Taxation in Malaysia: Introduction.

Taxation in Malaysia: Introduction

This guide is a fundamental introduction to taxation in Malaysia.

Both individuals and companies in Malaysia are obliged to file and pay taxes annually. It is necessary that you know what taxes and what tax rates you are subjected to in order to avoid any penalties.

Let’s start.

1. Corporate income tax

What is corporate income tax in Malaysia?

Corporate income tax in Malaysia is a direct tax paid to the government imposed on both resident and non-resident companies that receive income from Malaysia. The corporate income tax rate varies based on the type of company.

Corporate tax rates in Malaysia

The standard corporate income tax rate in Malaysia is 24%.

Other corporate tax rates include the following:

Type of companyTax rates
Resident company with a paid-up capital of RM 2.5 million or less, and gross income from business of not more than RM 50 million17% on the first RM 600,000

24% in excess of RM 600,000

Resident company that does not control, directly or indirectly, another company that has paid-up capital of more than RM 2.5 million
Resident company that is not controlled, directly or indirectly, by another company that has paid-up capital of more than RM 2.5 million
Non-resident company24%

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Tax residency of a company and basis of taxation in Malaysia

A company is considered a tax resident in Malaysia if any time during the basis period of the year of assessment, the management and control of its affairs or at least one meeting of the Board of Directors are exercised in Malaysia.

Malaysia has a territorial tax system in which both resident and non-resident companies are taxed on income derived from Malaysia.

Foreign-sourced income is exempted from taxation unless the company engages in business activities in the banking, insurance, air transport or shipping sectors.

2. Individual income tax

What is individual income tax?

Individual income tax is tax imposed on salaries, dividends or other income a person earns throughout the year.

Who is considered as a tax resident?

An individual is a Malaysian tax resident if the individual stays in Malaysia for 182 days or more in a calendar year.

What are the taxable incomes in Malaysia?

The types of taxable income in Malaysia include:

  • Employment income
  • Gains or profits from a business
  • Dividends, interest or discounts
  • Rent, royalties or premiums
  • Pension or annuities
  • Perquisites, including bill claims, company credit cards, loans from a company, sponsored child tuition fee or any benefits offered by the employer that can be converted into cash

Individual income tax rates

Individual income tax rates in Malaysia for YA 2021 are as follows:

Taxable income (RM)TaxTax on excess (%)
5,00001
20,0001503
35,0006008
50,0001,80013
70,0004,40021
100,00010,70024
250,00046,70024.5
400,00083,45025
600,000133,45026
1 million237,45028
Exceeding 2 million517,45030

Non-residents are taxed at a flat rate of 30% of taxable income.

Available deductions for individual income tax

The following tax reliefs can be deducted for a resident individual:

ReliefsRM
Self9,000
Spouse (under joint assessment)4,000
Child under the age of 182,000
Child over the age of 18 who is receiving full-time instruction at an establishment of higher education in Malaysia or outside Malaysia8,000
Disabled:Self6,000
Spouse5,000
Child:
Each physically or mentally handicapped child
6,000
Additional relief if that child is over 18 and receiving higher education8,000

Individual income tax return

Malaysia adopts a self-assessment system in which the taxpayer has to compute their own chargeable income and tax and make tax payments.

Tax returns must be submitted by 30 April for individuals gaining non-business income and 30 June for those with business income in the following calendar year.

3. Sales and Service Tax

What is Sales and Service Tax?

The SST comprises of two elements:

  1. Sales tax: A single-stage tax imposed on products manufactured and produced locally and on taxable goods imported into Malaysia.
  2. Service tax: A consumption tax imposed on taxable services provided in Malaysia by a registered service provider carrying out their business.

What are the sales tax rates?

The rates for sales tax are:

  • 5% – Goods including basic foodstuffs, building materials, fruit juices, personal computers, mobile phones and watches
  • 10% – For other goods except for petroleum subject to specific rates and goods that are not exempted

What is the service tax rates?

