after repatriation. However, it is important that the assignee fully settles 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 him 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?3

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. An additional sum of MYR10,000 for each completed year of service be allowed for employee who has ceased employment on or after 1 January 2020, but not later than 31 December 2021.
  • 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, pager or 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 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 2025.

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 ;

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 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 on gains arising from disposal of real property or shares in a real property company. 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).

 

2020
MYR

2021
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

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

5,000

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

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

3,000 (life insurance premium).

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

8,000 

Medical expenses for taxpayer, spouse and children on serious diseases

6,000 (include up to MYR 500 on complete medical check-up and the cost of fertility treatment for married couples)

8,000
The limit of relief for complete medical check-up is increased to MYR 1,000 and covers Covid-19 screening).

Scope of medical treatment is expanded to include expenses incurred for certain types of vaccination up to MYR 1,000.

 

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 (including MYR1,000 for attending up-skilling and self-enhancement courses that are conducted by a body recognized by the Department of Skills Development, Ministry of Human Resources

Net deposit in Skim

Simpanan Pendidikan Nasional for child (maximum)

8,000

 8,000

Parental care

1,500 each

N/A

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 (expanded to include subscriptions paid for electronic newspapers)

 

Additional MYR500 for the cost of purchasing sports equipment, entry/rental fees for sports facilities and participation fees in sports competitions

 

 

Special tax relief (Purchase of a personal computer, smartphone or tablet from 1 June 2020 to 31 December 2020)

2,500

2,500 (It is proposed to extend to 31 December 2021)

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)

3,000

3,000

Domestic travel expenses incurred from 1 March 2020 to 31 December 2021 (e.g. accommodation expenses at premises registered with the Ministry of Tourism, Arts and Culture Malaysia and entrance fees to tourist attraction.)

1,000

1,000

  • 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 10 percent of the aggregate income , is applicable on 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 10 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:

  • A tax rebate of MYR400 is available to a taxpayer provided his chargeable income does not exceed MYR35,000.The taxpayer is also given the option to elect for joint assessment under the spouse’s name. A further rebate of MYR400 is available for the spouse where 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,.
  • 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 2019 and ends 31 December 2021. The taxpayer’s base salary is 100,000 US dollars (USD) and the calculation covers 3 years.4

 

 2019

USD

 2020

USD

 2021

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 = MYR4.00.

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.
  • The employee is deemed resident throughout the assignment.
  • 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

 2019

MYR

 2020

MYR

 2021

MYR

Days in Malaysia during year

 365

366

 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 MYR3,000 tax exemption)

 

17,000 (after MYR3,000 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 tax liability

 

 2019

MYR

 2020

MYR

 2021

MYR

Taxable income as above

 

570,000

 

587,000

 

587,000

Malaysian tax thereon

 

126,150

 

130,400

 

130,200

Less:

 

 

 

Domestic tax rebates (dependent spouse rebate)

0

0

0

Foreign tax credits

0

0

0

Total Malaysian tax

 

126,150

 

130,400

 

130,200


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.

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Footnotes

1Schedule 1 (Section 6) of the Act.

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

3Sections 13 of the Act .

4Sample calculation generated by KPMG Tax Services Sdn Bhd., the Malaysian member firm affiliated with KPMG International Limited, a private English company limited by guarantee.

  

Special considerations for short-term assignments

Residency rules

Payroll considerations

Taxable income

Additional considerations

For the purposes of this publication, a short-term assignment is defined as an assignment that lasts for less than 1 year but more than 60 days. Hence, the 60-day exemption rule will not be commented on below.

Residency Rules

Are there special residency considerations for short-term assignments?

In order for the short-term assignments to qualify for the double taxation treaty exemption, the individual’s presence in Malaysia must be for a period or periods not exceeding in the aggregate 183 days in the calendar year/tax year or 12-month period concerned.

Payroll considerations

Are there special payroll considerations for short-term assignments?

