All Malaysian individuals and companies are subject to a variety of direct and indirect taxes, many requiring annual returns or payments. This guide describes the various taxes in Malaysia, including which are payable by whom and what the related tax rates are.
Content Outline
Corporate income tax
In Malaysia, corporate income tax is a direct levy imposed on resident and non-resident companies by the government on income derived from Malaysia. The corporate income tax rate depends on the type of company.
Corporate tax rates in Malaysia
In Malaysia, the standard corporate income tax rate is 24 %. Other corporate tax rates include the following:
| Type of company | Tax rates |
|---|---|
| A resident company with a paid-up capital of RM 2.5 million or less and a business gross income not exceeding RM 50 million. | YA 2022 First RM 600,000 – 17% Remaining balance – 24% YA 2023 First RM 100,000 – 15% RM 100,001 to RM 600,000 – 17% Remaining balance – 24% |
| A resident company without direct or indirect control over another company with a paid-up capital exceeding RM 2.5 million. | |
| A resident company not under the direct or indirect control of another company with a paid-up capital surpassing RM 2.5 million. | |
| Non-resident company | 24% |
Tax residency of a company and basis of taxation in Malaysia
A company is a tax resident in Malaysia so long as during the basis period of the assessment year any time at all management and control of its affairs, or at least one meeting of the Board of Directors are exercised in Malaysia.
Malaysia’s territorial tax system means that both resident and non-resident companies are subject to taxation on income derived from Malaysia.
Foreign-sourced income is excluded from the tax base unless the company conducts business activities in the banking, insurance, air transport or shipping sectors.
Individual income tax
Individual income tax is a personal income tax imposed on the salaries, dividends and various other types of income that a permanent resident can earn in one year.
An individual is a Malaysian tax resident if the individual lives in Malaysia for 182 days or more during a calendar year.
Taxable incomes
The types of taxable income in Malaysia include:
- Employment income
- Profits or gains from a business.
- Dividends, interest or discounts
- Rent, royalties or premiums
- Pension or annuities
- Any perquisites: bills claimed in the current period, company credit cards, loans from a company or other perks provided by the employer that can be converted into cash
Individual income tax rates
Individual income tax rates in Malaysia for YA 2023 are as follows:
| Taxable income (RM) | Tax | Tax on excess (%) |
|---|---|---|
| 5,000 | 0 | 1 |
| 20,000 | 150 | 3 |
| 35,000 | 600 | 8 |
| 50,000 | 1,800 | 13 |
| 70,000 | 4,400 | 21 |
| 100,000 | 10,700 | 24 |
| 250,000 | 46,700 | 24.5 |
| 400,000 | 83,450 | 25 |
| 600,000 | 133,450 | 26 |
| 1 million | 237,450 | 28 |
| Exceeding 2 million | 517,450 | 30 |
The rate for non-residents is taxing of 30 % on the taxable income.
Deductions for individual income tax
The following tax reliefs can be deducted for a resident individual:
| Reliefs | RM |
|---|---|
| Self | 9,000 |
| Spouse (under joint assessment) | 4,000 |
| Child under the age of 18 | 2,000 |
| A child above 18 years old attending full-time education at a tertiary institution in Malaysia or abroad. | 8,000 |
| Disabled: Self | 6,000 |
| Spouse | 5,000 |
| Child: Each physically or mentally handicapped child | 6,000 |
| Additional relief if that child is over 18 and receiving higher education | 8,000 |
Individual income tax return
Malaysia’s self-assessment system puts the responsibility to compute chargeable income, the amount of tax due and actually pay it on the shoulders of the taxpayer.
For those with non-business income, individual tax returns must be submitted by 30 April of the following calendar year. Those with business income must submit theirs by 30 June of the following year.
Sales and service tax (SST)
The SST is a consumption tax that comprises of two elements:
- Sales tax: A single-stage tax imposed on products manufactured and produced locally and on taxable goods imported into Malaysia.
- Service tax: A consumption tax imposed on taxable services provided in Malaysia by a registered service provider carrying out their business.
Sales & service tax rates
The sales tax rates are as follows:
- 5% for items like basic foodstuffs, building materials, fruit juices, personal computers, mobile phones, and watches.
- 10% for other goods, excluding petroleum subject to specific rates and non-exempted goods.
