Tax in Malaysia
Malaysia is increasingly recognized as a hub for international Islamic finance, while also emerging as a regional center for financial services, information and communications technology (ICT), and logistics. Additionally, the country has long been a significant exporter of oil, gas, and palm oil. With this growing interest in doing business in Malaysia, it’s crucial for entrepreneurs and companies to understand the various factors affecting businesses in the country, including the impact of taxes on net income.
Similar to other nations, Malaysia imposes a range of taxes that businesses and individuals need to consider when planning to relocate or conduct business operations in the country. Understanding Malaysia’s tax system is essential for proper tax filing and to estimate one’s net salary or income accurately. Familiarizing oneself with the Malaysian tax landscape is key to being prepared for any tax-related contingencies. Below are some of the common taxes in Malaysia:
Corporate Tax
In Malaysia, the income tax system follows a territorial approach, meaning that both resident and nonresident companies are taxed on income derived from within Malaysia. However, income earned by a resident company from sources outside Malaysia is generally exempt from taxation. It’s important to note that this exemption rule does not apply to certain sectors such as banking, insurance, and sea and air transport undertakings.
The standard corporate tax rate applicable to both resident and non-resident companies is 24%. However, resident companies meeting specific criteria related to paid-up capital and control are eligible for a reduced tax rate. For the first 600,000 MYR of chargeable income, these resident companies are taxed at a rate of 17%. Any chargeable income exceeding 600,000 MYR is taxed at the standard rate of 24%.
Foreign Income:
Foreign-sourced income is generally exempt from corporate tax in Malaysia, except for income derived from banking, insurance, and air and sea transport operations, which are taxable. Foreign-sourced income refers to income derived from tax jurisdictions outside Malaysia, and determining its source can be complex. Typically, income is considered foreign-sourced if it arises from activities conducted abroad. Taxpayers bear the burden of proving that their income is foreign-sourced.
Goods and Services Tax (GST):
Malaysia’s Goods and Services Tax (GST) has two rates: 6% and 0%. Most goods and services are subject to the general rate of 6%, while certain items like exported goods, international services, basic food items, and qualified books are zero-rated. GST-exempt items include residential properties, financial services, childcare and private education, healthcare, and public transport. Businesses with an annual turnover exceeding RM 500,000 are required to register for GST, while voluntary registration is possible for those below this threshold. Non-GST registered businesses cannot charge or collect GST on their supplies.
Personal Tax:
Individuals earning income in Malaysia are subject to personal income tax, which is calculated based on a graduated tax system with rates ranging from 1% to 20%. Recent tax amendments reduced the tax rate for individuals earning above RM 50,000 to RM 70,000 from 14% to 13%. Various tax incentives and reliefs introduced in 2020 were expanded and extended. Non-citizen individuals in key positions in companies relocating to Malaysia may benefit from a flat tax rate of 15% if they meet specific criteria.
Withholding Tax:
Withholding tax is deducted by payors on income earned by payees and remitted to the Inland Revenue Board (IRB). It applies to payments for services or the use of movable property when the payee is a non-resident in Malaysia. Examples of transactions subject to withholding tax include interest, royalty, technical fees, and contract payments. Payors must ensure proper completion of payment forms and documentation when remitting withholding tax to non-resident payees.
Stamp Duty:
Stamp duty in Malaysia is imposed on instruments rather than transactions and varies based on the nature of the instrument and the value of the transaction. Property transfers, share transfers, and service and loan agreements are common transactions subject to stamp duty. The rates are usually tiered. Various reliefs, exemptions, and remissions are available for stamp duty, such as relief on asset transfers between associated parties and exemptions for certain financing and loan agreements.
Personal and corporation taxation
Corporate Tax Compliance & Planning Services
Sales and Services Tax (SST) Service in Malaysia
Tax planning and tax filing can be taxing and time consuming. We provide company and personal tax services for companies and individuals, ensuring all tax returns are filed and submitted on a timely basis to avoid tax penalties that are due to late submissions. Regulatory compliance is amongst our core competencies. We offer professional and technical advice in all aspects of Malaysian tax laws.
This is especially critical due to the new Self Assessment Regimen implemented by the Lembaga Hasil Dalam Negeri (“LHDN”) that requires companies and individuals to assess their income and make payments on taxes due on a timely basis. Accounting records would also have to be kept updated, as the LHDN would randomly be performing “tax audits” from time to time.
Our tax services division formulates effective strategies to:-
- Effectively maintain tax compliance with relevant laws
- Optimise tax incentives to reduce tax liability
- Implement innovative tax planning methods
Our tax professionals work to deliver value added tax planning services, working with our clients to provide approaches and solutions to critical tax and business issues. Here are some of the areas in which our tax services division can add value to your firm.
In conclusion, Malaysia remains a dynamic and open economy, continually adapting its policies to foster economic growth. The recent amendments to the tax system in 2021 reflect the government’s efforts to provide relief and benefits to taxpayers amidst evolving economic conditions.
However, navigating these changes can be challenging for taxpayers. If you require assistance in understanding and leveraging the various tax incentives, or if you need support with tax filing in light of recent amendments, Bayabumi Sdn Bhd. Malaysia is here to help. Our team of tax experts can provide guidance and support tailored to your specific needs. Contact us today to speak with our professionals and ensure you’re on the right track with your tax affairs!
