Paying 2017-2018 income tax in Malaysia? Read this.

11.01.18
8 minute read
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Understanding any new tax system can be a challenge. If you're an expat in a new country, having to submit your tax return can be pretty daunting. Each county has a unique approach to tax, and Malaysia’s taxes might feel unfamiliar to you. However, if you live and work in Malaysia, or derive any income from there, you'll need to learn a bit about your duties. If you get it wrong, and file a tax return too late, or pay the wrong amount, you could end up being fined, or even having a criminal case to answer. It’s not worth the hassle.

This overview of the Malaysian income tax system is a great starting point. But tax is a complex legal area. If you think you might need to pay tax on some or all of your income in Malaysia, it’s a good idea to get professional advice to make sure you pay the right amount.

What income is taxable in Malaysia?

For tax purposes in Malaysia, you’ll need to report several different types of income as part of your tax declaration. You’ll need to include the following:

  • Income earned from a business or self-employment
  • Employment earnings
  • Dividends and some interest payments
  • Rental income
  • Royalties
  • Payments from a pension or annuity
  • Any other benefits in kind provided by your employer or business, for example, if your company pays for school fees or offers the use of a company car or driver

It’s relatively complicated, so if you’re unfamiliar with the Malaysian income tax system, taking professional advice is essential.

(Source, 17 December 2017)

Who has to pay income tax in Malaysia?

What income tax you’ll be required to pay in Malaysia depends on your personal circumstances. Firstly you need to know how you’re classified in terms of residence:

  • A resident taxpayer
  • A non-resident taxpayer

Resident income tax

There are several factors which will decide if you’re counted as a resident taxpayer - the most important being residence. If you live in Malaysia for 182 days or more over a year, you’re usually classed as a resident taxpayer for that tax year. This time doesn’t have to be all in one consecutive stay.

As a resident taxpayer, you're likely to have to pay tax on any income you make anywhere in the world, to Malaysian authorities. However, as a resident, you’re also entitled to deductions and exemptions which aren't available to non-resident taxpayers, as well as a progressive tax rate which can reduce the costs to you.

(Source, 17 December 2017)

Non-resident income tax

If you live in Malaysia for less than 182 days in a year, you might be deemed to have non-resident tax status. This means you pay tax in Malaysia only on the relevant income you’ve earned in Malaysia, in most cases you’ll be taxed at a flat rate. Don’t forget though, that if you weren’t a resident in Malaysia for the whole year, the country you lived in for the rest of the tax year might also want some tax from you, too.

(Source, 17 December 2017)

In what instances do Malaysian residents working abroad need to pay income tax?

This depends on the circumstances, and the local laws, wherever you go to work. If you’re in Malaysia for more than 182 days, as set out above, then you’re likely to be considered a tax resident there, even if you're away for some time. That means you’ll have to pay tax on your worldwide income to Malaysia.

If you’re out of Malaysia for more than half of the calendar year - which is also the tax year - then you’re likely to be classed as a non-resident taxpayer in Malaysia. In that case, you’ll only pay tax in Malaysia on income that you earn there.

It’s worth remembering that you could be asked to pay tax in 2 countries over the same tax year. If this is your situation, then you’ll need to rely on double taxation treaties to make sure you don’t end up paying too much. More on this later.

What are the income tax rates in Malaysia in 2017-2018?

Malaysia has a fairly complicated progressive tax system. There’s a lower limit of earnings under which no tax is charged - and then a progressively higher tax rate is applied based on how much you earn above that level. There are a total of 11 different tax rates depending on your earnings, so figuring out what you owe can be complicated.

The most up to date rates available for resident taxpayers in Malaysia are as follows:

Income range Malaysia income tax rate (%) 2017
Up to RM5,000 0%
RM5,000 - RM20,000 1%
RM20,000 - RM35,000 5%
RM35,000 - RM50,000 10%
RM50,000 - RM70,000 16%
RM70,000 - RM100,000 21%
RM100,000 - RM250,000 24%
RM250,000 - RM400,000 24.5%
RM400,000 - RM600,000 25%
RM600,000 - RM1,000,000 26%
Over RM1,000,000 28%

If you’re a non-resident taxpayer, the system is a little more straightforward - but also more expensive. You’ll be charged a flat rate on any taxable income, of 28%.

(Source, 17 December 2017)

What are the tax exemptions in Malaysia?

If you've followed this so far, it'll be no surprise that Malaysia has a pretty complex system of tax exemptions and deductions. Some or all of them might apply depending on your situation. Many aren't available for non-resident taxpayers, though.

To be eligible for allowances you generally have to include them on your tax declaration.

Here are some of the exemptions, deductions and credits that you might need to know about.

Exemptions

Exemptions are costs which can be removed from your gross income before you calculate the taxable income, which is also known as chargeable income. You can deduct payments made for certain things, such as travel allowances and some benefits paid by your employer, some pension payments and one-off payments, for example, to compensate for losing a job. You can also remove payments which were made outside of the country and then remitted back to Malaysia. The system is quite complicated, and there are limits and rules about what's exempt from tax, which may be unfamiliar.

