Studying the Basics of Income Exempt From Tax in Malaysia
In every country, the government and regulators are collecting some form of financial charge called tax from taxpayers, including businesses. Why? Such funds are channelled to government spending and different public expenditures to keep the country running and progressing.
However, as a business, you would want some savings as well given that you shell out a lot of money to keep your operations afloat. These expenses, as mentioned, include payment for tax. But, as allowed by the law, some directives help businesses save some money or the so-called income exempt from tax.
According to accounting principles, tax exemption is the right to exclude all or some part of an entity’s income when computing the tax. This effectively results in lower tax payment.
Most taxpayers may avail of the various exemptions to bring their taxable income down. Some do not even need to pay any taxes at all given that the law permits such income exempt from tax.
What Is Tax-exempt Income in Malaysia?
Just like in any jurisdiction, there is also income exempt from tax in Malaysia. These exemptions cover a wide scope, allowing you to at least avail of one of them at the end of a taxation period. Here they are:
For one leave passage outside Malaysia, a maximum amount of MYR 3,000 per year is tax-free. Three trips annually within the country, meanwhile, have remained free of the tax charge.
Compensation for Retirement
Any amount given to an employee who retired because of poor health conditions is exempted from tax. Those whose retirement took place on or after reaching the age of 55 or between the compulsory retirement age of 50 and 55 can also avail of the tax exemption. In this case, the retiring employee should have served for over ten years with the same employer.
If the employee did not meet the criteria above, they could still avail some form of income exempt from tax. A partial exemption of MYR 1,000 for each completed year of service is allowed.
Exemption for Allowances
In a company, there are different perks provided to entice employees, which include allowances. Example of these tax-exempt financial perks are:
- If done in performing the employment, you can avail exemption for allowances in travel, petrol card, petrol, and even toll fee. The maximum amount qualified for exemption is MYR 6,000 annually.
- Allowance or fees for parking the vehicles may also be exempted.
- Subsidies or other financial support for childcare are also tax-exempted. It is allowed for fees of up to MYR 2,400 annually for children up to the age of 12.
From the Employer
There are also certain goods and services that the business may avail of tax exemption. Let us list them:
- employers’ own goods—consumable business products—given that it is free or bought at a discounted amount; the discount should not be more than MYR 1,000 per year.
- employers’ own services which are free or given at a discount and benefit herein are not allowed to be transferred to others.
Service-Related Tax Exemptions
Employers should note the tax exemptions relating to the services rendered or not rendered but still qualified for compensation by their staff. For example:
- Compensation of up to MYR 2,000 for employees who have served for the same employer in over a decade.
- The income of a maximum of 12 consecutive months for women returning to the company after taking a break in career.
Other Income Exempt from Tax
Put in mind the following income exempt from tax in Malaysia as well.
- Perks relating to medical or dental treatment.
- Bills of the fixed-line phone, mobile phone, and tablet, among others.
- Subsidies on loan interests amounting to a maximum of MYR 300,000 for real estate, motor vehicles, and even education.
What Is the Difference Between Tax Exemption and Tax Deduction?
Let us get something clear. Tax exemptions and deductions are different, even though they appear to be the same. These are two distinct matters.
How come? Tax deduction refers to a portion of a taxable income that may be excluded from tax computation should certain conditions be met. Examples are sales tax, health insurance premiums, tax savings for teachers, and charitable gifts, among others.
On the other hand, tax exemption refers to income that is not really subject to taxation in the first place. No conditions are needed to be satisfied; you can just take them away from the taxable income.
Professional Help for Your Taxes
Preparing for taxes at the end of a fiscal year is a big task. You might need a corporate service provider who can help you with this endeavour. Reach out to 3E Accounting today. We can offer you the tax planning services you need. Our team is more than happy to help you.