Malaysia - Income Tax

Income Tax

Taxation of international executives

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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.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?

31 December.3

What are the compliance requirements for tax returns in Malaysia?

Residents

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 2015 tax return covering the income period from 1 January 2015 to 31 December 2015 has to be filed by 30 April 2016). Any balance of tax payment would be due on 30 April 2016, 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 2015, the balance of a tax payment would be due on 30 June 2016.5

Non-residents

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 2015 tax return covering the income period from 1 January 2015 to 31 December 2015 has to be filed by 30 April 2016). Any balance of tax payment would be due on 30 April 2016, 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 2015, the balance of tax payment would be due on 30 June 2016.

Tax rates

What are the current income tax rates6 for residents and non-residents in Malaysia?

Residents

Income tax table for 2015/2016

Chargeable income Base Tax 2015 Rate Base Tax 2016 Rate
MYR MYR Percent    
First 2,500 0 0 0 0
Next 2,500 0 0 0 0
On 5,000 0 0 0 0
Next 15,000 150 1 150 1
On 20,000 150   150  
Next 15,000 750 5 750 5
On 35,000 900   900  
Next 15,000 1,500 10 1,500 10
On 50,000 2,400   2,400  
Next 20,000 3,200 16 3,200 16
On 70,000 5,600   5,600  
Next 30,000 6,300 21 6,300 21
On 100,000 11,900   11,900  
Next 150,000 36.000 24 36,000 24
On 250,000 47,900   47,900  
Next 150,000 36,750 24.5 36,750 24.5
On 400,000 84,650   84,650  
Next 200,000 50,000 25   25
On 600,000 134,650   134,650  
Next 400,000 100,000 25 104,000 26
Exceeding 1,0400,000 234,650 25 238,650 28

Effective Year of Assessment 2010, the employment income of an individual who is a knowledged worker and residing 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 knowledged workers who apply and commence employment in Iskandar, Malaysia between 24 October 2009 and 31 December 2015.) However, prior approval from the Ministry of Finance is required before a knowledged worker could enjoy the tax rate of 15 percent.

Effective from YA2012, the employment income of an approved individual under the Returning Expert Programme will be taxed at the rate of 15 percent. Based on the Talentcorp’s Web site (which is the authority handling the Returning Expert Programme), the approved individual could opt to be taxed under the scale rates instead of 15 percent. The concession is for a period of five years.

Non-residents

The income of a non-resident individual is subject to income tax at 25 percent (28 percent with effect from Year of Assessment 2016) without personal relief.

Residence rules

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.

  • 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/she 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 three out of four 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/she is resident the following year and has been resident for the immediately preceding three 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 for more than 10 days after their assignment is over and they repatriate.
 
No.
 
What if the assignee enters the country before their assignment begins?
 
For the purpose of tax residency, his/her physical presence in Malaysia before the assignment begins will be considered in the determination of tax residence. 8

Termination of residence

Are there any tax compliance requirements when leaving Malaysia?

It is the employer’s obligation to notify the Malaysia 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 or date of cessation (whichever is earlier) of the employee from Malaysia.9 A schedule of entries and departures to/from Malaysia and his/her original passport have to be submitted to the MIRB for verification of his/her residence status together with the Form CP21. In practice, upon receipt of the Form CP21, the MIRB would issue a tax return to the employee to enable him/her to file his/her latest tax return before he/she leaves Malaysia. Upon submission of his/her latest year’s tax return, the MIRB would issue a tax clearance letter to inform the employee of any outstanding taxes to be paid and have on records his date of departure. 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

What if the assignee comes back for a trip after residency has terminated?

The physical presence rule still applies for tax residency determination.11

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?

Yes. The immigration department would forward a duplicate set of the relevant documents for application of professional visit pass to the MIRB. The MIRB would then allocate a tax reference number to the person.

Filing requirements

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 chargeable income derived from Malaysia after his/her repatriation. However, it is important that the assignee clears his tax fully before he repatriates.

