Malaysia adopts a territorial principle of taxation, which means any incomes (salary from employment, business activities, dividends etc.) which have a source in Malaysia are taxable, regardless of where the person is paid.
RESIDENT vs NON-RESIDENT
If you are working in Malaysia for more than 60 days but less than 182 days a year, you will be considered a “non-resident”. All non-residents are subjected to a flat taxation rate of 28% and are not eligible for any tax deductions. This usually applies to expatriates (persons living outside their native country).
If you are working in Malaysia for more than 182 days a year – regardless of your nationality, you will be considered a “tax resident”. All tax residents are taxed at a progressive tax rate from 0% to 25% depending on your income. As a tax resident, you will enjoy tax incentives including personal and family rebates, allowances, etc.
EXEMPTIONS
If you are working in Malaysia for less than 60 days, you are exempt from paying income tax.
If you are employed on board a Malaysian ship, or aged over 55 years old and are receiving a pension, your income is not taxable.
Malaysia has signed numerous Double Taxation Avoidance agreements to allow other countries to tax domestically earned income of Malaysians. If you already pay income tax in other country, you are exempted from paying personal income tax in Malaysia.
BENEFITS
Among the benefits that Malaysian Government offers include tax relief for a spouse that does not earn an income anywhere, tax relief for those who have to pay parental care, tax relief for each child below 18 years old, tax relief for children studying at a tertiary level and tax relief for childcare centres and breast feeding equipment, and lifestyle goods such as books, electronic and sporting equipment.
PENALTIES
All people must complete and file their tax returns before 30 April of the following year. Failing to do will incur a disciplinary fee of a 10% increment of the tax payable.
If a person submits an incorrect tax return in which they omit or understate their income, the IRB has the right to fine that individual 100% of the undercharged tax.
