Malaysia Income Tax System

Income tax refers to an amount of tax that an individual or company is obligatory to fulfill according to their annual income. The amount is determined according to government’s graduated scale. Malaysian government imposes various kind of tax that can be divided into income tax, gift tax, property tax, corporate tax, estate tax and many more.

Income tax is imposed based on territorial basis. Starting from 1st of January 2004, foreign income sent into Malaysia does not have to fulfill the tax. Income tax imposed on individuals vary from 0 up to 28 percent after deducting personal relief while for non-resident, tax imposed is 28 percent without personal relief.

Malaysian government evaluates taxpayers’ liability in two different methods that are formal assessment system and also self-assessment system. Formal assessment system is whereby taxpayers need to fill up forms to affirm their income. Later on, taxpayers are required to pass the forms back to Inland Revenue Board. The board would then determine the final assessment. Taxpayer will receive a notice of assessment prepared by the board. The form states the tax amount that the taxpayers need to settle to IRB.

While in self-assessment system, taxpayers also need to fill up forms before submitting it back to IRB. However, the next step is different from formal assessment system. In formal assessment system, the notice of assessment would be sent to taxpayers. In self-assessment system, no notice of assessment would be issue to taxpayers. Instead, taxpayers need fulfill the required amount through monthly payments before the due date. The amount is based on the estimation by the taxpayers themselves.
As referred to the above system, residents need to fill up tax return form (FORM BE) the latest by 30th April the following year. Taxpayers need to settle the balance after filling up the form and upon receiving notice of assessment that is by 30th of June. Taxpayers with business source income are also required to file in From B and settle the amount of tax as imposed by IRB.

Non-resident who does not have business source income is also required to fill up Form M and submit it the latest by 30th April the following year. They have to settle the balance by 30th of April. While for non-resident with business source income, they need to submit the tax return form by 30th of June the following year. The balance is due on 30th of June.


Residence rules

Malaysian residents are required to settle and pay the balance of tax imposed based on their annual income. The question is, how does one defined an individual as a resident of Malaysia?

An individual residency is decided based on his or her physical presence in the country. An individual is considered a resident for a particular year according to these rules such as staying in Malaysia up to 182 days or more than that, the individual resides in Malaysia for less than 182 days but that period is however linked to another 182 days or more in that particular year. The absences from Malaysia is due to seminars, study abroad connected with services in Malaysia, social visits of any family member not exceeding 14 days provided the individual is in Malaysia prior to and after that absence.

An individual will also be imposed to tax charges if he or she is in Malaysia for a total of 90 in the year basis with three out of four preceding basis years and the individual was residing in Malaysia for at least 90 days. Lastly, an individual is also considered a resident if he or she is present in Malaysia for less than 90 days in a year but has been residing in the country for preceding three years.