Malaysia Taxation System
Malaysia economy is based on free enterprise, with no restrictions on foreign ownership of a business. The repatriation of profits and the import of capital are freely allowed. Malaysia has a low corporate tax rate from 15% to 24% with effect from the year 2023 (or YA2023) onwards compared to other leading economies in the world. A company is taxed at a flat rate on its chargeable income and capital gains are not taxable.
Malaysia Corporate Income Tax
Features of Corporate Income Tax
A company, whether resident or not, is assessable on income accrued in or derived from Malaysia or received in Malaysia from outside Malaysia. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.
Income tax is levied on the net income of companies from sources within Malaysia and on foreign source income if remitted into Malaysia.
A one-tier corporate tax system that results from the income tax payable on the normal chargeable income of a company is a final tax and shareholders will not be taxed on such dividend income.
There is no capital gains tax on capital assets except disposal of real property in Malaysia. Tax losses can be carried forward and set off against future tax profits for a maximum of ten (10) consecutive years of assessment.
What income is taxable?
Taxable income refers to:
(a) gains or profits from a business, for whatever period of time carried on;
(b) gains or profits from an employment;
(c) dividends, interest or discounts;
(d) rents, royalties o premiums;
(e) pensions, annuities or other periodical payments not failing under of the foregoing paragraphs;
(f) gains or profits not failing under of the foregoing paragraphs.
Income is taxable when it is:
(a) derived from Malaysia; or
(b) received in Malaysia from outside Malaysia.
Malaysia taxation system - Corporate Income Tax Rate
Resident company with paid up capital not more than RM2.5 million and gross business income not more than RM50 million
| On first RM150,000 chargeable income | 15% |
| On subsequent RM450,000 chargeable income | 17% |
| On chargeable income exceeding RM600,000 | 24% |
| Resident company with paid-up capital more than RM2.5 million | 24% |
| Non-resident company | 24% |
Corporate Income Tax Filing Obligations
| Submission of Tax Estimation (CP204 Form) |
· Existing company – Not later than 30 days before the beginning of the basis period for a year of assessment. · New company – within 3 months from the date the company commences business |
|
| Estimated tax payment due date | · Paid in 12 monthly instalments beginning from the second month of the basis period for a year of assessment by 15th of the month. | |
| Submission of Tax Return | · Within 7 months from the date of closing accounts. | |
Update Company Information
You are advised to inform IRBM immediately of any change in company information. Among the information that needs to be updated if there is a change are:-
- Correspondence address/business registered address
- Contact Number
- Change of company name
- Information of tax agent (if applicable)
Tax File Registration
Registration of company’s tax file is the responsibility of the company.
Where a company commenced operations, the company require to register an income tax reference number. The company can register online through e-Daftar or apply in writing to the nearest branch to your correspondence address or at any IRBM branch.
Malaysia Personal Income Tax
Features of Personal Income Tax
Not all expatriates in Malaysia are required to file personal income tax. Foreigners working in Malaysia for less than 60 days are exempted from filling out taxes, as are those who have employed on board a Malaysian ship, those aged over 55 years old who are receiving a pension from employment in Malaysia, those receiving interest from banks and those receiving tax-exempt dividends.
Expatriates working in Malaysia for more than 60 days but less than 182 days in a year are considered non-tax residents.
Only income that has its source in Malaysia is taxable in the country, regardless of where you are paid. However, there are some exceptions to this territorial principle. Malaysia has signed numerous Double Taxation Avoidance agreements, so certain nationalities will be exempt from paying personal income tax in Malaysia if their earned income is taxed in their home country. If your income is derived from specific industries, such as air transport or banking, a worldwide basis for taxation is applied instead of the territorial principle.
The Malaysian government offers several tax deductions and benefits for expatriate workers who qualify as tax residents. These include:
- Tax relief for a spouse
- Tax relief on expenses for parental care
- Tax relief for each child below 18 years old
- Tax relief for children studying at a tertiary level
Tax residents status of individuals
An individual is regarded as tax residents if meets any of the following conditions :
- in Malaysia for at least 182 days in a calendar year.