Economic employer approach

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?

On the basis that the Malaysian company is a resident in Malaysia and bears the remuneration cost of an expatriate assignee to work in Malaysia, one of the stipulated conditions normally provided in the tax treaty would therefore not be fulfilled. As such, the expatriate employee would not be able to claim exemption from Malaysian tax under the double taxation treaty. The MIRB has clarified that for purposes of interpreting Dependent Personal Services, it would examine where the employee’s remuneration costs would be charged. In the situation where the home country employer recharges the remuneration cost to the host country (that is Malaysia), the employee’s remuneration costs would therefore be borne by the Malaysian company. As such, exemption from Malaysian tax would not be available.

The MIRB follows Article 15 of the OECD treaty.

De minimus number of days

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.

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.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.

  • The base salary is taxable.15
  • A foreign location allowance is taxable.16
  • An employer’s contribution to rent is taxable but restricted to the lower of actual rental paid for the unfurnished accommodation or 30 percent of gross remuneration (excluding benefits-in-kind and the taxable benefit arising from share schemes).17
  • The free use of an employer-furnished accommodation is taxed at the ratable value or the economic rent of the accommodation, subject to a limit of 30 percent of gross remuneration (excluding benefits-in-kind and the taxable benefit arising from share schemes).18
  • The reimbursement of foreign and/or home country taxes is taxable.19
  • Payment for children’s tuition is taxable.20
  • The use of a company car is taxable.21
  • The use of company-supplied domestic helper is taxable.22
  • The reimbursement of moving expenses is not taxable on the employee since no private benefit or advantage is derived by reason of the relocation. 
  •  moving allowance for unsubstantiated expenses is taxable but an employee could claim a deduction for actual moving expenses incurred due to relocation.23
  • Entertainment allowances for an employee are taxable but the employee could claim for a deduction on amount expended on entertaining clients subject to the amount of allowance.24
  • Traveling allowance is taxable and employees could claim for deduction on amount expended for traveling for company’s business purposes.25 Please refer to section on Tax Exempt Income for further details on partial tax exemption available. 
  • Pension contributions paid by an employer to a pension fund in his/her home country are taxable, but only at the time when received by the employee unless the contributions are to a pension fund approved by the MIRB.26  Pension would not be taxable if the administration of the fund is outside Malaysia.
  • The grant of an Employee Stock Option Scheme (ESOS) to an employee is a benefit derived from having an employment with the company. 
  1. Under the old tax treatment, the taxable benefit is equivalent to the difference between the market value of the shares at the date of grant and the option price. The benefit arising from ESOS will be taxable at the time when the options are exercised. However, this benefit will be related back to the year of grant of the options. The market value of listed shares is derived by averaging the highest and lowest market value of the share on the date of grant.27
With effect from year of assessment 2006, under the new tax treatment, the benefit derived by an employee from the right to acquire shares in a company, as in the case of an ESOS, will be taxed in the year the right is exercised, assigned, released, or acquired and treated as income in the same year. 28 In this respect, the taxable benefit arising from ESOS would no longer be related back to the year of grant.
 
The determination of the taxable benefit is based on the lower of:
  • the market value of the shares at the time the right or option is first exercisable or 
  • the market value of the shares at the time the right or option is exercised.
Whichever is lower less the amount paid for the shares. 29
Market value means in the case of a company listed on a stock exchange, the average price of the share which is ascertained by averaging the highest and the lowest price of the shares of the day; or in any other case, the net asset value of the shares for the day. 30

The Ministry of Finance has clarified that as a transitional arrangement, employees who have been granted options under ESOS before 1 January 2006 would be given a choice to apply the old tax treatment on the whole or part of their entitlement regardless of when the options are exercised or exercisable.31

 

