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Income Tax in Malaysia

Updated on Tuesday 30th March 2021

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Incomes derived from Malaysian sources are assessed on a yearly basis for companies as well as individuals. For companies this year can coincide with the calendar one, however, this is now always mandatory. The income tax in Malaysia applies to all income derived from the country, be it from a business, a partnership, interest, dividends, premiums, salary, and other earnings. Please keep in mind that this article briefly summarizes the principles for taxation in the country. should you wish to know more, about the corporate income tax or the personal income tax principles, please reach out to our team of tax lawyers in Malaysia. 
 

Basic taxation principles in Malaysia

 
Companies, as well as individuals who derive income from a Malaysian source, are subject to the laws in force applicable in terms of taxation. Some of the most important principles to keep in mind when discussing the income tax in Malaysia are the following:
 
  1. The type of income: business profits, employment remuneration, dividends, interest, royalties, rents, premiums, pensions, annuities, and others;
  2. Exemptions from taxation: certain types of income can be exempt from tax and these can include certain dividend payments, death gratuities, compensations for the loss of employment, and others;
  3. The assessment: a self-assessment method is applicable and companies and individuals in the country are obliged to responsibly determine their tax liability;
  4. Incentives: a number of tax incentives are available in selected industries, such as for companies in the manufacturing, hotel, or healthcare sectors; our lawyers in Malaysia can give you more details. 
Here is a video presentation with details about the income tax in Malaysia: 
 


The corporate income tax in Malaysia

 
Resident companies in the country are taxed on their worldwide income while non-resident entities only on the income they derive from Malaysian sources. For the purpose of taxation, a company is considered a Malaysian resident if it has its place of management and control in the country. The following are the main taxes for companies in Malaysia:
 
  • 17%: this is the corporate income tax applicable on the first 600,000 RMN (increased from 500,000 RMN for the year of assessment 2020) for resident companies that are small or medium-sized;
  • 24%: this is the standard corporate income tax in Malaysia, applicable to most companies and to those that are subject to the reduced rate, once the threshold is exceeded;
  • 10%: the rate applicable to rental of movable properties, technical or management services fees as well as the withholding tax on dividends;
  • 15%: the tax applicable to interest; an exemption applies to interest that is paid to a non-resident by a bank or finance company in Malaysia.
 
Our team of attorneys in Malaysia can give you more information about these tax rates and our team can provide complete tax consultancy as needed according to the type of company, size, and business field. Companies are expected to submit an estimate for the tax payable during the current year of assessment. The tax return is to be filed within seven months of the end of the company’s tax year. Our team can provide you with more details about the conditions set forth by the Inland Revenue Board. 
 

The personal income tax in Malaysia 

 
Individuals are also subject to tax based on residency. In order to be considered a tax resident, one must stay in the country for at least 182 days during one calendar year, for 90 or more during the tear and in any of the 3 or for years that follow or in other conditions (applicable to business trips, social visits or medical treatments). Our team of lawyers in Malaysia can help you understand these conditions if you are a foreign national who is subject to taxation. The taxation system of individuals is subject to 12 different tax rates, starting with an income of 5,001 MYR. Below, we highlight the main rates for the income tax in Malaysia applicable to individuals: 
 
  • 0% on the first 5,000 MYR;
  • 1% for an income between 5,001 and 20,000;
  • 3% for 20,001 and 35,000;
  • 8% for the next 15,000, income between 35,001 and 50,000;
  • 14% for income between 50,001 and 70,000;
  • 21% for income between 70,001 and 100,000;
  • 24% for income between 100,001 and 250,000;
  • 24.5% for income between 250,001 and 40,000;
  • 25: in case of income between 400,001 and 600,000;
  • 26% when the income is between 600,001 and 1 million;
  • 28% on the next 1 million (between 1,000,001 and 2 million);
  • 30% on over 2 million MYR.
 
The income tax in Malaysia for non-residents is different, with a 15% rate applicable to professional income for public entertainers and 10% for special classes of income such as the rental of movable property, technical or management services fees as well as in other cases. For individuals who derive income from Malaysia the tax year is the same as the calendar one and a self-assessment regime applies in the country. 

Contact the tax experts at our law firm in Malaysia for more information about the income tax and the current taxation principles.