Income Tax Guide Malaysia

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Malaysia is known to be a very tax friendly country when compared to other countries with much higher tax rates. The income tax in Malaysia is still considered relatively low and many taxes that are currently found in other countries are not applicable in Malaysia. The highest bracket of income tax in Malaysia that was previously 28% has been cut down to 26% for Malaysian citizens and 27% for non-Malaysian citizens. In addition, other taxes such as estate duties, accumulated earnings tax, annual wealth taxes and federal taxes are not applicable in Malaysia.

Who Is Required To Pay Income Tax?

Any individual that is staying in Malaysia for a period of more than 182 days are automatically regarded as a resident under the Malaysian tax law regardless of their nationality. In contrast, any individual that is staying in Malaysia for less than 182 days are regarded as a non-Malaysian citizen and that individual will be taxed differently. Besides that, there is a third group of individuals that are completely exempted from paying income tax. These are the individuals that is employed to work in Malaysia and stayed here for less than 60 days in a calendar year. The same rule also applies to individuals that are over the age of 55 years old that receive Malaysian pension and to individuals who are receiving interests from banks. Furthermore, expatriates that came to Malaysia under the Malaysia My Second Home Programme are also not required to pay any income tax on their pension or income that is remitted from overseas. Malaysian Government also had an Agreement with several countries on Avoidance of Double Taxation. Apart from these groups, all of the income that is achieved and derived to Malaysia is accountable for tax.

When to Pay For Income Tax?

The tax season in Malaysia rolls around from 1st of March to 30th April. Whenever this tax season comes around, an inevitably sense of worry can be seen amongst the Malaysian public because there are many things and considerations to be taken into account such as financial, legal and technical considerations when an individual is filling in the income tax form at Lembaga Hasil Dalam Negeri (LHDN or Hasil) or through ezHASiL, LDHN official online portal for paying taxes. According to the latest announcement on ezHASiL, any individual who is a new taxpayer or reporting his or her income for the first time with an income equal or more than RM450000 has to visit the nearest LHDNM branch to make an income acknowledgement first. The reason for this procedure is to avoid the possibility of that individual taxpayer making a mistake when entering the amount of his or her income. However, this announcement does not apply to an individual taxpayer that submits the e-Filing using a Tax Agent.

Income Tax Malaysia Rates

Before listing down the income tax rates for different income brackets, there are two keys things to remember first. The firs thing is to remember that tax rates are progressive therefore you will only need to pay the higher rate above the rate on the amount. For example, you will never have less net income after tax when you are earning more. The second thing is to remember that the tax rates are only imposed on chargeable income and not salary or total income. Chargeable income is an income that is calculated after deducting the tax exemptions and tax reliefs. The income tax rates in Malaysia are as the following:

  • Individuals that are earning RM1 to RM5000 chargeable income will be exempted from paying income tax
  • Individuals that are earning RM5001 to RM20000 chargeable income will be imposed with 1% income tax
  • Individuals that are earning RM20001 to RM35000 chargeable income will be imposed with 5% income tax
  • Individuals that are earning RM35001 to RM50000 chargeable income will be imposed with 10% income tax
  • Individuals that are earning RM50001 to RM70000 chargeable income will be imposed with 16% income tax
  • Individuals that are earning RM70001 to RM100000 chargeable income will be imposed with 21% income tax
  • Individuals that are earning RM100001 to RM250000 chargeable income will be imposed with 24% income tax
  • Individuals that are earning RM250001 to RM400000 chargeable income will be imposed with 24.5% income tax
  • Individuals that are earning RM400001 to RM600000 chargeable income will be imposed with 25% income tax
  • Individuals that are earning RM600001 to RM1000000 chargeable income will be imposed with 25% income tax
  • Individuals that are earning more than RM1000000 chargeable income will also be imposed with 25% income tax

The Exact Amount before Filing

For most of the Malaysian citizens, the key amount that you have to earn before there is a need for you to open a file for tax is about RM34001 per year after deducting EPF deductions such as all benefits, allowances, overtime, commissions and bonuses. If you are earning below RM340001 per year, there is no need for you to open a file for tax. However, if you are earning more than RM34001, it is mandatory for you to open a file for tax so that your income tax can be automatically deducted from your income.

Taxable Income

Taxable income refers to the base upon that an income tax system imposes the tax. In general, the Lembaga Hasil Dalam Negeri (LHDN) includes all types of earnings that Malaysian taxpayers have to pay for but these earnings are then reduced by expenses and other deductions. Some of the taxable income are:

  • General Taxable income such as business or profession, employment, dividends, interest but not including bank deposit interest, discounts, rent, royalties, premiums, pensions, annuities and others
  • Taxable benefits that can be converted into cash and are usually given by an employer to an employee known as perquisites such as bill claims, company credit card, loan from company, sponsored club membership, sponsored child tuition fees, company insurance premiums, personal driver, personal guard, personal maid, special staff discounts and gift vouchers
  • Taxable benefits that cannot be converted into cash and are usually given by an employer to an employee known as benefits in kind such as automobiles provided by the company, household furnishing by the company, lodging by the company and electronics purchased by the company

Tax Exemptions List

A full list of the items exempted from income tax are:

  • Leave passage
  • Medical benefit and dental benefit
  • Retirement gratuity
  • Gratuity that are paid by public funds
  • Gratuity that are paid to the contract officer
  • Compensation for loss of employment
  • Pensions
  • Death gratuities
  • Scholarships
  • Cultural performances
  • Royalties
  • Interests
  • Dividends
  • Income that are remitted from countries out of Malaysia
  • Fees or honorarium for providing expert services
  • Income that are derived from research findings
  • Company special service awards
  • Benefits in kind exemptions
  • Travelling allowances