To ensure an individual enjoys tax treaty exemption, in addition to the presence of the individual as mentioned earlier, his remuneration has to be paid by, or on behalf of, an employer who is not a resident of Malaysia and the remuneration is not borne by a permanent establishment or fixed base which the employer has in Malaysia. The local entity in Malaysia must not provide any allowance, perquisites or benefits to the individual.

Taxable income

What income will be taxed during short-term assignments?

If all the conditions as stipulated in the Article under dependent personal services of the double taxation treaty can be fulfilled, the employment income during the short-term assignments can be considered for exemption. Otherwise, the entire remuneration (regardless of where it is paid) and any benefits-in-kind and accommodation provided in Malaysia would be subjected to Malaysian tax.

Additional considerations

Are there any additional considerations that should be considered before initiating a short- term assignment in Malaysia?

  • The nature of services to be provided by the employee in Malaysia and whether there is a permanent establishment risk for the overseas entity.
  • The duration of the assignment and whether it is for a fixed period or on intermittent basis for tax exemption purposes
  • The type of work permit to apply and the validity period for tax exemption purposes
  • The information or documents to be submitted for work permit application.

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Other taxes and levies

Social security tax

Are there social security/social insurance taxes in Malaysia? If so, what are the rates for employers and employees?1

The Social Security Organization (SOCSO) is a scheme to provide certain benefits to the employees in cases of employment injury including occupational diseases and invalidity and for certain other matters in relation to the employment. Contributions are capped at the monthly wage of MYR4,000. All Malaysian employees and permanent residents are to contribute irrespective of their amount of wages.. The current rates of contribution vary from MYR0.10 to MYR19.75 for the employee and from MYR0.40 to MYR69.05 for the employer.

In addition, employers who hire foreign workers (excluding domestic servants) with valid documents, shall register their employees with SOCSO and contribute to the Employment Injury Scheme only. The rate of contribution is 1.25 percent of the employees’ monthly wages (capped at MYR49.40) and to be paid by the employer only, i.e. employees are not required to contribute.

Employees provident fund (EPF)

EPF is a national social security organization operating through a provident fund scheme in Malaysia. Its primary aim is to provide retirement benefits to Malaysian employees through the management of their savings in an efficient and reliable manner.2

Malaysian employees and permanent residents are required to be contributors to the EPF. There is a statutory rate on employee and employer’s contributions. Non-Malaysian employees have the option of becoming members. The expatriate employees have to contribute based on the prevailing statutory rate whereas and the employer’s contribution is MYR5 per month.

Gift, wealth, estate, and/or inheritance tax

Are there any gift, wealth, estate, and/or inheritance taxes in Malaysia?

No, other than real property gains tax on gains arising from disposal of real property or shares in a real property company.

Sales/VAT tax

Are there sales and/or value-added taxes in Malaysia?

The Sales and Services Tax (“SST”) is imposed in Malaysia

Unemployment tax

Are there unemployment taxes in Malaysia?

Employment Insurance System (EIS)

EIS is a financial scheme in helping employees who have lost their jobs and it is managed by SOCSO The EIS has two components which includes financial assistance and employment services. Besides enabling laid-off employees to claim a percentage of the insured salary for a period of between three and 6 months, the training programs and other components assist the laid-off employees to obtain suitable jobs and return to work as soon as possible.

Malaysian employees and permanent residents in the private sector aged between 18 years to 60 years old must contribute to this scheme.

Other taxes

Are there additional taxes in Malaysia that may be relevant to the general assignee? For example, customs tax, excise tax, stamp tax, and so on.

Not applicable for assignee.

Stamp duty

In general, stamp duty is payable on instruments executed in Malaysia.3

Sale and purchase agreement and Loan agreement

Foreigners can only buy properties in which the value is MYR1,000,000 and above. There is no stamp duty exemption on the sale and purchase agreement and loan agreement.

Foreign Financial Assets

Is there a requirement to declare/report offshore assets (e.g. foreign financial accounts, securities) to the country/jurisdiction’s fiscal or banking authorities?