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 home 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 without restriction for an employee and his/her immediate family. Immediate family means spouse and children, but excluding parents. Leave passage is confined to cost of fare. Leave passages are not tax deductible for the employer.32 With effect from year of assessment 2007 the income tax exemption on local leave passage is extended to expenses on meals and accommodation.33
  • Medical or dental benefits, including a benefit for childcare provided to the employee and his/her immediate family, are tax-free.34
  • With effect from 1 January 2004, income received by researchers from commercialization of research findings is given an exemption of 50 percent for a period of five years commencing from the date the first payment is made to that individual. The research undertaking has to be verified by the Ministry of Science, Technology, and Environment.35
  • Fees or honorariums received by lecturers/experts in respect of services provided for purposes of validation, moderation, or accreditation of franchised educational programs in higher educational institutions and the services are verified by the relevant authority and provided they do not arise from their official duties (with effect from 2004).36
  • The imputation systemhas been replaced by the single-tier system since year assessment 2008. This would mean that the tax payable on the chargeable income by a resident company would constitute a final tax. Under single-tier system, dividends received by individuals will be exempted from tax. However, there is a six-year transitional period from 1 January 2008 to 31 December 2013 to allow resident companies to utilize the Section 108 balances as at 31 December 2007 to pay franked dividends to individuals whereby individuals will be taxed on the gross dividends received but they are entitled to a credit for the tax imputed to them on the dividends. Shareholders who receive franked dividends during the transitional period will only be allowed to claim the tax credit provided the ordinary shares have been held continuously for 90 days or more. This condition does not apply to dividends received from shares in public listed companies. With effect from 1 January 2014, all companies will be on the single-tier system and all dividends received will be exempted from tax in the hands of the shareholders. 
  • 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 not less than 10 years with the same employer is exempted from tax. The exemption is on the condition that the compulsory retirement age is provided for in the employment contract or collective agreement between the employer and employee. With effect from year of assessment 2016, partial exemption is granted with respect to any gratuity payment representing sums received by way of gratuity. 38 
  • 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

The following allowances, benefits-in-kind and perquisites received from employers are tax exempt in the hands of the employees with effect from year of assessment 2008.

  • 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.
  • Telephone and mobile phone, telephone bills, pager personal data 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. The exemption is given to new and existing loans.
  • Medical benefits exempted from tax be extended to include expenses on maternity and traditional medicines such as ayurvedic and acupuncture.
  • Meal allowance given on regular basis, for example on a daily or monthly basis. Meal allowance for overtime or meal/daily allowance to cover meal for outstation/overseas assignment. The allowances must be based on a pre-determined rate provided by the employer in a written policy or directive.
These exemptions are not extended to directors of controlled companies, sole proprietors and partnerships. Meanwhile, expenses on allowance, benefits-in-kind and perquisites provided by employers are proposed to be given full deduction even though such benefits are not stipulated in the service contract of the employee.

 

Expatriate concessions

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

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 incidental to the Malaysian employment.45

Taxation of investment income and capital gains

Are investment income and capital gains taxed in Malaysia? If so, how?

Malaysia used to adopt the imputation system of dividend taxation, so the shareholder is subject to tax on the gross dividend but receives a credit for the tax borne by the company, which can be deducted from his/her tax liability.46

With effect from year of assessment 2008, the imputation system has been replaced by the single-tier system. Under single-tier system, dividends paid by a resident company would be tax exempt in the hands of its shareholders.47

There was a six-year transitional period from 1 January 2008 to 31 December 2013 to allow resident companies to remain on the imputation system in order to utilize the Section 108 credit as at 31 December 2007 (which was used to pay franked dividends).

