Income tax in Malaysia is imposed on income accruing in or derived from Malaysia except for income of a resident company carrying on a business of air/sea transport, banking and insurance, which is assessable on a world income scope.
Who is taxable?
All persons staying in Malaysia for more than 182 days are considered as residents under Malaysian tax law, regardless of nationality. All persons staying less than 182 are regarded non-residents and are taxed on a different scale. Apart from that there is a third group of persons who are exempt from taxation. This applies to those who are employed in Malaysia for less than 60 days in a year, who are aged over 55 years and receive Malaysian pension or persons who are receiving interest from banks.
Expatriates who are in Malaysia under the “Malaysia My Second Home Programme” (MM2H) are not required to pay tax on their pension or income remitted from abroad. Apart from this, all income achieved in or derived to Malaysia is liable to tax.
Malaysia has an Agreement for the Avoidance of Double Taxation for several countries. For further details, you may go the website of the Malaysian Inland Revenue Board
Taxes in Malaysia
1) Corporate Income Tax
A company, whether resident or not, is assessable on income accrued in or derived from Malaysia. The current corporate income tax rate (for assessment year 2008) is 26%. The rate will be further reduced to 25% for assessment year 2009. A company carrying on petroleum upstream operations is subject to a Petroleum Income Tax of 38%. Currently, corporate tax is based on the imputation system. With effect from assessment year 2008, the current imputation tax system will be replaced, over a transition period of 6 year, with a single-tier tax system. Under the single-tier system, profits are taxed only at the company’s level and dividends received are exempted from tax.
2) Personal Income Tax
Whether an individual is a “resident” in Malaysia under the Malaysian Income Tax Act 1967 is determined by the duration of his stay in the country. Generally, an individual residing in Malaysia for 182 days or more in a year has resident status. A resident individual is taxed on his chargeable income at a graduated rate from 0% to 28% after deducting relevant tax relief. There are also available tax rebates. A non-resident individual is liable to tax (on income earned in Malaysia) at the rate of 28% without any personal relief.
3) Withholding Tax
Withholding tax is imposed on certain payments made by residents to non-residents such as interest, royalty, technical fees and rentals for moveable properties. The resident has the obligation to withhold tax when making the payments and to pay the amount within a certain time, failing which the resident is liable to pay a penalty equal to 10% of the unpaid tax and the total sum shall be a debt due to the Government. Due to double tax agreements, residents in some countries may enjoy exemption or reduced withholding tax rates.
4) Other Taxes
Sales Tax is imposed at the import or manufacturing levels at a general rate of 10%.
Service Tax applies to certain prescribed goods and services, including certain professional and consultancy services in Malaysia, at a general rate of 5%.
Import duty is imposed at ad valorem generally.
Excise duties are levied on selected products manufactured in Malaysia.
Stamp duty is imposed on various written legal documents that are executed in Malaysia. For documents executed outside Malaysia, stamp duty is applicable if the document purports to affect a transfer of subject matter in Malaysia.
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