In Malaysia, income is taxable on modified territorial basis. Generally, any income accruing in or derived from Malaysia is taxable locally notwithstanding the fact that the income may not have been received in Malaysia. However, a foreign source income received is exempted from income tax with the exception of resident companies carrying on business of sea/ air transport, banking or insurance which are assessable on a world income scope.

Revenue income receipts are chargeable to income tax whereas capital receipts are not.

A resident individual is subject to income tax at scale rates of 0% to 28% with effect from year of assessment (YA) 2016 on his chargeable income. Resident individual is entitled to personal reliefs. An individual is regarded as tax resident based on his number of days stayed in Malaysia. Basically, he has to be in Malaysia for at least 182 days in a calendar year to be considered as resident for tax purposes.

The self-assessment system (SAS) for individuals (include salaried individuals and sole proprietors) and for partnerships was implemented with effect from YA 2014. Under the SAS taxes are collected from employees through monthly deductions from salary under the Scheduler Tax Deduction (STD) system. Individuals having business income are required to pay their income tax liability through bi-monthly instalments.

Individuals are required to file their completed income tax return forms to the Inland Revenue Board (IRB) together with the payment of the balance of tax payable, if any. The tax filing deadline is 30 April of the following year for individuals with no business income; and 30 June of the following year for individuals carrying on business.

A non-resident individual is liable to income tax at a flat rate of 28% with effect from YA2016. Non-resident individual is not eligible for personal reliefs. However, non-resident individual is exempt from tax on employment of 60 days or less.

For YA 2017 and YA 2018, a resident company is subject to corporate tax rate of 20% to 24%. Small and medium enterprise (SME), i.e. a resident company with paid up capital of RM2.5 million and below at the beginning of basic period is subject to corporate tax rate of 18% on first RM500,000 chargeable income and 20% to 24% on subsequent chargeable income. A company is tax resident in Malaysia if its management and control is exercised in Malaysia. Management and control is generally considered exercised in the place where board of directors meeting is held.

A non-resident company is subject to corporate tax rate of 24%, with effect from YA 2016.

The SAS for companies came into effect from YA2001.
Under the SAS, every company is required to determine and submit in a prescribed Form CP204 an estimate of its tax payable for a YA, 30 days before the beginning of the basis period. When the estimate of tax payable has been submitted to the IRB, the company is required to remit this amount to the IRB in 12 equal monthly instalments. Each monthly instalment is due and payable to the IRB by the 15th day of the following month. Under SAS, all companies must file the tax returns within 7 months from the end of the accounting period.

Non-resident individuals and companies are subject to the following withholding tax:

Type of Income Rate %
Royalty 10
Rental of moveable properties 10
Technical or management service fees 10
Interest 15
Public entertainer 15
Contract Payment on:-
– contractor
– employee
10
3
Other income such as commission, guarantee fee,
agency fees and etc
10

Where the recipient is a resident of a country which has a double tax treaty with Malaysia, the above withholding tax rates may be reduced.

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