- in Malaysia for a period of less than 182 days during the year (“shorter period”) but that period is linked to a period of the physical presence of 182 or more “consecutive” days in the following or preceding year (“longer period”). Temporary absences from Malaysia due to the following reasons are counted as part of the consecutive days, provided that the individual is in Malaysia before and after each temporary absence:
- business trips
- treatment for ill-health
- social visits not exceeding 14 days
- in Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, he was in Malaysia for at least 90 days or was resident in Malaysia
- resident for the year immediately following that year and for each of the 3 immediately preceding years
Personal Income Tax Rates
Personal income is taxable at progressive resident rates from 0% to 30% w.e.f YA2020 and entitled to claim certain personal reliefs. The chargeable income of first RM5,000 is taxed at zero value.
- Non-resident individual is subject to a flat rate of 30% w.e.f. YA2020 and will not be entitled to tax reliefs.
- When you come to the end of your employment contract, or if you resign from your job or leave Malaysia for more than three months, you need to apply for tax clearance. This is a certificate or letter from LHDN that determines whether you owe income tax or not. Once this letter has been received your employer should release the balance of any money owed to you after you settle any outstanding taxes.
Tax rates from YA2020 onwards
| Chargeable Income | Calculations (RM) | Rate % | Tax(RM) |
| 0 – 5,000 | On the first 5,000 | 0 | 0 |
| 5,001 – 20,000 |
On the first 5,000 Next 15,000 |
1 |
0 150 |
| 20,001 – 35,000 |
On the first 20,000 Next 15,000 |
3 |
150 450 |
| 35,001 – 50,000 |
On the first 35,000 Next 15,000 |
6 |
600 900 |
| 50,001 – 70,000 |
On the first 50,000 Next 20,000 |
11 |
1,500 2,200 |
| 70,001 – 100,000 |
On the first 70,000 Next 30,000 |
19 |
3,700 5,700 |
| 100,001 – 400,000 |
On the first 100,000 Next 300,000 |
25 |
9,400 75,500 |
| 400,001 – 600,000 |
On the first 400,000 Next 200,000 |
26 |
84,400 52,000 |
| 600,001 – 2,000,000 |
On the first 600,000 Next 1,400,000 |
28 |
136,400 392,000 |
| Exceeding 2,000,000 |
On the first 2,000,000 Next ringgit |
30 | 528,400 |
Malaysia Personal Tax Relief
Allowable expenses, donations, reliefs and rebates are some common deductions individuals claim to reduce their taxes.
Tax reliefs and rebates are allowable if:
- You are a Malaysia tax resident; and
- You meet the qualifying conditions.
Some tax reliefs and rebates are targeted at certain groups of taxpayers to promote specific social and economic objectives.
Tax File Registration
Registration of individual’s tax file is the responsibility of tax payer. Tax payer require to register an income tax reference number and it can be made at the nearest branch to your correspondence address or at any IRBM branch of your convenience without reference to your correspondence address.
Withholding Tax
Withholding tax is a method of collecting tax from non-resident who have derived income which is subject to Malaysian tax. Any tax resident person who is liable to make a certain specified type of payments to a non-resident is required to deduct withholding tax at a prescribed rate applicable to the gross payment and remit it to the Inland Revenue Board of Malaysia (IRBM) within one month of paying or crediting to the non-resident person.
Payments subject to withholding tax
| Payment Type | Income Tax Act 1967 |
Withholding Tax Rate |
Payment Form |
| Contract Payment | Section 107A (1) (a) & 107A (1) (b) | 10%, 3% | CP 37A |
| Interest | Section 109 | 15% | CP 37 |
| Royalty | Section 109 | 10% | CP 37 |
| Special classes of income: Technical fees, payment for services, rent/payment for use of moveable property | Section 109B | 10% | CP 37D |
| Interest (except exempt interest) paid by approved financial institutions | Section 109C | 5% | CP 37C |
| Income of non-resident public entertainers | Section 109A | 15% | Payment memo issued by Assessment Branch |
|
Real Estate Investment Trust (REIT) (i) Other than a resident company (ii) Non Resident company. (iii) Foreign investment institution effective from 01/01/2007 |
Section 109D |
10% 24% 10% |
CP 37E |
|
Family Fund/Takaful Family Fund/Dana Am (i) Individual and other (ii) Non Resident Company |
Section 109E | 8%25% | CP 37E(T) |
| Income under Section 4(f) ITA 1967 | Section 109F | 10% | CP 37F |
All withholding tax payments (other than for non-resident public entertainers) must be made with the relevant payment forms, duly completed, together with copy of invoices issued by the non-resident person and copy of payment documents as proof of date of payment /crediting to the non-resident person.