With effect from 1 January 2014, all companies have moved to the single-tier system.48

Dividends received from certain approved unit trusts are tax-exempt.49

Certain specific types of interest (such as government savings certificates) are exempted wholly from income tax.50

With effect from 30 August 2008, interest income received by individuals resident in Malaysia from monies deposited in all approved institutions is fully tax-exempt.52

For non-residents, a withholding tax at 15 percent is applied (or less under certain double taxation agreements), unless the interest is exempt from tax.53 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

In order to enhance the development of real estate investment trusts (REITs) in Malaysia and attract foreign investors the non-corporate investors (especially resident and non-resident individuals) and other local entities that receive distributions from REITs listed in Bursa Malaysia will be subject to a final withholding tax at the rate of 15 percent for five years effective from 1 January 2007.55 However, with effect from 1 January 2009 to 31 December 2011, the distributions from REITs listed in Bursa Malaysia will be subject to a final withholding tax at the reduced rate of 10 percent. To promote further the development or REITs in Malaysia, the above tax treatment is extended for another 5 years from 1 January 2012 to 31 December 2016.

With effect from 1 January 2010, pursuant to Real Property Gains Tax (Exemption No. 2) Order 2009, a person is exempted from the payment of tax on the chargeable gain in respect of any disposal of a chargeable asset on or after 1 January 2010 where the disposal is made after five years from the date of the acquisition of such chargeable asset. Where the disposal of a chargeable asset is made within five years from the date of the acquisition of such chargeable asset, the chargeable gain would be subject to tax at an effective tax rate of 5 percent.

Effective 1 January 2012, pursuant to Real Property Gains Tax (Exemption) Order 2011, where the disposal of a chargeable asset is made within two years from the date of acquisition of such chargeable asset, the chargeable gain would be subject to tax at the tax rate of 10 percent. The rate would be remain at 5 percent where the holding period is between 2 years and 5 years.

Effective from 1 January 2013, pursuant to the Real Property Gains Tax (Exemption) Order 2012, where the disposal of a chargeable asset is made within 2 years from the acquisition date, the chargeable gain would be subject to tax at 15%. For those disposed of between 2 to 5 years from the acquisition date, the rate is 10%. Any disposal after the 5th year is exempted from Real Property Gains Tax.

Effective from 1 January 2014, chargeable gains will be taxed as follows:56

  • 30% for disposals within 3 years after acquisition; 
  • 20% for disposals in the fourth year after acquisition;
  • 15% for disposals in the fifth year after acquisition;
  • 5% for disposals more than 5 years after acquisition;
  • For disposals by an individual who is a Malaysian citizen or permanent resident, disposals more than 5 years after acquisition are exempt; and For disposals by an individual who is not a Malaysian citizen or permanent resident, 30% for disposals within 5 years after acquisition and 5% for disposals more than 5 years after acquisition.

Stamp duty

To strengthen family values and provide financial security, with effect from 8 September 2007, the instruments for the transfer of properties between spouses on the basis of love and affection be exempted from stamp duty.57

To encourage ownership of the first residential property and to reduce the cost of home ownership, instruments of transfer for the purchase of a house and loan agreement by Malaysians, executed for the purchase of residential property not exceeding MYR400,000 be given a 50 percent stamp duty exemption. This exemption is granted to the first house per individual and is effective for sale and purchase agreement executed from 1 January 2013 to 31 December 2014.58

Pursuant to the Stamp Duty (Remission) Order 2014 and Stamp Duty (Remission) (No.2) Order 2014, 50% is remitted from the stamp duty chargeable on loan agreement instruments and instruments of transfer for the purchase of first residential property costing not more than RM500,000 for sales and purchase agreement executed from 1 January 2015 to 31 December 2016.

Pursuant to Stamp Duty (Exemption)(No.3) Order 2011, instruments of loan agreements executed for the purchase of a residential property not exceeding MYR300,000 under Skim Perumahan Rakyat 1Malaysia (“PR1MA”) be given full stamp duty exemption. The above tax exemption is effective for sale and purchase agreement executed from 1 January 2012 to 31 December 2016.

Dividends and rental income

Dividend received from the imputation system

Shareholders are taxed on the gross amount of dividends received and the tax deducted at source from that dividend is available as a tax credit to be set-off against the tax payable of the recipient.

