The income tax, with the highest rate only recently being at 28%, has been cut down now to 26% for residents and 27% for non-residents. In addition, taxes like estate duties, annual wealth taxes, accumulated earnings tax or federal taxes are not levied in Malaysia.
Who is taxable?
All persons staying in Malaysia for more than 182 days are considered as residents under Malaysian tax law, regardless of nationality. All persons staying less than 182 are regarded non-residents and are taxed on a different scale. Apart from that there is a third group of persons who are exempt from taxation. This applies to those who are employed in Malaysia for less then 60 days in a year, who are aged over 55 years and receive Malaysian pension or persons who are receiving interest from banks.
Expatriates who are in Malaysia under the “Malaysia My Second Home Programme” are not required to pay tax on their pension or income remitted from abroad. Apart from this, all income achieved in or derived to Malaysia is reliable to tax.
Malaysia has an Agreement for the Avoidance of Double Taxation for several countries. For further details go the the website of the Malaysian Inland Revenue Board.
Calculation of income tax and tax deduction
The income tax of non-residents is calculated on a three-step tax rate, 27%, 15% and 10%, depending on the type of income.
The income tax rate for residents is calculated on the amount of income and is much more precise. The income is classified into 8 different tax groups ranging from 0% to 26%.
Tax deductions in Malaysia are available in numerous cases, including medical expenses, purchase of books, computers and sport equipment or education fees.
The Inland Revenue Board of Malaysia, which is the country's responsible institute for taxation, provides very clearly represented and detailed information on all tax issues. There you will find a list on tax deduction cases, the income tax scale for residents and for non-residents.
Income tax declaration
All tax residents who are subject to taxation must file a Malaysian tax return. The submission deadline is the 30th of April for the preceding tax year. This deadline cannot be extended. A tax year equals a calendar year.
You will receive an Income Tax Return Form from the Inland Revenue Board of Malaysia. Residents, according to Malaysian tax law, have to fill in a BE Form, non-residents an M Form. You have to fill the respective forms completely and to return them within 30 days to an IRBM (Inland Revenue Board of Malaysia) office.
After your declaration has been processed, your credit in the account will be refunded to you automatically.
Instead of V.A.T. there are two other types of consumption taxes, namely service tax and sales tax. It is planned to introduce a combined Goods and Services Tax (GST) but this step has been currently put on hold.
The sales tax has 3 rates, 5%, 10% and 15%, with 5% applying to non-essential foodstuffs and buliding materials and 15% to cigarettes and alcohol. Basic foodstuffs, basic buliding materials, books and certain tourist and sports goods are exempted.
Service tax is imposed in Malaysia on certain services and goods, like food and drinks, which is provided in establishments like restaurants and hotels. It is currently fixed at 5%.