Taxation in Malaysia: Introduction.

All individuals and companies in Malaysia are subjected to several types of direct & indirect taxes, for some of which you must file a return and pay annually.

This guide outlines all types of taxes you will encounter in Malaysia, including who they apply to and at which rates the subjects are taxed.

1. Corporate income tax

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:

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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 assessment year, 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

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

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

Taxable incomes

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 2023 are as follows:

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:

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 (SST)

The SST is a consumption tax that 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.

Sales & service 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

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.

4. Withholding tax

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.

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:

5. 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:

Real property gains tax exemption

Exemptions that apply to real property gains tax are:

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

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.