Content Outline
Introduction
The most common type of business structure in Malaysia is Sdn Bhd, but many entrepreneurs opt for partnerships because its initial cost and compliance requirements are easier.
For that reason, a Sole Proprietor income tax is more likely to do their own. Remember, hiring a qualified tax agent may not be as costly as you might think but independence is one of the key characteristics of entrepreneurs and hey, that’s why we are here to support wherever possible.
If you are new to the world of income tax as a Sole Proprietor, then this post will reveal key information for you to fulfill your tax responsibilities.
Key Takeaways
- As a Sole Proprietor handling their own income tax, four key terms to understand are: Chargeable income, marginal tax rates, progressive tax system, and tax deductions.
- Marginal tax rates spread your total chargeable income across lower and higher tax brackets based on their respective limits, resulting in lower total taxes owed.
- Sole Proprietors need to fill in a specific form called Form B. Here’s a link to the 2022 Form B in English and 2022 Form B in Bahasa Melayu.
- The deadline to submit Form B is by 30th June every year. Be careful to make sure you have the latest version of the document!
- To submit online, register for an account on MyTax
- To submit physically, fill out and print the Bahasa Melayu version of Form B according to LHDN printing guidelines and deliver it to their address (find it at the end of the guide).
Key Terms Understanding
Though we don’t want to overwhelm you, we know how irritating it can be when an unfamiliar term pops up and makes us have to make an blind guess. To clearly understand the rest of this guide, here are four terms you should get familiar with:
- Chargeable income
The income after subtracting allowable deductions, exemptions or allowances. This is the part that gets taxed. - Tax deductions
Various expenditures that can be deducted from your taxable income, minimizing the amount of taxes due. - Progressive tax system
The tax rate becomes progressively higher for chargeable incomes beyond. - Marginal tax rate
In the case of a proportional tax system, your overall taxable income can be distributed across multiple brackets that are allocated based on their given limits of either lower or higher taxes. This means that you pay less than had your whole chargeable income been taxed in one of the higher brackets.
Having cleared that, let us check how income tax is computed in Malaysia.
Malaysia’s Income Tax Brackets and Rates
| Chargeable income (RM) | YA 2023 and YA 2024 | |
| Tax (RM) | % on excess | |
| 5,000 | 0 | 1 |
| 20,000 | 150 | 3 |
| 35,000 | 600 | 6 |
| 50,000 | 1,500 | 11 |
| 70,000 | 3,700 | 19 |
| 100,000 | 9,400 | 25 |
| 400,000 | 84,400 | 26 |
| 600,000 | 136,400 | 28 |
| 2,000,000 | 528,400 | 30 |
Let’s examine marginal tax rates using a fictional example: meet Sarah – a very successful freelance designer wanting to become famous in the design world.
Let’s say Sarah’s total chargeable income for 2023 after applying relevant deductions amount to RM150,000, This implies her income range falls within RM 150,000 and the computation as follows:
| Category | Income Range | Calculation (RM) | Tax % |
|---|---|---|---|
| A | 0 – 5,000 | On the First 5,000 | 0 |
| B | 5,001 – 20,000 | On the First 5,000 Next 15,000 | 1 |
| C | 20,001 – 35,000 | On the First 20,000 Next 15,000 | 3 |
| D | 35,001 – 50,000 | On the First 35,000 Next 15,000 | 6 |
| E | 50,001 – 70,000 | On the First 50,000 Next 20,000 | 11 |
| F | 70,001 – 100,000 | On the First 70,000 Next 30,000 | 19 |
| G | 100,001 – 400,000 | On the First 100,000 Next 300,000 | 25 |
| H | 400,001 – 600,000 | On the First 400,000 Next 200,000 | 26 |
| I | 600,001 – 2,000,000 | On the First 600,000 Next 1,400,000 | 28 |
| J | Melebihi 2,000,000 | On the First 2,000,000 Next ringgit | 30 |
Add them all up and Sarah is liable to LHDN for RM22,700 of income tax.
On the other hand, if marginal tax rates were not applied to Sarah’s RM150,000 income, it would simply be subjected to a flat rate of 24%, thus paying tax of RM36,000, This stumbling block may quench her dreams of getting that vivid titanium color MacBook Pro for the advancement of her design envelope.
If your sole proprietorship is taking you into tax brackets above 17%, it may be worth converting to a Sdn Bhd to enjoy the lower overall tax burdens. Consult with our expert to assess your current financial situation.
Tax-Related Documents
Residents in Malaysia with business income will file Form B, a unique document for sole proprietors, once annually before 30 June.
2022 Form B in English and 2022 Form B in Bahasa Melayu.
Read official LHDN guides on how to navigate Form B and input information correctly.
Since the official guides are quite voluminous we suggest starting to read ours so one will be armed with some background knowledge.
Let us round up this by elaborating on tax deductions, tax refunds and filing taxes with LHDN.