Dividend received from the single-tier system

With effect from year of assessment 2008, the imputation system will be replaced by the single-tier system. Dividends paid under the single-tier system will be tax exempt in the hands of shareholders.

Rental income

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.

Gains from stock option exercises

Section 25(1)(A) of the Income Tax Act, 1967, provides that the gross income from employment in respect of any right to acquire share in a company, shall where the right is exercised, assigned, released, or acquired in the relevant period be treated as gross income of that person for that relevant period. The taxable benefit shall be the lower of:

  • the market value of the shares where the right shall be first exercised, assigned, released or acquired on a specified date or where the right shall be exercised, assigned, released, or acquired within a specified period, the first day of that period or 
  • the market value of the shares on the date of exercise, assignment, release, or acquisition of the rights, whichever is lower, less the amount paid for the shares.60
Residency status Taxable at: 
  Grant Vest Exercise
Resident N N Y
Non-resident N N Y
Other (if applicable) N/A N/A N/A

Foreign exchange gains and losses

Not applicable.

Principal residence gains and losses

With effect from 1 January 2014, full exemption on chargeable gains will be applicable where disposal of a chargeable asset is made after five years of acquisition for Malaysian citizens and permanent residents.

Effective 1 January 2014 Real Property Gains Tax at an effective tax rate of 30 percent would be applicable on chargeable gains where disposal of a chargeable asset is made within 3 years from date of acquisition, 20% if disposal is made in the 4th year from date of acquisition, 15% if disposal is made in the 5th year from date of acquisition for Malaysian citizens and permanent residents.60

For non-citizens, where disposal of a chargeable asset is made within 5 years from date of acquisition, the chargeable gain would be subjected to an effective tax rate of 30%. If the disposal made in 6th year and subsequent years, the effective tax rate is 5%.

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 (usually very few expenses qualify for deduction from employment income, such as subscriptions to professional bodies).63
  • Personal relief (available to resident individuals only).64

 

 

2015
MYR

2016
MYR

Spouse elects to have his/her income aggregated with his/her spouse for assessment purposes65

3,000

4,000

Personal66

9,000

9,000

Purchase of books, journals, magazines, and other similar publications67

1,000

1,000

Further relief for disabled person68

6,000

6,000

Spouse living with or maintained by spouse69

3,000

4,000

Further relief for disabled spouse70

3,500

3,500

Life insurance premiums/annuity/contributions to approved provident fund or Takaful71

6,000 (The maximum relief for life insurance premiums and/or contributions to approved fund other than a private retirement scheme.)

6,000 

Private Retirement Scheme/Annuity Premium  

3,000 (effective from YA2012 to 2021)

Educational or medical insurance premiums for the taxpayer, spouse, or child72

3,000

3,000

Supporting equipment for disabled taxpayer, spouse, children, or parent (maximum)73

6,000

6,000

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.]

5,000 

Medical expenses for taxpayer, spouse and children on serious diseases (include maximum of MYR500 for medical examination expenses)75

6,000

6,000

Purchase of computer for personal use (per individual and once in three years) (maximum)76

3,000

3,000

Purchase of sports equipment (maximum)77

300

300

Net amount deposited into Skim Simpanan Pendidikan Nasional for child (maximum)78

6,000
(2012-2017)

6,000

Parental care

 

