Malaysia has always been considered a tax-friendly country. Income tax in Malaysia is comparably low and many taxes [which are raised in other countries] do not exist in Malaysia.
The Malaysian taxation system is an essential core subject in accounting and business in Malaysia. The Sales and Services Tax (SST), implemented on 1 September 2018 has added to the depth and complexity of the Malaysia tax system. The Malaysian taxation system involves both legal principles and computational elements. The SST replaces the old Goods and Services Tax (GST) in Malaysia, which was implemented in 2015.
The tax year in Malaysia runs in accordance with the calendar year, beginning 1 January and ending on 31 December. All tax returns have to be completed before 30 April the following year.
The Inland Revenue Board of Malaysia
The Inland Revenue Board of Malaysia (Lembaga Hasil Dalam Negeri Malaysia, LHDN) is the institute responsible for taxation in Malaysia. It provides concise and detailed information on all tax issues including tax deduction cases, the income tax scale for residents and for non-residents and so on.
Who Is Taxable?
In Malaysia, if an individual satisfies any of the following criteria regardless of citizenship, he or she is liable for income tax:
- The individual has been resident in Malaysia for 182 days of the tax year.
- The individual has been resident in Malaysia for less than 182 days of the tax year, but was resident in the country for a total of 182 consecutive days linked to days from the year immediately preceding or following that tax year.
- The individual has been resident in Malaysia for at least 90 days of the current tax year and was resident in Malaysia for at least 90 days in three of the four preceding years.
- The individual will be resident in Malaysia in the year following and has been resident in Malaysia in the three years preceding the one being taxed.
- Expatriates who are in Malaysia under the “Malaysia My Second Home Programme” are not required to pay tax on their pension or income remitted from abroad. However, all income achieved in or derived to Malaysia is liable for tax.
Malaysia has an Agreement for the Avoidance of Double Taxation for several countries. For further details go the website of the Malaysian Inland Revenue Board.
Calculation of Personal Income Tax and
Tax Deduction
In Malaysia, the income tax rate for residents is calculated on the amount of income and is much more precise. The income is classified into 8 different tax groups ranging from 0% to 26%. However, the income tax of non-residents is calculated on a three-step tax rate, 27%, 15% and 10%, depending on the type of income. In addition, taxes like estate duties, annual wealth taxes, accumulated earnings tax or federal taxes are not levied in Malaysia.
Withholding tax
Malaysia imposes withholding taxes on certain payments to non-residents. In fact, withholding tax is essentially a mechanism to collect income tax from certain [groups] of non-residents. It imposes a legal obligation on the party making the payment to the non-resident to withhold tax at source and remits the same to the Inland Revenue Board of Malaysia (IRBM) within a specified time period accompanied by prescribed forms.
Sales and Services Tax (SST)
Reintroduced by the new Malaysian government, the SST was previously the existing tax system in Malaysia before it was placed in 2015 by the GST. Upon the change of administration, the new government scrapped the 6% GST tax and reverted back to the SST system.
Governed by the Sales Tax Act 2018 and the Sales Tax Act 2018, the Sales Tax is a deferral consumption tax imposed on a wide variety of goods, while the Service Tax is levied on customers who consume certain taxable services. Special designated areas which include Langkawi, Tioman and Labuan (but still within Malaysia) are exempted form the Service Tax.
The SST is a single-stage tax, which means that an amount is charged on taxable goods which are manufactured and sold by any taxable person(s) in the country. An amount will be charged on taxable goods which are imported into the country.
The SST is imposed at a rate of 5%, while the service tax rate will be 6%. Specified amount of petroleum products will be taxed at 10%. The service tax is applicable for taxable services which are provided in the country.
Manufacturers will be eligible and considered a taxable person(s) should their taxable goods and services turnover exceed the amount of RM500,000. All SST tax returns must be submitted to the Royal Malaysian Customs Department on a regular bi-monthly basis.
Previous special schemes which were applicable under the GST system will no longer be applicable under the new SST system. These schemes include the Approved Trader Scheme (ATS) and Approved Toll Manufacturer Scheme (ATMS).
Malaysia Taxation is one of the leading accounting firms in Malaysia with its professional team. Malaysia Taxation is not only capable of providing professional service in accounting and auditing, but SST taxation consultation and relevant services. If you are looking for professional assistance in tax accounting, feel free to contact us for further information.