Tax Deductions
Sole proprietorship business in Malaysia can also claim several tax deductions, such as business expenses, depreciation on assets, employee salaries , EPF contributions , travel costs of the business , professional fees , insurance premiums ,interest payments and expenditure for training and education Additionally it may be entitled to potential write – offs for bad debts. In order to comply with the changing tax laws and to make the most from available deductions in taxes, it is necessary for individuals to keep accurate records at all times and seek advice from tax professionals.
| Personal Deductions (Reliefs) | Maximum Deduction (MYR) |
|---|---|
| Medical Expenses | |
| – Parents | 8,000 |
| – Self, Spouse, or Child | 10,000 |
| – Disability-Supporting Equipment | 6,000 |
| Pension/Provident Funds and Insurance Premiums | |
| – Approved Pension/Provident Fund Contributions | 4,000 |
| – Life Insurance Premiums | 3,000 |
| – Contributions to Private Retirement Scheme and Deferred Annuity Scheme | 3,000 |
| – Premiums for Education or Medical Benefits | 3,000 |
| – Deposit under National Education Savings Scheme | 8,000 |
| – Employee’s Contribution to SOCSO | 350 |
| Education Fees | |
| – For a Course of Study in Malaysia (Up to Tertiary Level) | 7,000 |
| – For a Degree at Masters or Doctorate Level | 7,000 |
| Lifestyle Relief | |
| – Purchase or Subscription of Books, Journals, etc. | 2,500 |
| – Purchase of Personal Computer, Smartphone, or Tablet | 2,500 |
| – Purchase of Sports Equipment and Gym Membership | 2,500 |
| – Internet Subscription | 2,500 |
| – Additional Relief for Sports Equipment, Fees, and Competitions | 500 |
| – Purchase of Breastfeeding Equipment (Once Every Two Years) | 1,000 |
| – Fees Paid to Childcare Centre and Kindergarten | 2,000 (up to 3,000 for 2020-2024) |
| – Costs Related to Electric Vehicle Charging Facilities (2022-2023) | 2,500 |
| Personal Reliefs (Year of Assessment 2021) | |
| – Self | 9,000 |
| – Spouse (under joint assessment) | 4,000 |
| – Child (Below 18 Years) | 2,000 |
| – Child (Over 18, receiving full-time instruction or higher education) | Up to 8,000 |
| Disabled Individuals | |
| – Self (Additional) | 6,000 |
| – Spouse (Additional) | 5,000 |
| – Child (Physically or Mentally Handicapped) | 6,000 |
| – Additional Relief for Child Over 18 in Higher Education or Trade/Profession | Up to 8,000 |
Business expenses
Business costs include anying incurred while running your Sole Proprietorship. These include everything from rent on the building to utilities and office supplies, employee salaries and advertising/promotions bills, insurance charges pricing and the costs of travel or professional commissions. If these expenses are handled carefully, it is possible to run a business smoothly while optimizing the financial means of resources used.
Donations
Assets such as cash given to charitable organizations that are recognized in the country or towards a cause approved by the State select institutions can be used for tax reduction. Please visit LHDN’s official portal for the full and updated list of qualifying tax-deductible donations.
Personal reliefs
Personal reliefs apply same way as individual citizens, separate from the deductions of activities linked to business. LHDN provides an official list of personal tax reliefs to qualify for privileges entitled to individuals. These reliefs act as individual amenities which enable the use of particular tax dispensations and advantages in regard to various aspects of an individual’s personal life. Understanding and leverage of such reliefs can help anyone to improve their tax position by definition minimizing their income which is liable for paying taxes.
Reminder: allowable deductions change
But this is not something you can memorise overnight and as the list changes with time, it is wise to either refer to the official links above or seek advice of a tax advisor every year.
Your final taxable income is the amount remaining after eliminating all the tax deductions, and as already stated it is also necessary to ensure that any claims you make are fully supported with proper documentation including receipts, invoices or for payment vouchers.
Now on to the last part.
Form B Filing Options and Deadlines
The deadline for filing Form B to the Inland Revenue Board of Malaysia LHDN is every year on June 30 th . This is the deadline upon which individuals, especially taxpayers are required to meet the cost of filling Form B which refers to as income tax return form for an individual who has any other source of income apart from earning purely from one’s business. It is crucial for tax payers to meet this deadline in order to provide with the competent and trustworthy information regarding their financial operations. In case of being late for Form B submission, it will certainly lead to penalties or other issues provided by the tax regulations. Hence individuals are highly advised to do and submit their Form B before 30th June so that they fulfill its tax obligation and at the same time no any likely consequences or punishments on one’s part.
Submissions can be made either online or in person, providing flexibility and convenience for all.
For Online Sole Proprietor Income Tax Submission:
To complete your tax submission Sole Proprietor income tax online, follow these steps:
- Register for an account on MyTax.
- Go to the LHDN e-Filing platform and choose e-B.
- Complete the form with the necessary information.
- Submit the filled form electronically.
For Physical Sole Proprietor Income Tax Submission:
To fulfill the requirements for Form B in Bahasa Melayu, follow these steps according to LHDN printing guidelines:
- Get a form B in Bahasa Melayu from either the official LHDN website or designated LHDN branches.
- Fill in the form with accurate information, leaving no necessary details about your financial condition.
- Observe rules provided by LHDN on printing such as using certain fonts, sizes and formatting to ensure that the printed form would satisfy their standards.
- The now completed form should then only be printed very well with a good, clear and legible quality printer.
- After you have printed them, double check the form to make sure that all of the information is easy to see and accurate.
- Submit the printed Bahasa Melayu version of Form B to any LHDN office. The address of the place to submit can be easily obtained from LHDN website or directly with LHDN.
Following these steps will guarantee that you comply as language and printing are concerned with the submission of your Bahasa Melayu Form B to LHDN through either electronically or via postal mail.
Lembaga Hasil Dalam Negeri Malaysia
Seksyen Pengurusan Rekod & Maklumat Percukaian
Jabatan Operasi Cukai
Karung Berkunci 00222
43650 Bandar Baru Bangi
Selangor, Malaysia.
Consider Hiring a Qualified Tax Agent
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