Tax relief

When you submit your tax return, you can add in claims for items which might also reduce your tax burden overall. These are usually payments which you would have to prove through receipts or invoices, and include the following:

  • Medical treatment, and carer expenses for elderly parents
  • Equipment needed for a disabled dependant
  • Study fees and cost of relevant books, magazines and journals
  • Medical expenses and complete medical examination
  • Purchase of personal computer (once every 3 years)
  • Alimony payments
  • Life, or medical insurance

Donations

You can often remove payments or gifts in kind which are made as a donation, from your chargeable income There are caps and limits in place for these items, too.

( Source 1, Source 2, 17 December 2017)

What sort of double taxation agreements are there with Malaysia?

Many countries have what's known as double taxation agreements, to make sure that people don’t pay tax twice on the same earnings. They usually mean you can offset the tax paid in one country, against the tax demanded in another. However, not all agreements cover all types of earnings, so it’s important to read the small print if you plan to rely on a double taxation agreement to reduce your tax burden.

Malaysia has double taxation agreements with the following countries:

Malaysia double taxation agreements

Austria Malta
Argentina Myanmar
Albania Mauritius
Australia Netherlands
Bosnia and Herzegovina New Zealand
Bangladesh Namibia
Bahrain Norway
Brunei Papua New Guinea
Belgium Philippines
Croatia Pakistan
Canada Poland
China Qatar
Chile Romania
Czech Republic Russia
Denmark Seychelles
Egypt Saudi Arabia
Finland Senegal
France Singapore
Germany Slovenia
Hungary Slovakia
Hong Kong South Africa
Iran Switzerland
Indonesia Spain
Ireland San Marino
India Sweden
Italy Syria
Japan Sri Lanka
Jordan Turkey
Kuwait Turkmenistan
Kazakhstan Thailand
Korea UAE
Kyrgyz Republic Uzbekistan
Lebanon UK
Laos USA
Luxembourg Venezuela
Morocco Vietnam
Mongolia Zimbabwe

(Source, 17 December 2017)

Should I file a tax return?

If you’re employed, you don’t necessarily need to file a tax return. You might find that your employer withholds tax payments in what's called a monthly tax deduction (MTD). This could cover all your tax duties, leaving no need to declare - however, if you want to claim any exemptions or tax relief, or if your situation is at all unusual - for example, when you have multiple income sources - you might find you need to submit a declaration anyway.

How do I pay income tax in Malaysia?

You can report and pay your tax electronically in most cases, in Malaysia.

You can pay your tax by a bank transfer, over the counter in a bank, at an ATM, or even on the phone. However, in some cases, the payment must be made through an appointed agent bank, which means you can’t just walk into any branch to process the payment. If you’re making a bank transfer to cover your tax bill, you’ll also have to include a lot of information as a reference to make sure it goes to the right place. Make sure you’re very clear on what details should be included.

(Source, 17 December 2017)

Paying income taxes online

If you’re an expatriate, you can pay your taxes electronically in Malaysia by bank transfer. You might have to use a bank account held in a different country or currency, if you don’t have enough held locally to cover the costs. If you’re using a foreign account, though, make sure you take into consideration any charges that will be added to the transfer you make to pay your taxes - cross-border transfers can be surprisingly expensive.

It’s not just the upfront charges you need to worry about, but also the exchange rate used when converting your cash. You might find that you don’t get offered the real, mid-market rate, which you’d find on Google because banks and money exchange services often mark up the rate by 4-5%. They keep the difference, and you pay more than you need to.

Many expats in this situation could get a much better deal with TransferWise because TransferWise works differently to banks. You can get your money transferred quickly and safely, using the real exchange rate, and just a small, upfront fee.

It’s possible because TransferWise doesn’t use the pricey SWIFT system for making bank transfers. As a result, the service is cheaper to run than traditional options - but just as fast and safe - and the savings are passed on to the customer.

It could be possible to pay your taxes directly using a TransferWise transfer. If not, you can transfer your cash into a bank account in Malaysia, and choose one of the other payment options. Don’t forget though, that you have to use certain appointed agent banks to pay this way. If you don’t bank with the correct brand, you could transfer the payment to a friend or family member who does, to bring down the costs.

Taxes are often hard work, and navigating a new and complicated system as an expatriate working abroad can be quite painful. But even though tax is a pain, it’s still your responsibility. It might be good to get some professional advice, though, getting it wrong can be an expensive mistake.

And if you choose to pay your tax in Malaysia from an account held abroad, you don’t want to be out of pocket because of unfair fees added when you change your currency. TransferWise might be able to help you save money on cross-border transactions. See if you can get a better deal from TransferWise if you find yourself needing to pay your taxes abroad.

This publication is provided for general information purposes only and is not intended to cover every aspect of the topics which it deals. It is not intended to amount to advice on which you should rely. You must obtain professional or specialist advice before taking, or refraining from, any action on the basis of the content in this publication. The information in this publication does not constitute legal, tax or other professional advice from TransferWise Limited or its affiliates. Prior results do not guarantee a similar outcome. We make no representations, warranties or guarantees, whether express or implied, that the content is the publication is accurate, complete or up to date.

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