Pursuant to Income Tax (Automatic Exchange of Financial Account Information) (Amendment) Rules 2017, Malaysia has committed to exchange information with respect to different types of accounts opened and maintained by financial institutions in Malaysia. The financial institutions are required to furnish information to the tax authorities. As such, individual taxpayers should be aware that the tax authorities will receive financial information relating to bank accounts maintained overseas.

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Footnotes

1Employees Social Security Act, 1969.

2Employees Provident Fund Act, 1991.

3Stamp Act, 1949.

  

Immigration

Following is an overview of the concept of Malaysia’s immigration system for skilled labor.

(e.g., which steps are required, authorities involved, in-country and foreign consular processes, review/draft flow chart illustrating the process)

This summary provides basic information regarding social visits to Malaysia and work authorization for Peninsular Malaysia. The Federal Government oversees immigration matters for Peninsular Malaysia while the State Government oversees the immigration matters for East Malaysia. Our comments in this publication refers to immigration matters in Peninsular Malaysia only (hereafter referred to as “Malaysia”). 

The information is of a general nature and should not be relied upon as legal advice.

Foreigners entering Malaysia may fall into the following:

Table 1

 

Category

List of Countries

 

(i)

Non-visa nationals

 

Nationals from Switzerland, Netherlands and the Commonwealth countries (except Bangladesh, Cameroon, Ghana, India, Mozambique, Nigeria, Pakistan, Rwanda and Sri Lanka.

 

(ii)

Visa nationals where a mandatory pre-arrival visa is required before arriving to Malaysia

Afghanistan, Angola, Bangladesh, Bhutan, Burkina Faso, Myanmar, Burundi, Cameroon, Central African Republic, China, Colombia, Congo Brazzaville, Congo Democratic Republic, Djibouti, Equatorial Guinea, Eritrea, Ethiopia, Ghana, Guinea Bissau, India, Ivory Coast, Liberia, Mali, Montenegro, Mozambique, Nepal, Niger, Nigeria, North Korea, Kosovo, Pakistan, Rwanda, Serbia, Sri Lanka, Western Sahara and Laissez Passer

 

(iii)

Visa nationals

All other nationals not listed above

 

Note: The above is subject to change. The foreign national is encouraged to check the latest visa requirements with the Malaysian Embassy/Consulate/High Commission before travelling

 From the Malaysian immigration perspective, a visa refers to an entry visa to facilitate a foreigner to enter Malaysia. It does not grant working rights in Malaysia. If the foreigner’s purpose of entering Malaysia is for work, a Work Pass is required.

 A Work Pass issued will the holder the right to reside in Malaysia throughout the validity provided in the Pass.

Generally, the Immigration Department of Malaysia issues 3 types of Work Pass i.e. Employment Pass, Temporary Employment Visit Pass and Professional Visit Pass.

The Employment Pass and Professional Visit Pass are applicable to skilled workers. The Temporary Employment Visit Pass is for unskilled and semi-skilled workers, which will not be included in this article.

The comparison of the Employment Pass and Professional Visit Pass is as set out below:

Type of Pass

Work Permit validity period/Conditions

Professional Visit

  • period of 12 months (maximum) – no extension
  • salary remain under the home country employer

Employment

  • 12 months to 5 years (extendable - with justification)
  • Minimum basic salary depending on category of employment pass
  •  an employment agreement or contract with Malaysian sponsoring Company (i.e. host country employer)

All foreigners , regardless of visa or non-visa nationals intending to work or provide services in Malaysia will need a Work Pass. For all work authorization types, the foreigner should coordinate with their home country employer and the host country employer (who acts as the Work Pass sponsor in Malaysia), to collect corporate and personal documentation to facilitate the Work Pass application.

The application process of Work Pass is further segregated by industries and sector. The Malaysian Company sponsoring the Work Pass has to be registered with the respective Approving Agency, Regulatory Body or Immigration Department of Malaysia before applications can be made. Applications are submitted either online or manually (in selected industries and Approving Agency/Regulatory Body).

The Immigration Department of Malaysia issues the Work Pass endorsement to the applicant, after the Approving Agency or Regulatory Body approves the Work Pass application.

