Tax Incentive for Returning Expert Programme
The Inland Revenue Board of Malaysia (IRBM) recently issued the Public Ruling (PR) No. 2/2018: Tax Incentive for Returning Expert Programme. The objective of this PR is to explain the tax treatment relating to tax incentives in respect of the Returning Expert Programme to attract Malaysian citizens who work overseas as professionals to return to work in Malaysia. Earlier, various measures designed to enable the creation of a Malaysian world class workforce were announced by the government. One of the measures proposed was to encourage Malaysians abroad in selected fields important to the nation, to return and work in Malaysia. Thus, the ‘Returning Expert Programme’ (REP) was introduced on with a list of incentives that may be revised from time to time.The top five sectors that saw return of Malaysians are oil and gas, financial services, business services, communications and electrical and electronics (E&E).
In 2014, there were a total of 606 REP approvals achieved, while in 2015, the number increased marginally up to 616 REP approvals, before dropping to its 2016 low. According to reports, the decision of the people to return to Malaysia is always their own personal reason, the readiness of them to come back, with mitigating factors such as their children already being settled in school, and so forth. The top five countries that professionals return from are Singapore, China, UK, Australia and the United States and at the point of approval, they have a two year window to physically relocate to Malaysia. Highly skilled workers play an important role in the economic innovation and growth of a country. It is therefore not surprising that global talent migration has become a major concern resulting in brain drain in some developing countries, leading to an increased competition among countries to attract and retain them.
The REP was administered by Talent Corporation Malaysia Berhad (TalentCorp), a government agency, from 1 January 2011 in accordance with the law applicable to an individual whose employment commences on or after 1 May 2011. Individuals who have been approved under the REP are eligible to enjoy a flat rate of 15 percent preferred tax rate on taxable employment income for a period of 5 consecutive years of assessment starting from the first year of assessment chosen by the individual. Further information on the TalentCorp and the Comprehensive Guidelines for REP can be obtained from the Talent Corporation Malaysia Berhad website at www.talentcorp.com.my The REP tax incentives are to encourage experts to return and live in Malaysia. However, there may be situations where:
- An individual stops working because he/she moved to another country before the expiry of the incentive period; or
- An individual is transferred to other countries by his/her employer to work outside Malaysia.
In both cases, the 15% tax rate will expire upon the termination of employment in Malaysia as he no longer resides in Malaysia. The tax incentive that had been claimed for the period he was working and residing in Malaysia would not be withdrawn. This is in line with the intention of the REP incentives where an expert has to work in the country to contribute to Malaysia’s economic development.