Income of any person including a company, accruing in or derived from Malaysia or received in Malaysia from outside Malaysia is subject to income tax.
However, with effect from year of assessment (YA) 2004, income received in Malaysia from sources outside Malaysia by any person other than a resident company carrying on business of banking, insurance, sea or air transport is exempted from income tax.
The income is assessed on a current year basis and the present tax assessment system administered by Inland Revenue Board of Malaysia (IRBM) is Self-Assessment System (SAS). In SAS, taxpayers are required to declare its income honestly and calculate the tax payable on its own. The responsibility on the tax matters have been shifted to the taxpayers. They are required to have sufficient tax knowledge in order to assess their tax liability correctly and within the timeframe.
The tax rates for YA 2016 are as follows:
|Resident and non-resident companies||24%|
|Resident companies with paid-up capital of RM2.5 million and less at the beginning of the basis period for a year of assessment:|
|*||on the first RM500,000 chargeable income||18%|
|*||on subsequent chargeable income||24%|
|Petroleum Income Tax|
A person carrying on petroleum upstream operations is subject to Petroleum Income Tax (PITA) 1967.
From YA 2010, the assessment system under PITA has changed to the current year basis and the self-assessment system.
|Personal Income Tax|
|Resident individuals with chargeable income (after deduction of personal reliefs) of more than RM5,000and not more than RM1,000,000||1% - 26%|
|Resident individuals with chargeable income (after deduction of personal reliefs) of more than RM1,000,000||28%|
|Non-resident individuals (not entitled to any personal reliefs)||28%|
The tax rate is based on classes of income and is stated either in in Income Tax Act 1967 or in the Double Taxation Agreement (DTA). Some classes of income are shown as follows:
|*||Interest derived from Malaysia||15%|
|*||Royalty derived from Malaysia||10%|
|*||Remuneration or income from service performed or rendered in Malaysia by public entertainer||15%|
|- Payable by the non-resident contractor||10%|
|- Payable by employees of the non-resident contractor||3%|
|*||Gains or profits falling under paragraph 4(f) Income Tax Act 1967||10%|
During the 2014 Budget Announcement, the Prime Minister of Malaysia has announced the implementation of a goods and services tax (GST) of 6% commencing on 1 April 2015. The introduction of GST is part of the overall Government tax reform programme towards making the taxation system more efficient, effective, transparent, business friendly and capable of generating a stable source of revenue.
GST is to replace the current consumption tax comprising of Sales and Services Tax (SST) to eliminate its inherent weaknesses such as cascading and compounding effects, transfer pricing and value shifting, no complete relief on goods exported, discourage vertical integration, administrative bureaucratic red tape, classification issues and etc. GST, also known as value added tax (VAT) in many countries is a multi-stage consumption tax on goods and services. GST is levied on the supply of goods and services at each stage of the supply chain from the supplier up to the retail stage of the distribution.
Even though GST is imposed at each level of the supply chain, the tax element does not become part of the cost of the product because GST paid on the business inputs is claimable. Hence, it does not matter how many stages where a particular good and service goes through the supply chain because the input tax incurred at the previous stage is always deducted by the businesses at the next step in the supply chain. With GST, businesses can benefit from recovering input tax, thus reducing cost of doing business. 22 General Policies, Facilities and Guidelines GST is a broad based consumption tax covering all sectors of the economy i.e all goods and services made in Malaysia including imports except specific goods and services which are categorised under zero-rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette. GST can only be levied and charged if the business is registered under GST.
A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold. Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.
