Income Tax in Malaysia

Welcome to eHasil, a blog about Income Tax in Malaysia with guides about e filing for personal income tax and how to file an online income tax return.

Some of the topics you will find in this site to help you for all your needs with the Malaysian Income Tax department include:

• Scope of Taxation
• Resident Status
• Types Of Income Chargeable To Tax
• Tax Exemptions For Individuals
• Notification Of Chargeability To Tax
• Filing Of Tax Return
• Non-Resident Citizen Relief

If you have any income tax questions, you should be able to find answers in eHasil. Please remember to Bookmark this site now.

Scope of Taxation

1. For Resident Individual
A Resident individual is assessable on income derived from sources in Malaysia and income received in Malaysia from outside Malaysia. W.e.f. Y/A 2004 income remitted into Malaysia from overseas by a resident individual, a trust body, a cooperative and a Hindu Joint Family be exempted from income tax

2. For Non-Resident Individual
A Non-Resident individual is assessable only on income derived from sources in Malaysia.

3. For Resident Company
A Resident company is assessable on income derived from Malaysia and income remitted to Malaysia from sources outside Malaysia.

Starting Year of Assessment 1995 onwards only income derived from Malaysia are taxable.

Banking, insurance, shipping and air transport businesses are taxed on world income scope. The Imputation System is applicable.

4. For Non-Resident Company
A Non-Resident company is liable to Malaysian tax when it carries on a business through a permanent establishment in Malaysia and is assessable on income derived only from sources within Malaysia.

Resident Status

1. Resident Status of Individuals
For tax purposes, the tax residence status is determined by the duration of stay in Malaysia, and is not bound by reference to the nationality or citizenship. If a person stays in Malaysia for at least 182 days (not necessarily consecutive) in a calendar year, he would be treated as a resident. However, there are other conditions where the individual can be treated as a resident even if he stays for less than 182 days.

An individual is resident in Malaysia in the basis year of assessment if he:
i. is in Malaysia for not less than 182 days in the relevant basis year,

ii. is in Malaysia for a period of less than 182 days in the basis year and that period is linked to another period where he is continuously in Malaysia for not less than 182 days immediately before or after the relevant basis year. Where temporary absence occur, the period of temporary absence can be taken to form part of such period, where he is in Malaysia, immediately prior to or after the temporary absence,

iii. is in Malaysia for not less than 90 days (need not be consecutive) in the basis year and is resident or has been in Malaysia for 90 days or more in 3 out of the 4 preceding years of assessment; or

iv. has not been in Malaysia in the relevant basis year but he is deemed to be resident in Malaysia in the relevant basis year if he is resident in Malaysia in the following basis year and also in the each of the 3 basis year immediately preceding the relevant basis year.

Example 1 : Resident Status
John arrived in Malaysia on 1.4.2003 and stayed on until 15.11.2003 (total 229 days). Hence, John is resident for the year of assessment 2003 since he stayed in Malaysia for more than 182 days in the year 2003.

2. Resident Status of Companies
A company is deemed to be resident if at any time during a basis year for a Year of Assessment, the management and control of its business is exercised in Malaysia.

Types Of Income Chargeable To Tax

Income Chargeable To Tax

1. Gains or profits from a business for whatever period of time carried on.

2. Gains or profits from an employment.

3. Dividends, Interests or Discounts.

4. Rents, Royalties or Premiums.

5. Pensions, annuities or other periodical payments not falling under any of the foregoing paragraphs.

6. Gains or profits not falling under any of the foregoing paragraphs.

7. Special classes of income.

Tax Exemptions For Individuals

1. Leave passages within Malaysia not exceeding three times on a year and one leave passage outside Malaysia not exceeding RM3000

2. Medical and dental benefit.

3. Retirement gratuity
The full amount of gratuity received by an employee on retirement from employment is exempt if:
i. He retires due to ill health;
ii. He is an employee in the public sector who has opted for optional retirement or on termination of a contract of employment; or
iii. If he retires at the age of 55 or at the compulsory age of retirement under any written law provided that he has been in the service of the same employer or with companies in the same group, for at least 10 years

4. Compensation For loss Of Employment
Compensation payment received by an employee for the loss of employment is exempt from tax at a sum of RM6,000 per completed year of service with the same employer or with companies in the same group. However, the compensation payment received by an employee will be fully exempted from tax if the loss of employment is due to ill health. The tax exemption of RM6,000 per completed year of service is not given in respect of the compensation received by a director (not being a service director) of a controlled company.

5. Pensions
Pensions received by an individual are exempt under the following conditions:
i. He retires at the age of 55 or at the compulsory age of retirement under any written law; or
ii. He retires due to ill health

For an employee in the public sector who elects for optional retirement, his pension will be taxed until he attains the age of 55 or the compulsory age of retirement under any written law. Where an individual receives more than one pension, the exemption is restricted to the highest pension received by him

6. Death gratuities.

7. Scholarships.

8. Income of an individual resident in Malaysia in respect of his appearances in cultural performances approved by the Minister.

