Step 1: Identify the sources of taxable income

First of all, it is important to understand the sources of taxable income in Malaysia, including income earned from a business, employment earnings and rental income, amongst all other things. For example, let’s say you earned a salary of RM30,000 per year and received RM10,000 from property rental income in the same financial year, your taxable income is RM40,000.

Step 2: Apply relevant relief and exemptions to calculate chargeable income

Your taxable income is NOT your chargeable income. Continue from the example above, the RM40,000 is not the final amount to be taxed, as you are entitled to various individual tax relief (which will be dealt with in another article) and deductible expenses for renting a property to come to an amount of chargeable income.

* From your gross rent, you are entitled to deduct interest expense, cost of repairs, assessment tax, quit rent, and agent’s commission. P/s: depreciation does not qualify as deductible expenses.

* Furthermore, rental income received by Malaysian resident not exceeding RM2,000 per month enjoys a 50% tax exemption. This 50% tax exemption is given for a maximum period of 3 consecutive years of assessment from 2018 to 2020.

“Chargeable Income = Taxable income – Tax exemptions – Tax Reliefs”

Step 3: Apply the relevant tax rate

BOTH resident (ie: if you have lived in Malaysia for 182 days or more in a year) and a non-resident taxpayer (ie: if you have lived in Malaysia for less than 182 days in a year) must pay income tax.

Income Tax Rate for Resident Taxpayers for 2017-18

* If you’re a non-resident taxpayer, you will be charged a flat rate of 28% for taxable incomes deriving from employment, business and rental income.

We understand that sorting out tax liability can be complicated. If you are not confident in sorting out tax liability yourself, seeking legal advice is advisable.