For further information on GST, visit http://gst.customs.gov.my
|Excise duty is levied on imported and locally manufactured goods under the Excise Act, 1976. The goods are listed under the Excise Duties Order, 2004. Goods include:|
|*||4Wheel drives||65% -105%|
RM0.10 (AS$0.03) + 15% per litre
|*||Intoxicating liquor||RM60.00 (AS$14.05) per 100% litrer + 15% RM0.22 (AS$0.05)|
|*||Cigarettes||RM0.40 per stick|
Source: Royal Malaysian Customs - www.customs.gov.my
|Rates of Capital Allowances|
|Capital allowances are given on qualifying capital expenditure. Initial allowances are given only once while annual allowances are given every year by the straight line method. Allowances for some items are shown in the table below. For plant and machinery, companies are advised to verify with the Inland Revenue Board of Malaysia on the specific items which qualify.|
|Capital Expenditure||Initial Allowance||Annual Allowance|
|*||General plant and machinery||20%||14%|
|*||Heavy machinery and motor vehicles||20%||20%|
|*||Computer and IT equipment||20%||40%|
|*||Environmental control equipment||20%||40%|
Source: Inland Revenue Board - www.hasil.gov.my
USD1 = RM3.20
The income which tax is chargeable is income in respect of:
- Gains or profits from a business, for whatever period of time carried on;
- Gains or profits from an employment (salaries, remunerations, etc.);
- Dividends, interests or discounts;
- Rents, royalties or premiums;
- Pensions, annuities or other periodical payments;
- Other gains or profits of an income nature.
Chargeable income is arrived at after adjusting for allowable expenses incurred in the production of the income, capital allowances and incentives where applicable. Section 34 of the Income Tax Act 1967 allows specific provisions for bad or doubtful debts. However, no deduction for book depreciation is allowed although capital allowances are granted. Unabsorbed business losses may be carried forward indefinitely to offset against business income including companies with pioneer status, provided that the cessation of the period falls on or after 30 September 2005.
A company, whether resident or not, is assessable on income accrued in or derived from Malaysia. Income derived from sources outside Malaysia and remitted by a resident company is exempted from tax, except in the case of the banking and insurance business, and sea and air transport undertakings. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.
Effective from the year of assessment 2009, the corporate tax rate is at 25%. This rate is also applicable to the following entities:
- A trust body
- An executor of an estate of an individual who was domiciled outside Malaysia at the time of his death; and
- A receiver appointed by the court
A person carrying on petroleum upstream operations is subject to a Petroleum Income Tax of 38%. With effect from the year of assessment 2010, the assessment system on income derived from upstream petroleum companies under the Petroleum (Income Tax) Act 1967 be changed to the current year assessment system; and self assessment system. Income tax for the year of assessment 2010 based on income received in 2009 shall be allowed to be paid by installments for five years.
The deduction for payment of zakat made by a company, cooperative society or trust body shall not exceed 2.5% of its aggregate income in the relevant year of assessment.
Deductions are allowed for contributions made to:
- The Government, State Government, and local authorities;or
- Institutions or organisations approved by the Director General of Inland Revenue Board Malaysia;or
- Sports activities approved by the Minister of Finance or Commissioner of Sports;or
- Project of national interest approved by the Minister of Finance.
The contributions in respect of item 2, 3, and 4 shall not exceed 10% of the aggregate income of the company in the relevant year of assessment with effect from the year of assessment 2009.
All individuals are liable to tax on income accrued in and derived from Malaysia or received in Malaysia from outside Malaysia. Income remitted to Malaysia by a resident individual is exempted from tax. A non-resident individual will be taxed only on income earned in Malaysia.
The rate of tax depends on the individual's resident status, which is determined by the duration of his stay in the country as stipulated under Section 7 of the Income Tax Act 1967. Generally, an individual who is in Malaysia for at least 182 days in a calendar year is regarded as a tax resident.
A resident individual is taxed on his chargeable income after deducting personal reliefs at a graduated rate from 0% to 26% with effect from the year of assessment 2010.
