Get the Essentials of the Malaysia Taxation System
Malaysia has had tax ever since it was under the British colonisation era. It was known as the Income Tax Ordinance 1947. It was later replaced by the Income Tax Act (ITA) 1967. Like many other nations, collected tax assists in the nations’ development for the benefit for all residents in the country. With a proper taxation system in place, tax collection is more refined and mannerly. However, it is paramount to understand the taxes in this country through this overview of Malaysia taxation.
A typical tax assessment year for Malaysia taxation is from the 1st of January until the 31st of December. During the implementation of ITA 1967, the assessment was done by the Inland Revenue Board Malaysia. As the country grows and more taxpayers, the estimate was transferred to salary-earning individuals or companies. The self-assessment system was introduced in 2001, although taxpayers had to do it manually by filling up the necessary forms. For salary-earners, the relevant document is the BE form. As for companies, theirs is the B form, and there is another form for a non-resident taxpayer. Nowadays, self-assessment is done online via the e-filling system. The due date for business and salary earners is the 30th of June and the 30th of April, respectively.
Resident Vs Non-residents
Salary-earning individuals in Malaysia working for more than sixty days but less than 182 days will be considered a non-resident. Otherwise, if they have worked for more than 182 days in a year, the Malaysia taxation system considers them a tax resident. The Personal Income Tax for tax residents is a progressive tax rate for salary-earning individuals, but non-residents will is subject to a flat rate of 28%. Businesses and companies in Malaysia are subjected to a different tax rate, and it falls under the Corporate Income Tax. The corporate tax rate is a standard of 24% even for non-resident companies. Small and medium enterprises enjoy a lower corporate tax rate. It is 17% for the first RM600,000.00, and it goes to the standard corporate tax rate onwards after.
Incentives, Deductions and Tax Credits
Businesses in Malaysia generally look forward to incentives and deductions as well as tax credits. It will be beneficial for companies when they can qualify for incentives, deduction or even tax credits. Most corporate bodies and companies may get tax exemption or deduction when they donate in cash or in-kind to approved institutions. At the height of the pandemic, individuals or companies contributing to the Covid-19 Fund or Ministry of Health can be officially tax-deductible. Salary earning individuals can obtain tax deduction when they file for yearly assessment, provided all supporting documents are kept for seven years. The types of relief include parental healthcare, childcare for each child under 18 years old and children studying at tertiary level. If an individual is paying for their education, there is also tax relief for such.
Adequate Tax System
Malaysia taxation system is adequate for the development of the country, for the time being. Its tax reliefs and tax rates are acceptable and satisfactory. Nevertheless, several factors of the Malaysia tax system that could be complex to understand. We are ever ready to help you understand further.