International Business Travel/Short-Term Assignments

Describe (a) which nationalities may enter Malaysia as non-visa national, (b) which activities they may perform and (c) the maximum length of stay.

(a) National from the Commonwealth countries, except Bangladesh, Cameroon, Ghana, India, Mozambique, Nigeria, Pakistan, Rwanda and Sri Lanka are non-visa nationals. They may enter Malaysia if the entry requirements are met and are granted the social visit pass at the point of entry.

(b) While under the social visit pass, the foreigner is allowed to carry out limited activities such as tourist activities, attending meetings, conference, site visits, etc. Working or providing services is strictly prohibited until the Work Pass is endorsed.

(c) The duration of the social visit pass ranges from 14 to 90 days for each entry to Malaysia, depending on their nationality. 

Describe (a) the regulatory framework for business travelers being visa nationals (especially the applicable visa type), (b) which activities they may perform under this visa type and the (c) maximum length of stay.

(a) Visa nationals are required to apply for the entry visa from the Malaysian Embassy/Consulate/High Commission abroad prior to entering Malaysia. If the purpose of the entry is for social visit, the visa without reference is applicable. An invitation letter from the host country company addressed to the Malaysian Embassy/Consulate/High Commission is required to facilitate the application.

However, if the entry is for the purpose of work, then the visa with reference based on the approved employment pass or professional visit pass is to be applied. The Approving Authority will issue the “visa with reference“ letter for the foreigner to apply the visa at the Malaysian Embassy/Consulate/High Commission.

Once the visa (depending on the purpose) is issued, the foreigner may make arrangements to enter Malaysia. The Immigration officer at the port of entry will issue the social visit pass to the foreigner. For work purposes, the foreigner may then proceed with endorsement of the Work Pass.

Category (iii) visa nationals from Table 1 may not need to apply for a visa to enter Malaysia for social visits. A visa is required for work purpose or providing services in Malaysia or as an alternatively, a journey performed visa in lieu of the entry visa will be issued.

(b) While under the social visit pass, the foreigner is allowed to carry out limited activities such as tourist activities, attend meetings, conference, site visits, etc. Working or providing services is strictly prohibited until the Work Pass is endorsed onto the passport.

(c) The validity of the visa ranges from 3 to 12 months. The social visit pass granted at the port of entry ranges from 14 to 90 days for each entry to Malaysia, depending on their nationality.

Outline the process for obtaining the visa type(s) named above and describe (a) the required documents (including any legalization or translation requirements), (b) process steps, (c) processing time and (d) location of application.

(a) Visa without reference for social visit purposes

The foreigner has to provide an invitation letter from the host country company outlining the purpose and duration of visit together with the prescribed forms and any other documents required by the respective Malaysian Embassy/Consulate/High Commission. The letter is addressed to the Malaysian Embassy/Consulate/High Commission in the foreigner’s home country.

e-Visa application is also available for selected nationals.

Visa with reference for employment or professional visit pass

The approving authority will issue the “Visa with Reference“ letter together with the approval letter to the host country employer based on the approved Employment or Professional Visit Pass. The foreigner needs to produce both letters together with prescribed forms and any other documents required by the respective Malaysian Embassy/Consulate/High Commission to apply for the Visa.

(b) The applicant is required to submit the application and passport to the Embassy/Consulate/High Commission for processing. Once the visa is endorsed on the applicant‘s passport, the foreigner can make arrangements to enter Malaysia.

(c) The visa is usually issued in approximately 5 business days if the application is satisfactory.

(d) The application is to be submitted to the Malaysian Embassy/Consulate/High Commissioner‘s Office located in the applicant’s home country or the location where he is currently working/residing.

Are there any visa waiver programs or specific visa categories for technical support staff on short-term assignments?

There are no visa waiver program or specific visa categories available in Malaysia.

Long-Term Assignments

What are the main work permit categories for long-term assignments to Malaysia? In this context please outline whether a local employment contract is required for the specific permit type.

