Personal Income Tax in Malaysia for Foreigners

Personal Income Tax in Malaysia for Foreigners

How far do you understand about personal income tax Malaysia? Do you know the taxation process? Are you eligible for filing your income taxes? Have you received your EA form from your company employer yet?

Many of such queries arrive when the subject of income tax arrives. But it has been seen that, some of us doesn’t have proper knowledge on income tax. Many of us even don't have clear concepts on the income tax rate, tax reliefs rate, and tax refund calculation process.

If you are one of the individuals who are planning to be registered as a taxpayer with LHDN, and ready to be logged into an e-Daftar, and familiarized with the right e-Borang form to fill, you seem to know pretty much about taxation system in this country.

Unfortunately, many doesn’t. If you’re one of them who is still lacks basic ideas regarding tax process in this country, stay tuned with this article. Here you will get a good guideline on personal income tax Malaysia and taxation processes for the year 2020.

Who is applicable for personal income tax in Malaysia?

If an individual earns more than RM34,000 per year which is approximately RM2,833 per month, he/she has to register a tax file after EPF deductions. One has to pay proper income tax on his/her income. The tax may be implied upon various sources of income such as business, interest, employment, employee bonuses, discounts, home or office space rents and royalties, premiums, pensions etc.

Therefore, in case of a company employees, an individual not only have to give income tax for the monthly salary, but the bonuses, gratuity, overtime, commissions, TA, DA charges are additionally counted for tax charges as well.

It is common that you might get confused about income sources that falls under income tax law and other which may be exempted for taxes. It is therefore always wise to be under experienced business consultations. Business consultant experienced in Malaysian taxation system can give you precise information on relevant field.

However, there is good news for an individual who are residing in Malaysia for less than 60 days. If the stay in Malaysia is less than two months, an investor doesn't need to pay taxes and recruitment agencies in Malaysia. For instance, it is possible that an employee of a company has been deployed here for less than 60 days. That employee will be exempted from all income taxes during the working tenure.

Current income tax rate Malaysia for residents

Before looking at the income tax rate table, one must first understand chargeable incomes against income tax rate.  So, what is this chargeable income?

It is basically the primary income before any income tax deductions or inclusion of tax relief schemes and Malaysia visa fees. As an employer or employee who earns revenue, it is very necessary for them to understand that income tax rate increases along with the increase of chargeable income. Whereas, the more this chargeable income gets reduced through tax reliefs or any other means, lesser gets the tax rate and tax amount.

The table below shows the 2020 income tax rates which are applicable for individual taxpayers residing permanently in Malaysia:

Chargeable Income (RM)              Rate (%) Maximum payable tax amount
0 – 5,000 0 1
5,001 – 20,000 1 150
20,001 – 35,000 3 450
35,001 – 50,000 8 1200
50,001 – 70,000 14 2800
70,001 – 100,000 21 6300
100,001 – 250,000 24 36000
250,001 – 400,000 24.5 36750
400,001 – 600,000 25 50000
600,001 – 1,000,000 26 104000
1,000,001 – 2,000,000 28 280000
Exceeding 2,000,000 30 517,650

Income tax for foreigners in Malaysia

Any foreign individual who have been working in Malaysia for more than 6 months or 182 days in precise, are eligible to pay income tax under normal Malaysian income tax laws. The rate if payable tax is the same as Malaysian residents.

A foreign individual who are employed in Malaysia has to provide his/her income data or chargeable income to the nearest LHDN branch. This notification has to be made by the foreigner within 2 months of the prior arrival in this country.

However, non-residing individuals have to pay tax at a flat rate of 30%. This will be in effect from 2020. Additional rates will be implemented in case of special instances of income, such as interest, bonus or royalties etc.

The table below shows fields of foreign income against income tax percentage rate in Malaysia:

Fields of foreign income Income tax rate (%) *
Business, Specialized profession, Rent, Dividends 28
Public entertainments, Hobby or interests 15
Royalty, Technical advises Technical managements, assistance, Administrative projects in research, industrial, scientific, commercial or other relevant fields, Rent for movable property (e.g. Car) 10

* Non-residing individuals are subjected to pay tax at a flat rate of 30% from 2020.

Income Tax Filing Process Malaysia

By now you must have a good knowledge about tax rate for residents and foreign individuals. This is however is not enough, if any one is eligible for income tax filing, he/she should know the income tax filing process in Malaysia. Here in this section we will give a sneak peak of this very particular subject, which is tax filing process in Malaysia.

Income tax filing is carried out under two form categories in Malaysia. Each has individual time limit that has been allocated for respected tax payers. The two category forms are: BE form and B form. BE forms are for those individuals who doesn’t have their own business. On the other hand, B form is for those who owns a business. Following are the steps of tax filing at a glance:

  • Both B and BE form filing can be carried out either manually or via e-filing. One can also file his/her tax using ezHASiL on the LHDN website.
  • Next step is registering as a taxpayer on e-Daftar.
  • After this an applicant has to collect a PIN number from the nearest LHDN office. This pin will be needed to sign in to ezHASiL for the very first time.
  • Once logged in successfully, the applicant will be guided step by step to the filing process.
  • In ezHASiL, an option called e-filing will be found. Clicking this particular option will take the applicant to the filing process categories of the income tax return. The applicant has to choose his/her income tax form category. It can either be B form, BE form or M form (non-resident individuals)
  • Once chosen correct category, an individual will be guided further into the LHDN formalities, and other tax filing procedures, which are non- complex and easily understandable.
  • Individual credentials may also need to be filled up accordingly during the filing process of individual’s personal income tax return filing.

When there is a tax filing process, which is explained above, it must be noted that the process is not that complicated, but an individual has to be punctual enough to file his/her personal income tax Malaysia. This is because, individual income tax needs to be submitted under recommended time span which is announced beforehand nationally. Crossing that tax returning time frame may results fine or other unwanted governmental hassles.

Another factor that need to be kept in mind. Which is tax relief procedures. When there is taxation system, there are several legal loopholes to minimize the amount of payable tax returns. It is wise to be connected with a tax consultant agency in Malaysia, who regularly deals with taxes in Malaysia. consulting with them can cut out a good chunk of tax money without any legal issue as such. Well, you may want to know about advisory before company registration in Malaysia.

You may read this article in Malay language: Cukai Pendapatan Peribadi Malaysia

Related Articles:

Sales And Service Tax 2020 Onwards- SST Malaysia

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