Expatriate tax - Malaysia

An expatriate who requires a work visa must apply for their visa before taking up an employment in Malaysia.

An employment visa or permit (EV) is issued with multiple entry visa (MEV) by the Immigration Department of Malaysia for a duration between one – five years and are renewable. EV is issued on a case-to-case basis for positions that required special skills not available locally or that Malaysian citizens are not available to take up the positions. Expatriates can apply for an extension of their employment by submitting an application preferably three months before the expiration of their EV.

An expatriate who intends to visit Malaysia for short-term assignments for the purpose of conducting training or involving in installation work or rendering servicing may apply for a Professional Visit Pass (PVP). A PVP is valid between one – six months and a renewal up to a maximum of 12 months. No extension is granted beyond the 12 months period. In order to be eligible for PWP, the expatriate’s salary must be paid by the overseas company.

The tax year or year of assessment (YA) for individual tax runs from 1 January to 31 December (calendar year). Malaysia adopts a current year basis of assessment. This means that income for the calendar year 2023 is taxable in the YA 2023. An individual carrying on a business in Malaysia is assessed tax based on the calendar year to be in line with the assessment year.

An individual is assessed based on the Self-assessment system (SAS) of taxation. Under the SAS, an individual has to submit his/her income tax return to the tax authority and settle the balance of tax payable if any, by 30 April in the year following the year of assessment if the individual derives employment income and other non-business income. If an individual has business income in addition to his/her employment income and other non-business income, the individual is required to submit income tax returns by 30 June in the year following the year of assessment.

The income tax return submitted to the tax authority is deemed as a notice of assessment under SAS. An appeal must be filed within 30 days from the notice of the deemed assessment if the person wants to amend his/her own income tax return.

An individual arriving in Malaysia who is liable to income tax in the following year of assessment is required to notify the tax authority within 1 month after arrival. Non-resident individuals who are subject to final withholding taxes do not need to file income tax returns unless advised by the tax authority to do so.

Employees’ taxes are made via the Monthly Tax Deduction Scheme (MTD) through deductions from their salaries. Any shortfall in the taxes due after MTD to the tax authority will be made at the time of filing their income tax returns.

Married persons are assessed individually on their own income unless they elect to be assessed jointly.

Non-residents are subject to withholding taxes on certain types of income. Other income is taxed at a rate of 30%.

Residents and non-residents are subject to income tax on Malaysian-sourced income only.

An individual is considered resident in Malaysia for the basis year under the following situations:

• Resident in Malaysia for a period or periods amounting to a total to 182 days or more during the calendar year.
• Resident in Malaysia for a period of less than 182 days, and that period is linked by or to another period of 182 or more consecutive days. Periods of temporary absence are considered part of a period of consecutive presence if the absence is related to an individual’s service in Malaysia, personal illness of an immediate family member or social visits not exceeding 14 days.
• In Malaysia during the calendar year for a period or periods amounting in all to 90 days or more and have been resident or present in Malaysia for at least 90 days in any three of the four preceding years.
• Resident for the three preceding calendar years and will be resident in the following calendar year. This is the only case in which an individual may qualify as a resident even though the person is not physically in Malaysia during a particular calendar year.

Income from employment includes wages, salary, remuneration, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances (in money or otherwise) arising from employment. Gross income from employment also includes income from any period of leave attributable to employment in Malaysia and income for any period during which the employee carries out duties outside Malaysia incidental to the Malaysian employment.

The source of remuneration for services rendered is generally the place or location where the services are performed. The place where the remuneration is payable or the place where the contract is signed is not relevant.

Where an employer outside Malaysia sends an employee to Malaysia to render services, the employee is taxable in Malaysia, notwithstanding that the employer is overseas, or that the employee’s remuneration is paid outside Malaysia and is not received in Malaysia. In this case, the employment income is derived from a Malaysian source.

Gross employment income includes benefits-in-kind and amenities not convertible into money. The cost of leave passages of an employee and his immediate family are also taxable with certain tax exemptions excluding the followings:

• Leave passage within Malaysia, up to three times in a calendar year.
• One leave passage for travel in a calendar year from Malaysia to any place outside Malaysia, up to a maximum of MYR3,000.