The Employment and Professional Visit Pass would allow the skilled foreigner to work in Malaysia. The duration of the Pass ranges from 1 to 60 months.

Employment Pass

Employment Pass is further categorized to the following:

Table 2

Category

Monthly salary range (excluding allowance)

 

Duration of Pass

Eligibility to bring Dependents

 

I

>MYR10,000

 

Up to 5 years

Allowed

II

MYR5,000 to MYR9,999

 

Up to 2 years

Allowed

III

(additional approval from the Ministry of Home Affairs is required)

MYR3,000 to MYR4,999

1 year with maximum of 2 renewals

Not allowed

A local employment contract is required and will be provided to the Immigration Authority together with personal documents and job description to apply for the Employment Pass.

Pre-qualified requirements of the applicant are as below:-

Degree holder or higher – > 3 years working experience

Diploma holder – > 5 years working experience

Certificate holder - > 7 years working experience

The working experience must be related to the position offered.

Professional Visit Pass

 A local employment contract is not applicable. The foreigner renders services on behalf of the home country employer to the host country company. Their payroll remains in the home country.

Professional Visit Pass are available for the following pre-set positions:-

  • Advisor
  • Assistant Researcher
  • Attending Course
  • Consultant
  • Course Speaker
  • Doctoral Fellow
  • External Examiner
  • Seminar Speaker
  • Student Under Practical Training
  • Trainer
  • Technical Consultant / Expert / Trainer
  • Visiting Professor / Lecturer
  • Invited Lecturer / Professor
  • Researcher

Provide a general process overview to obtain a work and residence permit for long- term assignments (including processing times and maximum validation of the permit).

 A Work Pass will grant the holder the right to live and work in Malaysia. A separate pass is not required.

Application for Work Pass is submitted online. The Malaysian host company has to be registered with the relevant Authority to submit the Work Pass. To be eligible for the registration, the Company has to meet the requirements set by the Authority such as the minimum paid-up capital, the relevant business license or Ministry‘s approval to carry out its business and to register with the Malaysian Inland Revenue Board for a company tax reference number, etc.

For Companies which are under the purview of the Approving Agency or Regulatory Bodies, additional approval is required before the Work Pass application can be submitted to the Authority. Application to the Approving Agency or Regulatory Bodies may be submitted manually or online depending on the requirements.

After the successful registration and approvals, the Company may submit the Work Pass application. Application charges are payable to the Authority to process the Employment and Dependent Passes. There are no application charges for Professional Visit Pass.

The general processing timeline depends largely on the permit type, the authorities involved in the process and the place of filing the application. In general, Company registration process can take anywhere from 3 – 16 weeks and Work Pass from 1 to 3 weeks, from the day of submitting satisfactory application to the Authority.

The Employment Pass validity period ranges from 1 to 60 months. The Professional Visit Pass is for a maximum of 12 months only.

Is there a minimum salary requirement to obtain a long-term work and residence permit for assignments? Can allowances be taken into account for the salary?

The minimum salary requirement for Employment Pass are as set out in Table 2 above. Allowances are excluded.

This requirement is not applicable for Professional Visit Pass.

Is there a fast-track process which could expedite the visa/ work permit?

Fast-track option is not available.

At what stage is the employee permitted to start working when applying for a long-term work and residence permit (assignees/ local hire)?

The employee is permitted to start working once the Work Pass is endorsed on the passport.

A residence permit is not required.

Can a short-term permit/ business visa be transferred to a long-term permit in Malaysia?

The “Visa Without Reference” held by the foreigner cannot be transferred to a Work Pass.

It is the Authority’s requirement that the visa nationals to enter Malaysia with the “Visa with Reference” after the Work Pass is approved. He can then proceed with the endorsement of the Work Pass to start work. 

For non-visa nationals, they may enter Malaysia after the Work Pass is approved to proceed with the endorsement.

Is it possible to renew work and residence permits?

Renewal is possible for Employment Pass. However, Employment Pass Category III is limited to 2 renewals.

