Malaysia operates a self-assessment taxation system that is administered by the Inland Revenue Board of Malaysia (IRBM). The Malaysian taxation system comprises of both direct and indirect taxes.
Double Taxation Agreements
Malaysia has signed double taxation agreements with several countries, including the United States, Canada, and most of the EU member states. These agreements aim to avoid double taxation on income earned in both Malaysia and the other country. They also provide relief from withholding taxes on dividends, interest, and royalties.
Main Taxes for Expats
Income Tax
Expats who are considered resident in Malaysia for tax purposes are subject to income tax on their worldwide income. The income tax rates for resident individuals are progressive, ranging from 0% to 30%.
Non-resident individuals are only taxed on their income earned in Malaysia. The income tax rate for non-resident individuals is a flat rate of 30%.
Social Security Tax
Employees in Malaysia are required to contribute to the Employee Provident Fund (EPF). The EPF is a retirement savings scheme that is administered by the Employees Provident Fund (EPF) Board.
Employers are also required to contribute to the EPF on behalf of their employees. The contribution rate for employees and employers is a minimum of 11% of the employee’s monthly salary.
Sales and Service Tax
The Sales and Service Tax (SST) is a tax on the sale and provision of goods and services in Malaysia. The SST replaced the Goods and Services Tax (GST) in 2018.
The SST comprises of two components: the Sales Tax and the Service Tax. The Sales Tax is a tax on the sale of goods, while the Service Tax is a tax on the provision of services. The SST rates vary depending on the type of goods or services provided.
Special Tax Breaks for Expats
Tax Incentives
Malaysia offers various tax incentives to attract foreign investment and highly skilled workers. Some of the incentives available to expats include tax exemptions, tax deductions, and tax rebates.
Expats may be eligible for tax incentives if they meet certain conditions, such as investing in specific industries or living in certain regions of Malaysia.
Filing a Tax Return in Malaysia
Expats who are considered resident in Malaysia for tax purposes are required to file a tax return each year. The tax return must be filed by April 30th of the following year.
Expats can file their tax returns online using the IRBM’s e-Filing system. To do so, they need to obtain a username and password, which can be obtained by visiting one of the IRBM offices in person.
When filing a tax return, expats need to provide details of their income, deductions, and credits for the relevant tax year. If they have any foreign income or assets, they may also need to declare them on their tax return.
Tax Exit Procedures
Expats who are leaving Malaysia to move abroad need to follow certain tax exit procedures. Firstly, they need to notify the IRBM of their departure and provide details of their new address abroad. They should also settle any outstanding tax liabilities before leaving Malaysia.
If an expat is considered non-resident for tax purposes, they are only liable for Malaysian income tax on income earned in Malaysia. However, they may still be liable for Malaysian tax on any income or gains that arise from Malaysian sources, such as rental income or capital gains from the sale of a Malaysian property.
Expats who have paid tax in Malaysia may be entitled to claim a refund of some of the tax they have paid. To do so, they need to file a tax return for the relevant tax year and claim the refund through the normal tax refund process.
The taxation system in Malaysia is relatively straightforward compared to some other countries in the region. Expats in Malaysia need to be aware of the main taxes that apply to them, such as income tax, social security tax, and sales and service tax, as well as any special tax breaks that may be available. They also need to ensure they file their tax returns on time and follow the tax exit procedures if they are leaving Malaysia to move abroad. By understanding the Malaysian tax system, expats can ensure they are complying with their tax obligations and maximizing any tax benefits available to them.