Malaysian Tax Issues for Expatriates and Non-Residents
Are you looking for a job in Malaysia, considering an expat assignment in the country or already working here but is still confused on the country’s tax structure?
Then this article will try to explain the various tax issues and help you understand it better.
1. What is Malaysian Tax Rate for Expatriate & Non-Residents?
The current tax structures for expatriates and non-residents are as follows:
- If your stay in Malaysia is less than 60 days, then any income, fee, commissions or bonus received will not be taxed
- If during your period of employment, your stay is not more than 182 days in a year, then you are a non-resident. As a non-resident, you will be taxed at a flat rate of 25% and you will not enjoy any tax incentives. UPDATE: The Malaysian Inland Revenue Board, (or known locally as Lembaga Hasil Dalam Negeri or LHDN for short) had increased the tax to 28% with effect from Year Assessment 2016
- If your stay is more than 182 days in a year, then you are a RESIDENT (see below for definition of a RESIDENT). A resident will be taxed at a graduated rate of 0% to 25% depending on your income. You will also enjoy the tax incentives that includes personal and family rebates, allowances, etc. that will reduce your net taxable income considerably
- If you work on board a Malaysian ship, your income is not taxable
Definition of a Resident
You will fall into the category of RESIDENT if you meet one of the following criteria;
- You are in Malaysia for at least 182 days during the calendar year
- If your stay is less than 182 days for that calendar year (e.g. 20 days in 2015) but your stay continues in 2016 for another 182 days or more
What if I Have to Travel OUT of Malaysia within this 182-day period?
If you have to be physically away from Malaysia for the following reasons:
- To attend meetings, seminars, exhibitions or conferences which are all related to your job
- To seek medical treatment related to your health or your immediate family member
- Social visit but not exceeding 14 days
then this brief absence shall be considered as part of your required 182-day.
For detail definition of Residence, refer to LDHN site here.
What is Certificate of Residence (COR)?
A Certificate of Residence (COR) is issued by LHDN to confirm your residence status for Malaysian tax purposes.
With this COR, you can claim tax benefits under the Double Taxation Agreement that Malaysia has with several countries, and to avoid being tax twice on the same income.
How to Apply for Certificate of Residence
You can apply manually by going to any LHDN branches. Documents to bring with you are:
- Your original and photocopies of passport, and
- List of movements in/out of Malaysia for the year of assessment that you are applying.
You can also apply online through e-Resident.
How Long it takes to issue COR?
If all documents and information are complete and in order, it will be ready within three working days.
How Much Does COR Cost?
Application and Issuance of COR are free.
2. How to Get Your Income Tax Number
Usually, your company will arrange this for you. If this is not the case, go to the nearest LHDN's office to register and get your income tax number. Bring your passport with you.
Please do this within two months of your arrival into the country.
3. When to File Your Tax Return
The last day to submit your Malaysian tax return is 30th April each year. But do not wait until this very last day as the Inland Revenue Board of Malaysia office will be packed with last-minute submissions and you are bound to be stuck there for hours.
This also applies if you file online.
Filing of Malaysian tax return can either be online (e-Filing) or manual filing.
If you prefer manual filing, then go to the nearest LHDN office and get the following form that applies to you:
- Form B, for individual who carries on business in Malaysia. In most cases, this may not be applicable to you if you are employed by a company OR
- Form BT for individual who is classified as a knowledge worker or expert worker and approved by the Minister OR
- Form BE for individual who does not carry on business and is employed by a company
- Form M if you are a non-resident
Fill in the form and submit before 30th April for each year.
For e-Filing, you must first be registered as an online user. To register, you can email them at email@example.com and attach a scanned copy of your passport. Alternatively, you can go to the nearest LHDN's office to register. This is a one-time process and you do not need to register again for your next assessment year. Just do not lose your username and password.
For both manual and e-filing, you do not need to submit your supporting documents. However, you must keep it for at least seven years as within this period LHDN has the right to check and audit your submission.
Before you can fill in the manual or e-file form, you need information from your company on the total remuneration paid to you during that assessment year. This EA form is issued by the end of February each year and you will use the information as given out in that form, when filing your tax return.
4. When to File Your Tax Return
The followings are supporting documents that you must keep for at least seven years (from the end of the assessment year) for any possible audit by LHDN:
- Your EA Form
- Original receipts for books purchased, medical bills, donations that you had made to approved bodies or funds*, insurance premiums, zakat receipts (for Muslims), and dividend vouchers
- Your marriage certificate and your children's birth certificates
- Any other supporting documents such as your letter of appointment from the company that employed you
* as approved by the Director-General of LHDN.
Malaysian Tax Guide
Malaysia tax year is the calendar year.
Tax in Malaysia is based on the self-assessment regime. Your income is deducted by your employer under the pay-as-you-earn scheme and then remitted to LHDN on a monthly basis.
5. Is There a Penalty for Late Submission?
A penalty is levied for any delay in submitting your Malaysian tax return forms.
As mentioned earlier, all submissions must be on or before 30th April for each year.
6. How Do I Calculate My Tax if I Worked for only 1.5 years
Income received during your first 182 days will be taxed based on a non-resident flat rate of 25%. From 183rd day onward, the tax rate will vary. It will be based on the tax table as provided below.
Since your contract is more than a year, you will be filing your tax return twice, e.g. the assessment year 2014 and 2015. Your assessment year 2015 will be calculated based on the resident tax rate and the non-resident flat rate of 25% will no longer be applicable.
