Malaysia Tax System
Income tax in Malaysia is levied on income earned in Malaysia, excluding income classified as international income such as air/sea/transport-related industries, banking/insurance industries, etc.
corporate tax
As a feature of Malaysian corporate tax, if the management and control of a corporation is exercised in Malaysia, the corporation is considered a Malaysian taxpayer. Management and control are usually considered to have been exercised at the location of the board of directors.
Normally, corporations are subject to a corporate tax rate of 24%, but corporations with capital less than RM2.5 million are subject to the following tax rates:
- Initial revenue of RM500,000 (from YA 2020 RM600,000 applied) is applied at 17%
- RM500,000 excess revenue (RM600,000 applied from YA 2020) is applied by 24%
Withholding tax is a tax system levied on non-residents in Malaysia on profits subject to Malaysian tax laws. Malaysian taxpayers must deduct withholding tax from the total amount payable to non-residents, and report and pay the IRS within one month from the date of payment after payment.
Subject to withholding tax: Loyalty-10% Rent of movable property – 10% Technology and management service costs-10%* Interest-15%* Dividend-Waiver Other income-10% (*Interest paid to non-residents by banks in Malaysia)
Personal income tax
Due to the personal income tax feature, not all foreigners residing in Malaysia are required to file personal income tax. Foreigners with less than 60 working days per year, such as sailors on Malaysian ships, and Malaysian pensioners over 55 years of age are not subject to reporting. Non-resident tax rates apply to foreigners with more than 60 working days and less than 182 working days per year.
Regardless of the actual payment, income from Malaysian sources is taxable. However, individuals who are obligated to pay tax in countries that have a double taxation prevention agreement with Malaysia are exempt from personal income tax. In addition, income generated from certain industries such as aviation/sea/transport and banking is subject to international taxes.
Income deduction
The Malaysian government provides various income deductions and tax benefits to foreign taxpayers as follows. Income deduction for spouses without income Parental Income Deduction Income deduction for children under the age of 18 Income deduction for children receiving tertiary education Malaysian Taxpayer Satisfaction Requirements Live in Malaysia for at least 182 days in one year
Special provisions for calculating the period of residence
If you have stayed for less than 182 days in one year, but have lived consecutively in the previous and subsequent years and stayed for a total of 182 days or more. If a person is temporarily absent due to the following reasons but continues to stay before or after the absence, the period of absence is also considered Business trip sick leave Less than 14 days of travel If you have stayed for 90 days or more for one year and lived for at least 90 days in 3 of the past 4 years or have been a resident If you are a resident in the immediately following year and a resident in the previous 3 years
Personal income tax rate
Resident income tax is applied at a progressive tax rate of 0% to 28% for personal income tax, and some income is deductible. Initial income of RM5,000 is tax-free. (Tax-free 5000)
Non-resident income tax applies to non-resident individuals at a flat rate of 28% (30% from YA 2020) or a progressive rate, whichever is greater. Director’s remuneration, consulting expenses, and other revenues are also subject to a 28% (30% applied from YA 2020) fixed tax rate (30% applied from YA 2020). Income deductions do not apply to non-resident individuals.
Payroll settlement at the end of work
In case of termination/resignation of labor contract or leaving Malaysia for more than 3 months, tax settlement is required. After receiving the tax certificate issued by the Internal Revenue Service stating that there is no unpaid amount, the employee can pay the salary to the employee.
Capital gains tax and stamp duty
Property Transfer Income Tax (RPGT) may apply when purchasing property in Malaysia as a feature of property transfer income tax. Real estate capital gains tax is levied on profits from the sale of real estate, and the rate varies depending on the length of time the real estate is owned. When purchasing real estate in Malaysia, stamp duty for legal effect may be incurred depending on the contract of sale (SPA) and loan agreement.