Malaysia Personal Income Tax Guide
The self assessment system (SAS) for individuals (include salaried individuals and sole proprietors) and for partnerships was implemented with effect from Y/A 2004.
Under the SAS which is based on the concept of “File and Pay”, individuals are required to:
- File their completed personal income tax return forms to the Inland Revenue Board (IRB) together with the payment of the balance of tax payable (if any).
- Pay their income tax liability through monthly salary deductions for salaried individuals or through bimonthly instalments for individuals having business income.
Estimate of Tax
For individuals other than salaried individuals, the IRB may issue a prescribed form (Form CP500) setting out the estimate of tax payable (ETP) under an instalment scheme. ETP is determined by the IRB based on the tax assessed in the preceding year. The taxpayer is required to pay the ETP in 6 bi-monthly instalments as directed by the IRB commencing from the month of March. Each instalment payment accompanied by a remittance slip (Form CP501) must be paid to the IRB within 30 days from the due date. For salaried individuals, income tax will continue to be deducted through the monthly salary deductions under the Monthly Tax Deduction (MTD) scheme.
Variation of Instalments
Every individual under an instalment payment scheme may apply to revise the instalment payments not later than 30 June of the relevant year by submitting the Form CP502. The IRB will issue a revised notice of instalment payments (Form CP503) if the application is successful, setting out the revised instalment payments. Where the revised estimate exceeds the amount of instalments paid to date, the difference shall be payable in the remaining months of the instalment scheme. In addition, if the revised estimated tax for a Y/A is less than RM300, the individual is allowed to stop the subsequent payment starting from the date of submission of the Form CP502.
Filing of Tax Returns
Every individual who:
(i) has chargeable income for a year of assessment; or
(ii) has no chargeable income for that year of assessment but:
- has chargeable income for the year of assessment immediately preceding that year of assessment; or
- has furnished a return for the immediately preceding year; or
- has been required to furnish a return (but failed to furnish a return) for the immediately preceding year,
must file a tax return to the Director General by 30 April of the following year unless that individual with no chargeable income receives a waiver from the Director General or has business income.
The tax filing deadline for a person carrying on a business, such as sole proprietor, partnership, club, association and Hindu joint family, is 30 June of the following year.
Under the SAS, no supporting documents need to be submitted to the IRB, but should be kept for the purpose of tax audit. The taxpayer also has to indicate whether he/she has complied with the Public Rulings issued by the IRB.
An individual and his/her spouse are required to file separate income tax return forms regardless of whether the return forms are filed on a separate or combined assessment basis. The tax return furnished by the taxpayer is deemed to be a notice of assessment and the notice of assessment is deemed to be issued on the day the return is submitted to the IRB. Any balance of tax payable after taking into account the instalment payments made via the instalment payment scheme or salary deductions, if any, would have to be remitted to the IRB by 30 April / 30 June of the following year.
A graduated scale of rates of tax is applied to chargeable income of resident individual taxpayers, starting from 0% (on the first RM5,000) to a maximum of 28% on chargeable income exceeding RM1,000,000 with effect from YA 2016.
Non-resident individuals pay tax at a flat rate of 28% with effect from YA 2016. Other rates are appicable to special classes of income, eg interest or royalties.
The residence of an individual is determined by his/her physical presence in Malaysia. Generally, an individual becomes a tax resident for the tax year if the aggregate number of days the individual stays in Malaysia during the basis year is 182 days or more.
An individual may also qualify as a resident for the basis year for a particular year of assessment under any one of the following circumstances:-
- The individual is in Malaysia for less than 182 days in that basis year and that period is linked by or to another period of 182 or more consecutive days (hereinafter referred to in this paragraph as such period) throughout which the individual is in Malaysia in the adjoining year. Temporary absences from Malaysia due to service matters, attending conferences, seminars, or study abroad connected with the services in Malaysia, ill-health involving the individual or any immediate member of the family and social visits not exceeding 14 days in aggregate shall be taken to form part of such period or that period, as the case may be, if he/she is in Malaysia immediately prior to and after that temporary absence.
- The individual is in Malaysia for a total of 90 days or more in the basis year and in any three out of four immediately preceding basis years, the individual was either resident or in Malaysia for at least 90 days.
- The individual will be a resident for the year if he/she is resident the following year and has been resident for the immediately preceding three years.