The rate for service tax is 6% for all taxable services. Services that are imported or exported are exempted from service tax.

Which businesses must apply for SST registration in Malaysia?

Businesses that provide taxable goods and services must register for SST if they meet the following conditions:

Sales tax

  • Manufacturing taxable goods
  • Total sales value within the last 12 months exceed RM 500,000

Service tax

  • Providing taxable services
  • Total value of taxable series within 12 months exceeds the prescribed threshold, which is usually RM 500,000, but certain services may have a different threshold.
Additional thresholds
Taxable service providerThreshold
Operators of restaurants, bars, snack-bars, canteen, coffee house or any place providing food and drinks whether eat-in or take-awayRM 1.5 million
Persons who are regulated by Bank Negara Malaysia and provide credit card or charge card servicesNo threshold
Approved customs agentsNo threshold

4. Withholding tax

What is withholding tax in Malaysia?

According to the Inland Revenue Board of Malaysia, withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to the Inland Revenue Board of Malaysia.

The payer is an individual or body carrying on business in Malaysia and is required to withhold tax on payments for services rendered or other payments made under any agreement for the use of moveable property and paid to the non-resident .

Payee is a non-resident individual or body who receive the payments.

What are the withholding tax rates?

When a payer is liable to make payments to a non-resident person, the payer must withhold tax at the following rates:

Payment typeWithholding tax rates
Contract payment3%, 10%
Interest15%
Royalties10%
Technical fees, payment for services, rent/payment for the use of moveable property10%
Interest paid by approved financial institutions5%
Income of non-resident public entertainers15%
Real Estate Investment Trust (REIT)
Other than a resident company
Non-resident company
Foreign investment institution
10%
25%
10%

5. Real property gains tax

What is real property gains tax?

Real property gains tax is a tax on chargeable gains that homeowners and businesses have to pay when selling their property in Malaysia. If property is sold with a loss, you are not required to pay real property gains tax.

Real property gains tax rates

The rates for real property gains tax are as follows:

Disposal Citizens/permanent residents Foreigners Companies
Year 1 – 330%30%30%
Fourth year20%30%20%
Fifth year15%30%15%
Sixth year and onwards5%10%10%

Real property gains tax exemption

Exemptions that apply to real property gains tax are:

ExemptionExemption amountEligible persons
Once-in-a-lifetime exemption on any chargeable gain from the disposal of a private residence.RM 10,000 or 10% of the chargeable gain, whichever is higherMalaysian citizens and permanent residents
Exemption on gains when a property is transferred within the family (between wife and husband, parent and child or grandparent and grandchild). Transfer between siblings is excluded.100% exemption on the chargeable gainMalaysian citizens and permanent citizens
Exemption on the disposal of residential properties from 1 June 2020 to 31 December 2021.100% exemption on the chargeable gainMalaysian citizens only
Exemption on the disposal of low-cost residential homes of RM 200,000 and below in the 6th and subsequent years.100% exemption on the chargeable gainMalaysian citizens only

When to pay real property gains tax?

Once you have disposed your property, you must submit the real property gains tax return within 60 days of the disposal date.

Failure to meet the deadline, you will be subjected to an additional 10% penalty.

6. Stamp duty

What is stamp duty?

Stamp duty is a tax imposed on legal documents and is divided into two categories.

Types of stamp duty

The two categories of stamp duty in Malaysia are:

  • Fixed duties – charged at a set price and includes stamps for individual policies or copies
  • Ad valorem duties – variable costs based on the value of the transaction that the legal document represents

Documents subjected to stamp duty

The documents that are subjected to stamp duty include:

  • Real properties transfer
  • Share transfer
  • Business transfer
  • Rental or lease
  • Security
  • Selling of annuity
  • General stamping
  • Company duty payment
  • Repayment
  • Appeal

 Conclusion

Companies and individuals liable to taxation in Malaysia must ensure that they satisfy their tax obligations. To ensure you keep up with your taxes, we recommend engaging with Acclime’s tax services.

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