An employee is exempt from income tax in respect of the follows:

• Perquisites in relation to a travel allowance, petrol card, petrol allowance or toll rate or any of its combination for traveling between his home and workplace up to MYR6,000 per year.
• Parking rate or parking allowance,
• Meal allowance,
• Child care allowance of up to MYR2,400 per year,
• Gifts and monthly bills for fixed-line telephone, mobile phone, pager or broadband.
• Medical benefits including expenses on maternity and traditional medicines and dental benefits.
• Discounted price for consumables business products of the employer up to MYR1,000 per year.
• Discounted price for services provided by the business of the employer and for the benefit of the employee, spouse and child of the employee.

Where the employer provides rent-free accommodation to an employee or a service director of a controlled company, the individual is assessed on the defined value of living accommodation, or 30% of the individual’s gross employment income, whichever is lower.

The above comparison is not applicable for a director of a controlled company, who will be assessed on the full defined value of the accommodation provided.

Short-term visitors to Malaysia enjoy an income tax exemption on employment income in Malaysia if their employment does not exceed any of the following periods:

• A period totalling 60 days in a calendar year.
• A continuous period(s) totalling 60 days spanning two calendar years.
• A continuous period spanning two calendar years, plus other periods in either of the calendar years, totalling 60 days.

Expatriates working in Operational Headquarters (OHQs), Regional Offices (ROs), International Procurement Centres (IPCs) and Regional Distribution Centres (RDCs) are taxed only on that portion of income attributable to the number of days that they were in Malaysia until the expiration of the tax incentive.

Remittances of foreign-source income into Malaysia by non-residents are exempted from income tax with effect from 1 January 2022.

Foreign source income received by an individual resident in Malaysia from outside Malaysia is subject to income tax with effect from 1 January 2022.  However, the Government has by concession allows foreign source income to continues to be exempted from income tax until 2026 except for individuals earning dividend continues through a partnership business carried on in Malaysia.

Nevertheless, certain types of foreign source income of resident taxpayers will continue to be exempted from income tax provided that the income has been subjected to tax in the country of origin and the qualifying conditions listed in the guidelines issued by the government are complied with.

Generally, the deductions against employment income are professional subscriptions and specific travels and entertainment incurred for the employer’s business. The cost of traveling from home to work is not deductible. Donations of cash to the government or organisations approved by the tax authority are tax-deductible.

Resident individuals are entitled to deduct certain types of allowance as personal reliefs against their taxable income. Some common types of reliefs are summarised below:

Effective year of assessment 2023

There is no capital gains tax in Malaysia. However, Malaysia impose capital gain in the form of real property gains tax (RPGT) on disposal of real properties in Malaysia and gains derived from the sale of shares in closely controlled companies with substantial real property interests.

RPGT rates

There are no inheritance, estate and gift taxes in Malaysia.

Interest income received by individuals from monies deposited in approved institutions is exempt from tax.

There are no local taxes in Malaysia.

It is mandatory for employer and Malaysian employee to contribute to SOCSO. As for expatriates (non-Malaysian), only employer needs to contribute to SOCSO.

Malaysian employees are required to contribute to EPF. It is optional for expatriates to contribute to EPF. EPF is a statutory saving scheme to provide employees for their retirement fund in Malaysia.

All employers and employees are required to make monthly contributions to the EPF. Employers pay a rate of 12% if the employee’ monthly wages are above MYR5,000 per month or 13% if the employees’ monthly wages are below MYR5,000 per month. Employees contribute at a rate of 11% per month. Employees’ contributions are deducted at source.

Self-employed individuals may elect to contribute to the EPF. The individuals may make voluntary contributions at a fixed monthly rate of any amount from MYR 50 to MYR5,000.

The contributions may be withdrawn by an employee upon reaching 55 years of age or at an earlier time if the employee permanently leaves Malaysia with no intention of returning. Contributions may also be withdrawn on the death of an employee or if he/she is physically or mentally disabled and is prevented from future employment. Employees may make partial withdrawals to purchase a house, to finance education, for medical treatment, or when they reach the age of 55.

Employer stock options are subject to income tax as part of employment income. The taxable income is calculated based on the difference between the fair market value of the underlying stock at the exercise date or exercisable date, whichever is lower and the option price. This amount is recognised at the time the option is exercised and taxed as the current year income.

There is no wealth tax in Malaysia.

There is no estate duty, gift tax or inheritance tax in Malaysia.