Enforcement
Where the payer fails to pay or pays withholding tax paid after due date (not within the period of one month after the date of payment / crediting to the non-resident person), he is imposed an increase in tax of a sum equal to ten percent of the amount which he fails to pay is imposed.
Example:
Royalty paid to non-resident person on 03/07/2020 = RM300,000
Withholding tax received by IRBM on 10/08/2020 (Later than 02/08/2020) = RM30,000
Additional tax imposed on payer (RM30,000 @ 10%) = RM3,000
Where the payer fails to pay withholding tax and / or additional tax imposed on him, no deduction is given for the payment made to a non-resident person against business income in the income tax computation of the payer.
Malaysia Sales and Services Tax (SST)
Features of SST
Sales tax is a single stage tax charged and levied on all taxable goods manufactured in or imported into Malaysia. While service tax is imposed on specific prescribed services provided by a taxable person in the course or furtherance of a business in Malaysia and exceeding a specified threshold is required to be registered and is required to charge service tax on his taxable services provided to his customers. In other countries, SST is known as the Value-Added Tax or VAT).
Malaysia Sales Tax
Under the Sales Tax Act 2018, sales tax is charged and levied on imported and locally manufactured goods either at the time of importation or at the time the goods are sold or otherwise disposed of by the registered manufacturer.
Sales tax administered in Malaysia is a single stage tax imposed on the finished goods manufactured in Malaysia and goods imported into Malaysia.
Sales tax is imposed on taxable goods manufactured in Malaysia by any registered manufacturer at the time the goods are sold, disposed of other than by sales or used other than as a material in the manufacture of goods.
Sales tax on imported goods is charged when the goods are declared, duty paid and released from customs control.
Sales Tax – Eligible for Compulsory Registration
1) Taxable goods manufacturers are required / liable to be registered when:
- Sales value of taxable goods has exceeded RM500,000 for 12 months period;
2) Manufacturer who carry out its business as sub-contractor and total labour charge of the subcontract works performed exceeds RM500,000 within 12 months period.
Sales Tax – Eligible for Voluntary Registration
1) Taxable goods – below threshold
2) Persons who are exempted from registration
Rates of Sales Tax
Sales tax is generally at 10%, certain non-essential foodstuffs, alcoholic beverages, tobacco/cigarettes and building materials are taxed at 5% while certain petroleum products and motor oil are taxed at individual specific rates
Sales Tax – Determination of Turnover
Manufacturer should calculate the sales value of taxable goods for a period of 12 months using the following methods:
- a) Historical Method
Ø The total value of taxable goods in that month and the 11 months immediately preceding the month;
- b) Future Method
Ø The total value of taxable goods in that month and the 11 months immediately succeeding the month.
Malaysia taxation system - Services Tax
Service tax in Malaysia is a form of indirect single stage tax imposed on specified services termed as “taxable services”. The Service tax cannot be levied on any service which is not included in the list of taxable services prescribed by the Minister under the First Schedule of Service Tax Regulations 2018.
The Service Tax Act 2018 (STA 2018) applies throughout Malaysia excluding designated areas, free zones, licenced warehouses, licenced manufacturing warehouses and Joint Development Area (JDA).
Taxable Service
Taxable services are any services which are listed in the various categories in the First Schedule of Service Tax Regulations 2018. Any taxable person providing taxable services and exceeding the respective thresholds is required to be registered. The categories are accommodation, food and beverage operator, night-clubs, dance halls, health and wellness centres, private club, golf club and golf driving range, betting and gaming services, professional services and other service providers such as insurance, telecommunication, parking operator, advertising and etc.
Charge to Tax
Service tax is charged on any provision of taxable services provided in Malaysia by a registered person in carrying on his business.
The service tax is due and payable when payment is received for any taxable service provided to a customer by the registered person. The service tax is not chargeable for imported and exported services under the STA 2018.
Rate of Service Tax
Ø Fixed at a rate of 6%
Ø Provision of credit card or charge card services
- A specific rate of tax of RM25 is imposed upon issuance of principal or supplementary card and every subsequent year or part thereof
Service Tax – Compulsory registration
Ø Provide taxable services
- The total amount of taxable services provided has exceeded threshold in 12 months period.
