Global Mobility & Malaysian Tax

Many expatriates working in Malaysia come to us for advice on immigration assistance, tax planning and for assistance with local tax assessments. This section has been prepared for the benefit of expatriates working in Malaysia. It is intended to give only a basic understanding of the taxation laws and is not intended to be comprehensive. Accordingly, it should not be used as the basis for specific action. We recommend that readers seek professional advice before acting on any of the matters discussed in this section. If you have any enquiries relating to the taxation of foreign nationals working in Malaysia, please consult our tax affiliate at enquiry@rabinco.com.my.
 

Income Tax:

Who is Liable / Residency

SCOPE

Malaysia operates on a territorial basis of assessment i.e. only Malaysia-sourced income which is accrued in or derived from Malaysia is subject to income tax. Income derived from sources outside Malaysia by resident individual is not taxable when received in Malaysia. Remittance of foreign income by a person other than a resident company carrying on a business of banking, insurance, sea or air transport is tax exempt.

EMPLOYMENT INCOME

Employment income in relation to the employment exercised in Malaysia is sourced in Malaysia and hence fully taxable, regardless of who the employer is, where the contract is signed or where the remuneration is paid.

Employment income includes all amounts, whether in cash or in kind, arising from an employment. Examples are salary, bonus, commission, overseas allowance, education payment, housing allowance, utility bills and income tax reimbursement. All these payments are taxable whether paid directly to the employee or on his behalf (e.g. utility bill payments).

Non-cash benefits that are taxable include the use of a car, accommodation provided by employer, stock purchases or savings plans and share options. However, favorable tax treatment is given for some benefits provided to employees, such as housing.

An employee who is not resident in Malaysia for tax purposes and who exercises an employment in Malaysia in a calendar year for not more than 60 days will be exempt from tax. If his stay in Malaysia overlaps two calendar years, exemption from income tax will still be available, provided the employment is not exercised for more than 60 days. Where an employment in Malaysia is exercised for more than 60 days but the employee stays in Malaysia for less than 182 days in a calendar year, he/she will be taxed as a non-resident unless they are able to qualify for relief or exemption from double taxation.

RESIDENT STATUS

Whether you are resident in Malaysia for taxation purposes is determined by reference to your length of stay and the tax resident status is determined on year to year basis.You will qualify as a tax resident in a particular calendar year if you satisfy any of the following tests:

a. You are in Malaysia for at least 182 days in the calendar year;

b. You are in Malaysia for a period of less than 182 days during the year (“shorter period”), but that period is linked to a period of 182 or more “consecutive” days (“longer period”) immediately preceding or immediately following the calendar year, throughout which you were in Malaysia. Any temporary absences from Malaysia of the following nature are regarded as forming part of the longer period:

(i) Absences connected with your service in Malaysia and owing to service matters or attending conferences or seminars or study abroad;

(ii) Absences owing to ill health involving yourself or a member of your immediate family; or

(iii) Absences in respect of social visits not exceeding 14 days in aggregate and you are required to be in Malaysia before and after the temporary absences.

c. You are in Malaysia for 90 days or more during the year and were either in Malaysia for at least 90 days or a resident in any three of the four immediately preceding calendar years; and

d. You are a resident for the calendar year following the year in question and were a resident for each of the three immediately preceding years.

Registration / Formalities

Before you are allowed to work in Malaysia, you must have a valid employment pass. Your Malaysian employer is required to lodge an application for Employment Pass to the Immigration authorities with support from the relevant government approving agencies to justify the need of your expertise.

With effect from August 2016, all Employment Pass holders are required to obtain approval prior to your arrival to Malaysia. If you are already present in Malaysia when the approval of your Employment Pass is granted, you would need to exit Malaysia for a minimum of 72 hours and re-enter before your Employment Pass can be endorsed onto your original passport.

Employment Passes are normally issued for an initial period of between two to three years and are subject to renewal. An employment period of less than 24 months would also now be granted with an Employment Pass without any levy, as previously imposed on the pass.