Service tax is set at 6% for all taxable services. However, services imported or exported are exempt from the service tax. The 2024 Budget also stated that the SST rate would be raised from 6 % to 8 %, beginning on March 2024.
Read: Sales & Service Tax (SST) in Malaysia.
Which businesses must apply for SST registration in Malaysia?
Businesses offering taxable goods or services must register for SST if they meet these criteria:
Sales Tax:
- Engaged in manufacturing taxable goods.
- Total sales value in the last 12 months exceeds RM 500,000.
Service Tax:
- Providing taxable services.
- Total value of taxable services within 12 months surpasses the prescribed threshold, typically RM 500,000, though specific services might have different thresholds.
| Additional thresholds | |
|---|---|
| Taxable service provider | Threshold |
| Operators of restaurants, bars, snack-bars, canteen, coffee house or any place providing food and drinks whether eat-in or take-away | RM 1.5 million |
| Persons who are regulated by Bank Negara Malaysia and provide credit card or charge card services | No threshold |
| Approved customs agents | No threshold |
Withholding tax
According to the Inland Revenue Board of Malaysia, withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee) and paid to the Inland Revenue Board of Malaysia.
The payer is a person or body which carries on business in Malaysia; It includes any individual liable to withhold tax on payments for services rendered and other payments made under any agreement for the use of movable property, and paid to the non-resident.
The payee is the non-resident individual or body who receives the payments.
Withholding tax rates
When making payments to a non-resident, the payer must withhold tax at the specified rates:
| Payment type | Withholding tax rates |
|---|---|
| Contract payment | 3%, 10% |
| Interest | 15% |
| Royalties | 10% |
| Technical fees, payment for services, rent/payment for the use of moveable property | 10% |
| Interest paid by approved financial institutions | 5% |
| Income of non-resident public entertainers | 15% |
| Real Estate Investment Trust (REIT) Other than a resident company Non-resident company Foreign investment institution | 10% 25% 10% |
Real property gains tax
Real property gains tax is a tax on chargeable gains that homeowners and businesses have to pay when selling their property in Malaysia. If property is sold with a loss, you are not required to pay real property gains tax.
Real property gains tax rates
The rates for real property gains tax are as follows:
| Disposal | Citizens/permanent residents | Foreigners | Companies |
|---|---|---|---|
| Year 1 – 3 | 30% | 30% | 30% |
| 4th year | 20% | 30% | 20% |
| 5th year | 15% | 30% | 15% |
| 6th and onwards | N/A | 10% | 10% |
Read Real Property Gains Tax (RPGT) Exemption and Rates
Real property gains tax exemption
Exemptions that apply to real property gains tax are:
| Exemption | Exemption amount | Eligible persons |
|---|---|---|
| An exemption once in a lifetime on any chargeable gain from the disposal of a private residence. | RM 10,000 or 10% of the chargeable gain, whichever is higher | Malaysian citizens and permanent residents |
| Exemption from gains when transferring a property within the family (wife and husband, parent and child or grandparent and grandchild). Transfer between siblings is excluded. | 100% exemption on the chargeable gain | Malaysian citizens and permanent citizens |
| Exemption from disposal on low-cost residential homes of RM 200,000 and below in the 6th year and thereafter. | 100% exemption on the chargeable gain | Malaysian citizens only |
When to pay real property gains tax?
If you sell your property, it is particularly important to file the real property gains tax return within 60 days of the sale. Otherwise a 10 % penalty will be imposed due to late filing.
Stamp duty
Stamp duty is a tax applied to legal documents and is categorized into two types.
Types of stamp duty
There are two categories of stamp duty in Malaysia:
- Fixed duties: These are set prices covering stamps for individual policies or copies.
- Ad valorem duties: Variable costs determined by the value of the transaction represented by the legal document.
Documents subjected to stamp duty
Documents subject to stamp duty include:
- Transfer of real properties
- Share transfers
- Business transfers
- Rental or lease agreements
- Securities
- Sale of annuities
- General stamping
- Company duty payments
- Repayments
- Appeals
Conclusion
All companies and individuals subject to taxation in Malaysia must diligently fulfill their tax obligations. To ensure compliance and ease your tax burden, engage with the exceptional tax services offered by FastLane Group.