Service Tax – Voluntary registration
Ø By application;
Ø Provide taxable services
- The total amount of taxable services provided by him in 12 months is below threshold.
Service Tax – Determination of Turnover
- a) Mandatory
Ø Any person providing taxable services is liable to be registered if:
- In the case the total amount of taxable services is prescribed, the total amount of taxable services provided by him in 12 months exceed threshold and the liability to be registered is at the following time whichever is the earlier.
- b) Historical Method
Ø The total value of taxable goods in that month and the 11 months immediately preceding the month.
- c) Future Method
Ø The total value of taxable goods in that month and the 11 months immediately succeeding the month.
- In the case no amount of taxable services is prescribed, the liability to be registered is on the date of the commencement of the business.
Real Property Gains Tax and Stamp Duty in Malaysia
Feature of Real Property Gain Tax and Stamp Duty
- If you purchase a property in Malaysia, you will be subject to Real Property Gains Tax (RPGT) when you sell it. RPGT is a tax on the profit gained from the sale of a property and is payable to the Inland Revenue Board, and it will vary depending on the amount of time you have owned the property.
- If you purchase a property in Malaysia, you will also need to pay Stamp Duty, which is a tax that is levied on the legal recognition of the Sales & Purchase Agreement (“SPA”) and Loan Agreement when you buy a property.
RPGT Rates for 01.01.2022 onwards:
| DISPOSAL PERIOD | TAX RATE FOR YEAR OF ASSESSMENT 2020 | ||
| PART I | PART II | PART III | |
|
Other than Part II and Part III [eg: individual, partnership, executor of the estate of a deceased person who is a citizen or a permanent resident] |
Company incorporated in Malaysia or trustee of a trust [eg: company, co-operative, association, society and organisation] |
Individual who is not a citizen and not a permanent resident, or an executor of the estate of a deceased person who is not citizen and not a permanent resident, or a company not incorporated in Malaysia. | |
| Disposal within 3 years after the date of acquisition | 30% | 30% | 30% |
| Disposal in the 4th year after the date of acquisition | 20% | 20% | 30% |
| Disposal in the 5th year after the date of acquisition | 15% | 15% | 30% |
| Disposal in the 6th year after the date of acquisition | Nil | 10% | 10% |
Please contact us for more details
1. Should I plan for corporate tax in Malaysia?
"Corporate tax planning" is an important forward-looking activity that is part of the strategic structure of business activities in order to reduce tax obligations, as opposed to tax compliance or reporting, which reflects back on past events. Business tax planning operations aim to legally avoid triggering tax liabilities without unlawfully dodging an existing tax duty.
2. What is the first step to making sure my tax compliance is correct?
The first step to getting your tax compliance right as an employer is to ensure your employees are issued a tax number. In this simple process, you will need the following documents:
Copy of identification documents
Copy of the latest salary slip or the latest salary statement, EC for the public sector and EA Remuneration Form for the private sector
Copy of marriage certificate, if applicable
You can obtain tax numbers for your employees both online and by visiting one of the Inland Revenue Board (Lembaga Hasil Dalam Negeri Malaysia) branches. You will have to do this yourself if you are a contractor but if you are an employee, your company will be in charge of the process for you.
3. Are there tax incentives in Malaysia?
Tax exemptions, capital expenditure allowances, and improved tax deductions are among Malaysia's several forms of tax incentives. Allowances are supposed to be carried forward until the unutilized allowances are fully utilized. Various industries benefit from the tax incentives including manufacturing/services/trading, biotechnology, education, green incentives, healthcare and wellness, information communication technology and regional operations.
4. Tax return form in Malaysia
Every year, all employees in Malaysia are obliged to file an income tax return, detailing their earnings. These returns must be submitted by April 30th of the following year. The Inland Revenue Board of Malaysia is the government agency in charge of taxation in Malaysia (IBRM). An employer or employee who fails to fill out the form may be fined by the Malaysian government.
The tax return form can be filled out online. Or you can appoint a payroll partner to complete it on your behalf. In order to do this, the worker's income tax number, the online system's PIN (if it is the first time paying tax in Malaysia), and a copy of the worker’s most recent salary statement (EA/EC) or latest salary slip.