The chargeable income of resident individuals is computed by deducting the personal reliefs from the total income. The types of relief available are as follows:
|Self and Dependent||9,000|
|Medical expenses for parents||5,000 (Limited)|
|Basic supporting equipment||5,000 (Limited)|
|Education Fees (Individual)||5,000 (Limited)|
|Medical expenses for serious diseases||5,000 (Limited)|
|Complete medical examination||500 (Limited)|
|Purchase of books, journals, magazines and publications||1,000 (Limited)|
|Purchase of personal computer||3,000 (Limited)|
|Net saving in SSPN's scheme||3,000 (Limited)|
|Purchase of sport equipment for sport activities||300 (Limited)|
|Subscription fees for broadband registered in the name of the individual||500 (Limited)|
|Interest expended to finance purchase of residential property. Relief of up to RM10,000 a year for three consecutive years from the first year the interest is paid. Subject to the following conditions:||10,000 (Limited)|
|(i)||The taxpayer is a Malaysian citizen and a resident;|
|(ii)||Limited to one residential unit;|
|(iii)||The sale and purchase agreement is signed between 10th March 2009 and 31st December 2010; and|
|(iv)||The residential property is not rented out.|
|(a)||2 or more individuals are eligible to claim relief for the same property; and|
Total interest expended by those individuals exceeds the allowable amount for that year. Each individual is allowed an amount of relief for each year based on the following formula:
A x (B/C)
A = total interest allowable in the relevant year;
B = total interest expended by the relevant individual in the relevant year;
C = total interest expended by all the individuals.
|Husband/Wife/Alimony Payments||3,000 (Limited)|
|Ordinary Child relief||1,000|
|Child age 18 years old and above, not married and receiving full-time tertiary education||1,000|
|Child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities||4,000|
Additional exemption of RM4,000 disable child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities
|Life insurance dan EPF||6,000 (Limited)|
|Premium on new annuity scheme or additional premium paid on existing annuity schemecommencing payment from 01/01/2010 (amount exceeding RM1,000 can be claimed togetherwith life insurance premium)||1,000 (Limited)|
|Insurance premium for education or medical benefit||3,000 (Limited)|
Non-resident individuals are subject to a final withholding tax of:
10% on special classes of income such as:
|a.||In consideration of services rendered by the person or his employee in connection with the use of property or rights, installation of or operation of any plant, machinery or other apparatus|
|b.||In consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme;|
|c.||Rent or other payments made under any agreement or arrangement for the use of any moveable property|
Withholding tax will not be applicable for income received in respect of the services (a) and (b) rendered or performed outside Malaysia.
Effective from 30 August 2008 until 31 December 2012, withholding tax exemption is given to non-residents experts on income received by providing technical training services in the following fields:
|a.||Post graduate courses in information and communication technology (ICT), electronics and life sciences;|
|b.||Post basic courses in nursing and allied heath care; and|
|c.||Aircraft maintenance engineering courses.|
Effective from 1 January 2009, to reduce the cost of technical services provided by non-residents, reimbursements or disbursement relating to hotel accommodation in Malaysia will not be included in the computation of gross technical fees for the purpose of withholding tax.
In respect of withholding tax not paid, a penalty of 10% is imposed only on the amount of unpaid tax and not on the total payment made to a non-resident.
Capital gains are generally not subject to income tax in Malaysia.However, real property gains tax is charged on chargeable gains arising from the disposal of real property situated in Malaysia or of interest, options or other rights in or over such land as well as the disposal of shares in real property companies.
Effective from 1 January 2012, gains from the disposal of residential and commercial properties are taxed between 0% and 10% depending on the holding period of real properties as follows:
|Holding Period||RPGT Rates|
|Companies||Individual (Citizen & PR)||Individual (Non-Citizen)|
|Up to 2 years||10%||10%||10%|
|Exceeding 2 until 5 years||5%||5%||5%|
|Exceeding 5 years||0%||0%||0%|
The RPGT rates will not burden genuine property owners as they are given exemption and the payment of RPGT is based on net gains as follows:
i. RPGT exemption on net gains from the disposal of one unit residential property once in a lifetime by an individual who is a citizen or a permanent resident of Malaysia;
ii. RPGT exemption on gains from disposal of property between parents and children, husband and wife, grandparents and grandchildren;
iii. RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental cost e.g legal fees; and
iv. Exemption up to RM10,000 or 10% of the net gains, whichever is higher, is given to an indivdual.
For further information on company and individual tax, visit www.hasil.gov.my.