Resident Individuals Income Tax Rate
Tax Rate for 2013 and 2014
Reduced Tax Rate for 2015 onwards
From RM1 to RM5,000
From RM5,001- RM20,000
From RM20,001- RM35,000
From RM35,001- RM50,000
From RM50,001- RM70,000
From RM70,001- RM100,000
From RM100,001- RM250,000
From RM250,001- RM400,000
From RM400,001 and above
7. Can I Get Any Tax Relief for My Family?
If you have family staying with you in Malaysia and you are considered a resident, i.e. stayed more than 182 days in a year, then you will be entitled to several tax exemptions. Please refer to IRBM Explanatory Notes for this list of tax exemptions.
Do You Know That You Need to Apply for Tax Clearance?
- Guide on Tax Clearance In Malaysia for Expatriate and Local
Tax Clearance is required if you resign, leaves Malaysia for more than three months, or come to the end of your employment contract. Learn how to apply for tax clearance letter & get your last month salary ASAP
8. Can I Get Tax Rebates at the End of My Contract?
Unfortunately, there are no special tax rebates at the end of your contract period.
Any tax incentives and rebates are already provided for (follow the link provided above to see these rebates) and are the same as when you do your yearly tax return.
Before leaving Malaysia at the end of your contract, don't forget to get your tax clearance from Income-Tax Office, LHDN.
9. Will I be Subject to Withholding Tax?
Non-residents will be subject to withholding tax only on the following types of income derived in Malaysia.
Type of Income
Use of movable property
Technical services, assistance or advice
Fees charged for installation of machinery, plant & other similar assets
Personal services for use of intangible property
Royalties on the use of intangible property
10. Is the Reduced 15% Tax Rate Applicable to me as a Foreigner if I Work in ISDR?
Both Malaysian and foreign nationals that are categorized as “knowledge worker” will enjoy the reduced tax rate of 15% if you reside and work in the Iskandar Development Region.
Definition of “knowledge worker” is working in certain qualifying activity with a designated company. Your employment must start on or after October 24, 2009, but before December 31, 2015.
You must not receive any Malaysian employment income for at least three years prior to the date of this reduced tax application.
11. Will I be Subject to Capital Gains Tax?
The answer is no.
However, if you bought and sold real property in Malaysia, any gains received from this disposal is subject to real property gains tax or RPGT.
Any disposal made within the first three years is subject to 30% RPGT. For sales made in the third, fourth and fifth year will be charged at 30%, 20%, and 15% rate respectively.
No RPGT for any disposals made after the fifth year.
An Update on the Purchase of Malaysian Properties by Foreigners: The minimum price of RM500,000 is now increased to RM1m.
The Malaysian Tax Rate is One of the Lowest in the Region
The current maximum tax rate of 26% for personal income is the second lowest in the region. This rate will be reduced further to 25% from assessment year 2015 onward.
An expatriate who has gained resident status will enjoy tax rebates and other incentives. Their effective tax rate can hence go down to 21%.
12. If I Work for Foreign Companies in Malaysia whose Office is Classified as Operational Headquarters, How Will I be Taxed?
You will be taxed only on your chargeable income earned during your stay in Malaysia.
13. What is the Tax Rate for a Foreign Public Entertainer?
Currently, it is a flat rate of 15%, provided your stay is less than 182 days.
14. How Do I Claim for Refund of Excess Tax Payment Made through the Monthly Tax Deductions?
You do not have to apply or request a refund as IRBM will process this within 30 working days for e-filing submissions and within 90 days if submissions were posted or hand delivered.
If you do not receive it within this stipulated time frame, there is a possibility that IRBM may want to audit your tax return.
If this is the case, you should have received a letter from them on this matter.
If you have not heard from them, then you should visit the nearest IRBM office for information relating to your tax return.
15. What if I Submit My Tax Return After the Due Date and There's a Refund to be Made by IRBM?
Any late submission of your Malaysian tax return will be fined and once you pay this penalty, any excess tax payment will then be processed for reimbursement.
16. How Do I Know That IRBM had Made the Refund of Excess Tax Payment?
LHDN will credit directly to your bank account that you had registered with them. Unfortunately, there is no notification from when this transfer happened.
You have to check your bank statement for any 'additional' credits to your bank account, which can be daunting to some people! That is the only way to check otherwise you can call LHDN on when they credited your account.
Malaysia Tax Guide for the Expatriate
Malaysia's personal tax rate may not be the best.
The current personal tax rate bands are still in need of fine tweaking, so that taxpayers do not reach the maximum income tax rate too quickly,
For Malaysia to stay competitive, it needs to lower the current direct tax rates. The government had earlier announced the reduction to 25% from the current 26% for personal income tax, for assessment year 2015 onward.
Although this is a good move, it is still high compared to neighboring country such as Singapore. I hope that when the country implements the GST, the personal tax rate will be reduced further.
Malaysia is Still a Competitive Country to Work & Live
Despite all these, Malaysia remains an attractive country to work and stay. The slightly higher tax rate is offset by the relatively lower cost of living compared to Singapore.
Hence, effectively you get to spend less and have more.
I hope this article helps clear some of the issues and questions that you, as an expat or would-be expat may have on our country's personal income tax structures. If you need more information on other tax matters or for location and address of IRBM nearest branch office, you can visit the Inland Revenue Board of Malaysia website.
While you are here, don't forget to go out and enjoy your stay here in Malaysia.
Response to Your Questions
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Thank you for your understanding.
© 2014 Mazlan