Expatriate tax ebook - Malaysia

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Deductions against income

Charge to tax
Income tax is charged for each YA on the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia (foreign source income received in Malaysia is not taxed, with effect from YA 2004).

Residence
An individual is considered resident in Malaysia for the basis year for a particular YA if they are:

  • in Malaysia for a period or periods amounting in total all to 182 days or more;
  • 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;
  • in Malaysia for a period or periods amounting in all to 90 days or more, having been a resident in Malaysia or in Malaysia for periods amounting in all to 90 days or more with respect to each of any three of the basis years for the four YA immediately preceding that particular YA; 
  • resident in Malaysia for the basis year for the YA following that particular YA, having been so resident for each of the basis years for the three YA immediately preceding that particular YA.

Income from employment
The definition of employment income for tax purposes includes any wages, salaries, remuneration, leave pay, fee, commission, bonuses, gratuities, perquisites and allowances in respect of having or exercising the employment.

Also includes any benefit, amenity or living accommodation provided to the employee, contribution made by an employer to an unapproved pension or provident fund and any amount received by way of compensation for loss of employment.

It is mandatory for an employer to deduct tax from the monthly remuneration of each of the employees, both locals and expatriates for remittance to the Malaysian Inland Revenue Board (MIRB). The deduction would be based on the issued by the MIRB. STD will be treated as a tax credit against the tax liability of the employee or expatriate. Non compliance with the STD rules by the employer will be subject to a maximum fine of RM1,000 or a maximum prison sentence of six months or both. Perquisites from employment or benefits in kind are also subject to STD.

Source of 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.

Benefits (in kind)
Generally for Malaysian tax purposes, all wages, salaries and payments in cash or in kind in respect of employment exercised in Malaysia are taxable in full. The provision of certain benefits in kind is taxed on a concessionary basis.

With proper implementation, certain benefits can be provided to an employee in a tax advantageous manner.

The taxation treatment of more common types of benefits are summarised below:

Accommodation
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.

Car expenses
The benefits to be assessed will be the value of the use of a private car and fuel provided, based on a calculation table provided by the MIRB.

Education
Tuition or school fees paid by the employer will be assessed fully as a benefit in kind to the employee.

Utilities
The amount of the benefit that is taxable is based on actual service charges and bills paid by the employer.

Expatriate concessions
Expatriate concessions are generally not applicable in Malaysia. However, additional tax benefits are available for expatriates from operational headquarters, regional offices, international procurement centres and regional distribution centres in Malaysia.

Foreign source income
Foreign source income remitted to Malaysia by individual taxpayers is exempt from tax in Malaysia.

Deductions against income
Expenses wholly and exclusively incurred in the production of income are tax deductible. However, there are a limited amount of deductions that are deductible against employment income.

Personal relief
Malaysian resident individuals are entitled to personal relief. Some of the more common types of relief are summarised below:

YA 2013 RM
Personal relief 9,000
Spouse relief (if elected for combined assessment) 3,000
Child relief (per child below 18 years of age) 1,000
Disabled child (unmarried) 5,000
Life insurance premium/ approved fund 6,000
Insurance premium for education/ medical 3,000

Information about Malaysia:

  • introduction
  • facts and figures
  • basis of taxation
  • what taxes?
  • tax planning opportunities
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    Last updated March 2013

    This information has been provided by SJ Grant Thornton, the Malaysian member firm within Grant Thornton International Ltd and is for informational purposes only.  Neither SJGrant Thornton nor Grant Thornton International Ltd can guarantee the accuracy, timeliness or completeness of the data contained herein.  As such, you should not act on the information without first seeking professional tax advice. 
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