Exemption on Employment Income
Where a non-resident employee exercises employment in Malaysia for a period or periods totalling not more than 60 days in a basis year or two overlapping years, his income from such employment would not be liable to tax. However, the 60 days would apply for two consecutive years if there is an overlapping period.
Example of Employment Income subject to Tax
- Salary, wages, bonus, director’s fee, commission, allowance, perquisite, gratuity, overtime payment, tips, compensation, employees share option scheme, tax borne by employer, etc (item paid in cash or convertible to cash)
- Benefits-In-Kind from employer (cars, handphone, driver, maid, etc)
- Value of Living Accommodation provided by employer
- Employer’s contributions for employee made to an unapproved pension provident fund
- Compensation for loss of employment
Perquisites are benefits in cash or in kind convertible into money and received from the employer or third parties in respect of having or exercising an employment.
Tax exempt allowances / perquisites / gifts / benefits received by employee from employer
|No.||TYPE OF ALLOWANCES / PERQUISITES / GIFTS / BENEFITS||EXEMPTION LIMIT|
|1||Perquisite (whether in money or otherwise) provided to the employee pursuant to his employment in respect of:-
(a) past achievement award;
(b) service excellence award, innovation award or productivity award; and
(c) long service award (provided that the employee has exercised an employment for more than 10 years with the same employer).
(Paragraph 25C Schedule 6 of ITA 1967)
|Restricted to RM2,000 in amount or value for a year of assessment|
|2||Petrol card, petrol allowance, travelling allowance or toll payment or any of its combination for official duties. If the amount received exceeds RM6,000 a year, the employee can make a further deduction in respect of the amount
spent for official duties. Records pertaining to the claim for official duties and the exempted amount must be kept for a period of 7 years for audit purpose.
|Restricted to RM6,000 for a year of assessment|
|3||Child care allowance in respect of children up to 12 years of age.
|Restricted to RM2,400 for a year of assessment|
|4||Gift of fixed line telephone, mobile phone, pager or Personal Digital Assistant (PDA) registered in the name of the employee or employer including cost of registration and installation.||Limited to only 1 unit for each category of assets|
|5||Monthly bills for subscription of broadband, fixed line telephone, mobile phone, pager and PDA registered in the name of the employee or employer including cost of registration and installation.
|Limited to only 1 line for each
category of assets
|6||Consumable business products of the employer provided free of charge or at a partly discounted price to the employee, his spouse and unmarried children. The value of the goods is based on the sales price. Benefits received by the employee from a company within the same group of companies as his employer are not exempted from tax.
|Restricted to RM1,000 for a year of assessment|
|7||Services provided free or at a discount by the business of the employer to the employee, his spouse and unmarried children. Benefits received by the employee from a company within the same group of companies as his employer are not exempted from tax.
|Restricted to the amount of
discount or amount of services provided free
|8||Parking rate and parking allowance. This includes parking rate paid by the employer directly to the parking operator.
|Restricted to the actual amount expended|
|9||Meal allowance received on a regular basis and given at the same rate to all employees. Meal allowance provided for purposes such as overtime or outstation / overseas trips and other similar purposes in exercising an employment are only exempted if given based on the rate fixed in the internal circular or written instruction of the employer.
|Restricted to the actual amount expended|
|10||Tax exempt medical benefits are extended to include traditional medicine and maternity expenses. Traditional medicine means Malay, Chinese and Indian Traditional Medicine given by a medical practitioner registered with
bodies which are certified or registered in accordance with the rules governing traditional medicine as laid down by the Ministry of Health.
Examples: Malay traditional massage, ayurvedic or acupuncture Complimentary medicine and homeopathy such as aromatherapy, reflexology, spa and Thai traditional massage are not included in this exemption.
|Restricted to the actual amount expended|
The above exemptions are not applicable to an employee having control over his employer.
If the employee has control over his employer, the allowances / perquisites / gifts / benefits received by him is taken to be part of his employment income and subject to tax.
‘Control over his employer’ means:
(a) for a company, the power of the employee to secure, by means of the holding of shares or the possession of voting power in or in relation to that or any other company, or by virtue of powers conferred by the articles of association or other document regulating that or any other company, that the affairs of the first mentioned company are conducted in accordance with the wish of the employee;
(b) for a partnership, the employee is a partner of the employer; or
(c) for a sole proprietor, the employee and the employer is the same person.