1500 each

Social Security Organization (SOCSO) Scheme   250
  • Child relief of MYR1,000 each (MYR 2,000 each effective 2016) for unmarried children under 18 years old or unmarried children over 18 years old, but receiving full time education. Where a child is pursuing full-time tertiary education at diploma level and above in a local university or institution of higher education in Malaysia, a maximum relief of up to six times (four times effective 2016) the normal relief may be given.80 A maximum relief of MYR6,000 (MYR8,000 effective 2016) will be given to a child who is receiving full-time instruction outside Malaysia in respect of an award of degree or higher provided that the courses and universities are recognized by the Government of Malaysia.(website :81)
  • Relief of MYR5,000 (MYR7,000 effective 2016) is given in respect of fees for any course of study for a degree at masters and doctorate level for the purpose of acquiring any skill or qualification by the taxpayer.82
  • A tax deduction of up to MYR10,000 per year for three consecutive years from the first year the housing loan interest is paid is given to an individual who is a citizen and resident on interest expended by the individual to finance the purchase of a residential property on the following conditions:
  1. the purchase of the residential property is limited to one unit only
  2. the Sale and Purchase Agreement has been executed on or after 10 March 2009, but no later than 31 December 2010
  3. the individual has not derived any income in respect of that residential property.83
  • Relief of MYR6,000 is given for each physically or mentally disabled child irrespective of age.84A further relief of MYR6,000 (MYR8,000 effective 2016) will be given for each disabled child over the age of 18 who is pursuing full time education in a recognized institution of higher learning at diploma level and above in Malaysia or a degree level and above outside Malaysia or serving under articles indentures with the view to qualifying in a trade or profession.85
  • Cash donations made to the government, a state government, a local authority, or an approved institution or organization. With effect from year of assessment 2008, the restriction on deduction of 7 percent of the aggregate income previously applied to a company is extended to a body of persons, individuals, and a corporation sole in respect of gift of money made to approved institution or organization 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.86 However, restriction on deduction of 7 percent does not apply to donations to the government and state government.
  • 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.87 Effective from year of assessment 2006, full deductions is given on gifts of money for the provision as mentioned earlier.
  •  A tax deduction is available for individuals who contribute towards the medical expenses for a person afflicted with a serious disease where the contribution is paid to a benevolent fund or trust account approved by the director general.88

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

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 current year grossed-up and one-year rollover methods.

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 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 10th day of the following calendar month via the Statement of Tax Deduction by an Employer (Form CP39) or the CD-ROM.92

Effective from 1 January 2015, pursuant to the Income Tax (Deduction from Remuneration) (Amendment) (No. 2) Rules 2014, the payment due date to remit the monthly tax deduction on the employees’ monthly remuneration is extended from 10th to 15th of the following calendar month. 

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.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.

General tax credits

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.

Sample tax calculation

This calculation assumes a married taxpayer resident in Malaysia with two children whose three-year assignment begins 1 January 2014 and ends 31 December 2016. The taxpayer’s base salary is USD100,000 and the calculation covers three years.

  2014
USD
2015
USD
2016 USD
Salary 100,000 100,000 10,000
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 = MYR3.9 (MIRB’s foreign exchange rate for 2015).

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 USD50,000 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 is not working.
Calculation of taxable income
Year ended 2014
MYR
2015
MYR
2016
Days in Malaysia during year 365 365 365
Earned income subject to income tax      
Salary 390,000 390,000 390,000
Bonus 78,000 78,000 78,000
Cost-of-living allowance 39,000 39,000 39,000
Housing allowance 46,800 46,800 46,800
Company car 7,000 7,000 7,000
Moving expense reimbursement 0 0 0
Home leave 0 16,500 16,500
Education allowance 11,700 11,700 11,700
Total earned income 572,500 589,000 589,000
Other income 0 0 0
Total income 572,500 589,000 589,000
Deductions 14,000 14,000 17,000
Total taxable income 558,500 575,000 572,000

Calculation of tax liability

  2014
MYR
2015
MYR
2016 MYR 
Taxable income as above 558,500 575,000 572,000
Malaysian tax thereon 133,060 128,400 127,650
Less:      
Domestic tax rebates (dependent spouse rebate) 0 0 0
Foreign tax credits 0 0 0
Total Malaysian tax 133,060 128,400 127,650

Notes

  • 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.(96) 
  • 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 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.

81 http://pengiktirafan.jpa.gov.my/.

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.

© 2016 KPMG Tax Services Sdn Bhd., a company incorporated under the Malaysian Companies Act 1965 and a member of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity. All rights reserved.

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