Tax in Malaysia | Overview Of Malaysia Taxation
Malaysia is increasingly becoming a center for international Islamic finance. It is also emerging as a regional hub for not just financial services, but also information and communications technology (ICT) and logistics services. And of course, the country has been for the past decades a primary oil, gas and palm oil exporter. Many entrepreneurs and companies are interested in doing business in Malaysia. If you are one of them, it is important that you orient yourself on the different factors affecting businesses in Malaysia, including how the tax in Malaysia will influence your net income.
As in other countries, Malaysia has various taxes you need to consider when planning to relocate or do business here. Looking over the tax in Malaysia is important to prepare for the necessary filing, and to get a rough estimate of your net salary or income. It is best to get to know the taxes in Malaysia to be ready for any contingencies. Here are the common taxes in Malaysia.
Malaysia’s income tax system is territorial in nature. This means that a company, whether resident or nonresident, is assessable on its income sourced from within Malaysia. Meanwhile, an income of a resident company derived from outside the country is exempt from tax. This exemption rule, however, does not cover banking, insurance, and sea and air transport undertakings.
The general corporate tax rate for both resident and non-resident companies is 24%. Moreover, a resident company that falls under the specific paid-up capital and control criteria shall use the tax rate of 17% for the first 600,000 MYR, and 24% of the amount in excess of 600,000 MYR.
Foreign-sourced income, as a general rule, is exempted from corporate tax. An exemption exists only for the foreign-sourced income of banking, insurance, and air and sea transport operations, as they are subject to income tax in Malaysia. Foreign-sourced income is those which accrues or is derived from a tax jurisdiction outside of Malaysia.
Determining where income is sourced can be a complex matter, as there is no definite guide that will determine whether an income is Malaysian-sourced or foreign-sourced. Typically, an income is foreign-sourced if it is attributed to activities conducted abroad. Because of the general rule relating to foreign income, it is the burden of the taxpayer to prove that his income is foreign-sourced.
Goods and Services Tax (GST)
The goods and services tax in Malaysia has two rates, 6% and 0%. The general rate for all applicable goods and services is 6% while exported goods, international services, basic food items, and qualified books are zero-rated. GST exempt items cover residential properties, financial, childcare and private education, healthcare, and public transport services.
Companies operating in Malaysia are required to register for GST. Businesses reaching the prescribed annual turnover threshold of RM 500,000 are liable for the 6% GST. Those whose turnover does not reach this threshold are not liable to register, but may nevertheless register voluntarily. Non-GST companies and those with no complete GST registration are not allowed to charge and collect GST on the supply of goods and services made to their customers.
Similar to corporate entities, individuals earning an income in Malaysia are required to file and pay taxes. Personal income over RM 5,000 is subject to a graduated tax system with tax rates that range from 1% to 20%. Recent amendments to the taxes reduced the personal tax rate for individuals earning above RM 50,000 to RM 70,000, from 14% to 13%. Malaysia also expanded and extended various individual tax incentives and reliefs introduced in 2020.
Moreover, non-citizen personalities who hold key positions in companies looking to relocate in Malaysia are taxed at a flat rate of 15%. The non-citizen must receive a monthly salary of 25,000 ringgit or more, hold the C-suite position for at least 5 consecutive years, and be a tax resident for each year he is assessed using the flat rate. Qualified individuals can apply for this incentive only until December 31, 2021.
Withholding tax in Malaysia is the amount withheld by the payor on income earned by the payee to Inland Revenue Board (IRB). The payor is required to withhold tax on payments for particular services or use of a moveable property. Only when the payee is a non-resident in Malaysia shall the payor withhold an amount prescribed per specific transaction.
Examples of transactions wherein a payor are required to withhold taxes are interest, royalty, technical fees, and contract payments. All withholding tax payments must be done with relevant and complete payment forms and documents to prove payments crediting to a non-resident payee.
Stamp duties are taxes imposed on instruments, rather than transactions. The rates of stamp duties in Malaysia vary depending on the nature of instruments and amount of transacted values. Transfers of properties, shares, and service and loan agreements are the usual events that give rise to stamp duties. The rates imposed on the instruments of these transfers are usually tiered.
Furthermore, the state also offers reliefs, exemptions and remissions to stamp duties in Malaysia. These include relief on the transfer of assets between associated parties, exemption on all financing instruments relating to professional service funds, and exemption on loan agreement instruments for the purchase of a first residential property.
Malaysia is one of the most open countries in the world. The policymakers of the country endeavours to encourage economic growth through various policy amendments, including provisions in the tax rules. The year 2021 has witnessed various additions and changes to the tax system, giving taxpayers more relief and benefits.
These changes are bound to create confusion for filing taxpayers. If you need support and advice in applying for the various tax incentives, or in filing taxes with the recent changes, 3E Accounting Malaysia can help. Our tax experts can guide you with any tax issues and concerns you have. Contact us today and get in touch with our tax professionals!
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