In Malaysia, import duty is mostly imposed ad valorem although some specific duties are imposed on a number of items. Nevertheless, in line with trade liberalisation, import duties on a wide range of raw materials, components and machinery have been abolished, reduced or exempted.
Furthermore, Malaysia is committed to the ASEAN Common Effective Preferential Tariffs (CEPT) scheme under which all industrial goods traded within ASEAN are imposed import duties of 0% to 5%.
Malaysia continues to participate in negotiations of free trade arrangements in areas of trade in goods, rules of origin, and investments. To date, Malaysia has concluded bilateral free trade agreement with Japan, Paksitan, New Zealand and India and the regional agreements under ASEAN with China, Japan, Korea, Australia/New Zealand and India. Import duties between FTA partners are subject to specific reduction and elimination schedules under these agreements.
Excise duties are levied on selected products manufactured in Malaysia, namely cigarettes, tobacco products, alcoholic beverages, playing cards, mahjong tiles and motor vehicles. While excise duties are charged at ad valorem rates for motor vehicles, playing cards and mahjong tiles, for cigarettes, tobacco products and alcoholic beverages they are imposed at a combination of specific and ad valorem rates.
Customs Appeal Tribunal (CAT) is an independent body, establish to decide on appeals against the decision of the Director General of Customs pertaining to matters under the Customs Act 1967, Sales Tax Act 1972, Service Tax Act 1975 and Excise Act 1976.
In addition, Customs Ruling is introduced under the Customs Act 1967, Sales Tax Act 1972, Service Tax Act 1975 and Excise Act 1976 to provide business sectors with the elements of certainty and predictability in planning their business activities.
The ruling issued by the Customs and agreed by the applicant shall be legally binding the applicant for a specific period time. The main features of Customs Ruling are:
|i.||Applications for Customs Ruling can be made with respect to classification of goods, determination of taxable services and the principles of determination of value of goods and services;|
|ii.||Application should be made in writing together with sufficient facts and prescribed fee;|
|iii.||Applications may be made before the goods are imported or the services are provided upon which Customs will issue a custom ruling.|
Double Taxation Agreement (DTA) is an agreement between two countries seeking to avoid double taxation by defining the taxing rights of each country with regard to crossborder flows of income and providing for tax credits or exemptions to eliminate double taxation.
The objectives of Malaysian DTA are as follows:
|i.||To create a favourable climate for both inbound and outbound investments;|
|ii.||To make Malaysia's special tax incentives fully effective for taxpayers of capital exporting countries;|
|iii.||To obtain a more effective relief from double taxation compared to relief gained under unilateral measures; and|
|iv.||To prevent evasion and avoidance of tax|
Like many other countries in the developed as well as the developing world, Malaysia too cannot absolve herself from the need to facilitate her trade and investments with the outside world through international tax treaty network with other countries. The increased pace of industrialisation coupled with increased foreign direct investment in the country necessitated tax treaty arrangements with other countries to provide investors with certainty and guarantees in the area of taxation. As at 31 January 2012, the effective DTAs are as follows:
|Canada||Kyrgyz, Republic||South Africa|
|Hungary||New Zealand||United Arab Emirates|
|Indonesia||Pakistan||United States of America*|
|Iran||Papua New Guinea||Uzbekistan|
* Limited Agreement
Qatar: Income Tax/Withholding Taxes - for year of assessment beginning on or after 1 January 2010 and Petroleum Income Tax - for year of assessment beginning on or after 1 January 2011
In the case of Taiwan (represented by Taipei Economic and Cultural Office in Malaysia) double taxation relief is given by way of the following Income Tax Exemption Order:
|i.||P.U.(A) 201 (1998)|
|ii.||P.U.(A) 202 (1998)|
The withholding tax for Interest, Royalties and Fees for Technical Services are reduced to 10%, 10% and 7.5% respectively.
Department of International Tax
Inland Revenue Board of Malaysia
3rd Floor, Block 9
Government Office Complex
50600 Kuala Lumpur
Tel: (603) 6209 1000, or (603) 6203 2330/2540 (for outside Malaysia)
Fax: (603) 6201 9884