For Professional Visit Pass, renewal is only possible if the approved duration has not reached 12 months. 

Both approvals are at the discretion of the Authority. 

Is there a quota or system or a labor market test in place?

The Malaysian Company has to apply and receive approval of the annual Work Pass projection/quota before Work Pass applications can be submitted. All applications are submitted online.

General Immigration Related Questions

Would it be possible to bring family members to Malaysia?

Spouse, Children, Parents, Parents in-law, Adopted Child, Stepchild are allowed to join the main applicant who holds Employment Pass Category I and II in Malaysia. Dependent Pass will be issued to spouse and children age up to 18 for the same validity as the Employment Pass. Children age 18 to 25, parents and parents in-law will be issued with the Long-Term Social Visit Pass to stay in Malaysia for 1 year and renewable.

Common Law spouse will be considered for the Long-Term Social Visit Pass. Please note that the Immigration Department of Malaysia will only accept application for Common Law Marriage if both parties are from a country where Common Law marriage is legal. Same-sex marriage is not acceptable in Malaysia.

Official documents such as marriage certificate, birth certificate, Affidavit from the respective embassy/consulate, etc. in English and duly certified as true copy by the Malaysian Embassy/Consulate/High Commission abroad or respective Embassy/Consulate in Malaysia are required as proof of relationship.

Is it possible to obtain a permanent residence permit?

The employee may apply for the 10 years Resident Pass – Talent after working in Malaysia under the Employment Pass for at least three years and meeting the full requirements.

What if circumstances change after the Work and Residence application process?

Any change in the terms of the employment or personal situation, e.g. job title, change of employer, would require a new Work Pass application.

How long can a permit holder leave Malaysia without his permit becoming invalid?

Extended or prolonged absence from Malaysia during the validity period of the Work Pass will not affect the Work Pass validity.

Must immigration permissions be cancelled by the end of the assignment/employment?

In case of a cessation of the employment or services before the end of the validity of the Work Pass, the Immigration Department of Malaysia should be informed. A cancellation of the Work Pass together with any corresponding Dependent Pass or Long-Term Social Visit Pass issued, needs to be done before the final departure from Malaysia.

The application can be submitted to the Immigration Department of Malaysia within 30 days from the final departure date. A flight ticket is required, and the Passes will be cancelled up to the date of the flight.

For change of employer, proof of new Work Pass application will be provided instead of the flight ticket.

Are there any penalties for individuals and/or companies in place for non-compliance with immigration law?

In Malaysia the penalties on the individuals differ from that of companies. Penalties on the individual could include deportation, restriction on re-entering Malaysia, monetary fines, whipping or jail term. The penalties on the company as a sponsor include monetary fines, whipping or jail term. 

Other Important Items

List any other important items to note, or common obstacles faced, in Malaysia when it comes to the immigration processes.

Below you will find a list of other important items to note and the common obstacles for work pass application:

  • Insufficient passport pages – the passport must have more than 6 blank pages at the time of submission
  • Insufficient validity of the passport – the passport must be valid for 12 months and above at the time of submission
  • Translation and certification of documents as true – Marriage, birth and academic certificates would require English translation, if original language is not in English. Certification of documents as true copies by the Embassy is required
  • Inconsistencies in documentation for renewal cases – as an example where there is a discrepancy in the employment contract, salary slips and annual personal income tax return, the authorities may require further justification. This will delay the processing. If the authority is not satisfied with the justification, the application may be rejected.
  • Salary in renewal cases – it is imperative that the salary indicated in the first application is paid in Malaysia during the period of the assignment.
  • Personal income taxes in renewal cases - it is imperative that the employee has no unpaid prior years’ taxes

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FOOTNOTE

1Expatriate Service Division (‘ESD’) Online Guidebook V3.1 2017

Disclaimer

All information contained in this publication is summarized by KPMG Tax Services Sdn Bhd., a company incorporated under Malaysian law and a member firm of the KPMG global organization of independent member firms affiliated with KPMG International Limited a private English company limited by guarantee, 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.