As Benjamin Franklin famously said there are only 2 things in life that are certain – and one of those is Taxes. Malaysia is not an exception to this and whether you are an expat or a national then your salary will be subject to income tax.Tax may not sound like the most interesting subject to write or read about, but things certainly start to get interesting when you get it wrong! The following will give you an overview of how the tax system works in Malaysia. Whether you are an individual looking to get a better understanding of what tax you can expect to pay or if you are a company that is in the process of setting up and employing people in Malaysia the following will be relevant to you.
For a full overview of Payroll and Tax in Malaysia please view our guide:
Malaysian Tax Number
As an employer the first step to getting your tax compliance right is to make sure your employees are issued with a tax number. This is a simple process and you will just need the following documents:
- Copy of the latest salary statement (EA/EC) or latest salary slip
- Copy of identification documents
- Copy of marriage certification (if applicable)
You can do this online or by visiting one of the Lembaga Hasil Dalam Negeri Malaysia branches. If you are a contractor you will need to do this yourself but as an employee, this will be taken care of for you by your company.
Tax in Malaysia for Residents
Tax rates for residents run on a sliding scale from 0-30% depending on the level of income. If you have workers rotating in and out of Malaysia, they may still qualify for a residency tax rate providing they fit into one of the following criteria:
- If they have been in Malaysia for 182 days per calendar year.
- If they have been in Malaysia for less than 182 days in a calendar year but have still been in the country for 182 consecutive days, linked to days from the year immediately preceding that calendar year.
- If they have been in Malaysia for at least 90 days in a calendar year for three of the four preceding years.
There are also a few tax exemptions, if you fall into any of the below categories then you will not pay any income tax:
- Residents that work fewer than 60 days in a year
- Retired people over 55
- Those receiving a pension
- Those living off bank interest
Tax for Non-Residents
Expats in Malaysia will become tax resident if they spend 182 or more days in the country. If you are spending less than 182 days of the year in Malaysia, you will be subject to a flat tax rate of 30%.
The tax year in Malaysia runs from 1st January to 31st December at which point you will be required to file a tax return (more on that later).
Some businesses will pay the tax on behalf of their staff, whereas others ask their workers to submit the payment themselves. There is also a fixed monthly SOSCO fee for non-residents of 49.4 RM per month, which is similar to a national insurance fee.
You will automatically be classed as non-resident for your first 6 months in Malaysia and be liable to pay 30% tax from their first day of work.
Tax Return Form
All workers in Malaysia are also required to file an Income Tax Return each year reporting the income they have received. Tax returns must be filed before 30th April of the following year. The government agency that is responsible for tax in Malaysia is the Inland Revenue Board of Malaysia (IRBM). If this form is not completed by the employer or worker, the Malaysian government may issue a fine.
This tax returns form can be completed online, or you can appoint a payroll partner to complete it on your behalf. To do this, you will need:
- Their Income Tax Number
- Copy of their latest salary statement (EA/EC) or latest salary slip
- PIN for online system (if this is your first-time paying taxes in Malaysia, you will need to register with the IRB and obtain Pin Number)
Here is a helpful site for Tax Return Form: https://www.hasilnet.org.my/tag/itrf/
Tax Clearance and Tax Filing
All staff employees have to complete tax clearance and tax filing at year end. Financial year is from 1st January – 31st December. Tax filing must be completed by April.
Here is a helpful site for Tax Clearance in Malaysia https://help.talenox.com/en/articles/2882809-guide-to-tax-clearance-in-malaysia
So, there you have it, a brief introduction into the tax system of Malaysia. As I mentioned at the start it isn’t a very exciting topic, but it is so important to make sure you or your employees are set up correctly.
Failure to comply with the local legislation can lead to fines and if not settled correctly before leaving the country can result in difficulties to return in the future.
If you have any queries about tax and payroll in Malaysia please get in contact with one of our specialists at Leap29 on +60 3 9212 2271 or firstname.lastname@example.org