9. Interests
An individual resident in Malaysia is exempt from tax in respect of the interest received from the following savings or investments:-
i. Interest that accrues in respect of any savings deposited with Bank Simpanan Nasional (BSN).

ii. Interest or bonus which accrues in respect of money deposited with Bank Simpanan Nasional under the "Save as You Earn" scheme.

iii. Interest which accrues on savings deposits of up to RM100,000 with a registered cooperative society, Bank Pertanian Malaysia, Malaysia Building Society Berhad, Borneo Housing Mortgage Finance Bhd. Or with any other institution approved by the Minister of Finance.

iv. Bonus which accrues in respect of money deposits in any savings account with Lembaga Tabung Haji.

v. Interest which accrues on savings deposits of up to RM100,000 with a bank or finance company licensed under the Banking and Financial Institutions Act 1989 (BAFIA 1989).

vi. Interest which accrues in respect of any fixed deposits account (including negotiable certificates of deposits) of up to RM100,000 for a period not exceeding twelve months withBank Pertanian Malaysia, Bank Kerjasama Rakyat Malaysia Bhg., Bank Simpanan Nasional, Borneo Housing Mortgage Finance Bhd., Malaysia Building Society Bhd., or a Bank of finance company licensed under BAFIA 1989.

vii. Interest which accrues in respect of any fixed deposit account (including negotiable certificates of deposits) for a period exceeding twelve months with Bank Pertanian Malaysia, Bank Kerjasama Rakyat Malaysia Bhd., Bank Simpanan Nasional, Borneo Housing Mortgage Finance Bhd., Malaysia Building Society Bhd., or a bank or finance company licensed under BAFIA 1989.

viii. Gains or profits which accrues on deposits of up to RM100,000 in respect of money deposited in any savings account under the interest-Free Banking Scheme (IFBS) with a bank or finance company licensed under BAFIA 1989 or the Islamic Banking Act 1983, Bank Kerjasama Rakyat and Bank Simpanan Nasional.

ix. Gains or profits which accrues in respects of money deposited in any investment account of up to RM100,000 for a period not exceeding twelve months with a bank or finance company licensed under BAFIA 1989 or the Islamic Banking Act 1983, Bank Kerjasama Rakyat and Bank Simpanan Nasional.

x. Gains or profits which accrues in respect of money deposited in any investment account for a period of twelve month of more under the interest Free Banking Scheme with a bank or finance company licensed under BAFIA 1989 or the Islamic Banking Act 1983.

xi. Gains or profits which accrues in respect of money deposits in any investment account under the interest Free Banking Scheme of up to RM100,000 for a period of twelve months or more with Bank Kerjasama Rakyat and Bank Simpanan Nasional.
xii. Interest from securities or bonds issued or guaranteed by the Malaysian Government.

xiii. Interest from debenture (other than convertible loan stock) approved by the Securities Commission.

xiv. Interest earned from Bon Simpanan Malaysia issued by the Bank Negara Malaysia.

xv. Interest earned from the Merdeka Bonds issued by the Bank Negara Malaysia (effective year of assessment 2004).

xvi. Interest earned from a unit trust which is derived from Malaysia and paid or credited by any bank or financial institution licensed under the Banking and Financial Institution Act 1989 (BAFIA 1989) or the Islamic Banking Act 1983.

10. Dividends
The following dividends are exempt form tax:
i. Dividends received from exempt accounts of companies.

ii. Dividends received from cooperative societies.

iii. Dividends received from a unit trust approved by the Minister of Finance such as Amanah Saham Bumiputra.

iv. Dividends received from a unit trust approved by the Minister of Finance where 90% or more of the investment is in government securities.

11. Royalties
An individual resident in Malaysia is exempt from tax in respect of royalties are as follows:

Types of Services/ Amount per annum
art works payment for to be exempted (RM)

i. Artistic work (other than original paintings) 6,000
ii. Recording discs or tapes 6,000
iii. Translation upon request by any agency
a. of the Ministry of Education or Attomey
b. General Chambers 12,000
iv. Literary work or original painting 20,000
v. Musical composition 20,000
vi. Cultural performances Approval by Minister

However, the exemption does not apply to paragraph (iii), (v) and (vi), if the payment received forms part of his emoluments in the exercise of the individual's official duties.

12. Income Remitted from Outside Malaysia
With effect from the year of assessment 2004, income derived from outside Malaysia and received in Malaysia by resident individual is exempted from tax.

13. Fees or Honorarium for Expert Services
With effect from the year of assessment 2004, fees or honorarium received by an individual in respect of services provided for purposes of validation, moderation or accreditation of franchised education programmes in higher educational institutions is exempted. The services provided by an individual concerned have to be verified and acknowledged by the Lembaga Akreditasi Negara (LAN). However, the exemption does not apply if the payment received forms part of his emoluments in the exercise of his official duties.

14. Income Derived from Research Findings
With effect from the year of assessment 2004, income received by an individual from the commercialization of the scientific research finding is given tax exemption of 50% on the statutory income in the basis year for a year of assessment for 5 years from the date the payment is made. The individual scientist who received the said payment must be a citizen and a resident in Malaysia. The commercialized research findings must be verified by the Ministry of Science, Technology and Environment.

Notification Of Chargeability To Tax

If and individual is taxable and has never received any income tax return form before, he has a duty to notify chargeability to the nearest LHDNM office and request for an Income Tax Return Form.

If an individual already has an income tax file but has not receive an income tax return form by 31st March, he must immediately request for the said form from the LHDNM office which issued his last income tax return form. A taxpayer could also download an income tax return form from the LHDNM website http://www.hasil.gov.my. He must then complete and submit the return to the LHDNM office using the address where his income tax file is situated.

In the case of a foreigner employed in this country he must give notice of chargeability to the nearest LHDNM office within 2 months of arrival in Malaysia
Change of Mailing Address

A registered taxpayer must inform LHDNM of any change in the correspondence address within three months from the date a change to avoid any penalty. The income tax file reference number must be quoted in all the correspondences with LHDNM

Filing Of Tax Return

1. The completed and signed Income Tax Return form is to be submittted to the LHDNM office on or before the required date.

2. The completed tax return should be sent to the address of LHDNM office indicated on the said form.