Non-resident income tax rate in Malaysia: do you need to pay tax as a non-resident?

Thinking of working or starting a business in Malaysia? One of the crucial things you'll need to know about is non-resident taxes.

In this guide, we'll cover all the essentials you need to know about Malaysia tax resident rules. This includes the difference between residents and non-residents for tax purposes, plus that all important income tax rate for non-residents.

We'll even include some info to help you get started on paying your taxes in Malaysia.

We'll also introduce the Wise account, a handy companion to make your money go further with low, transparent fees.

But more on that later. Let's focus for now on taxes in Malaysia.

What's the difference between a resident and non resident in Malaysia?

Whether or not you're considered to be resident in Malaysia for tax purposes all depends on how long you live there during a given year.

Currently, the Malaysian tax authorities regard anyone who is present in Malaysia for 182 days or more in a calendar year as a tax resident¹. Days do not have to be consecutive - and you are considered to have been in the country for a day provided you were there for any part of that day.

If you spend fewer than 182 days in Malaysia during a year of assessment you're deemed by the authorities to be non-resident, meaning that different tax rules apply.

How much income tax you pay all depends on whether you're classed as a resident or a non-resident.

What's the foreigner tax rate in Malaysia?

A common misconception among newcomers to the country is that a non-resident does not need to pay tax in Malaysia. However, this isn't the case. Typically you'll need to pay tax to the Malaysian authorities on any income derived in Malaysia. Income in this sense could be from employment, from rent, royalties, dividends, consultancy and so on.

Here's how the foreigner tax rate breaks down by income type:²

There are a few scenarios where you may be exempt from these tax rates - although you'll definitely need to seek professional advice if you think these exceptions may apply to you, to make sure you're fulfilling all your obligations. Here are the key exemptions:

• Individuals employed in Malaysia for fewer than 60 days
• Individuals employed on board a Malaysian ship
• Aged 55 or over and receiving pension from Malaysian employment
• Income comes from interest received from banks
• Income comes from tax exempt dividends

Malaysian tax rates for residents

So how does the Malaysian non-resident tax rate compare with the tax rate for residents?

Residents are subject to a sliding scale of income tax rates³. The first 5,000 MYR earned is tax free, with tax being applied on a progessive basis for any income above this amount. This means the very highest earners could be paying a 30% tax on some of their earnings. However, the blended tax rate is much lower for most residents.

To put this into context, if we take the median salary of just over 2,000 MYR per month⁴, a resident would pay no tax on the first 5,000 MYR earned over the year, 1% on the next 15,000 MYR, and just 3% on their remaining annual income.

You should be able to find the latest tax rates for Malaysian tax residents on the Inland Revenue Board of Malaysia website.

How to declare non resident income tax in Malaysia

The best place to find all the information you need to calculate, declare and pay any taxes due in Malaysia is the Inland Revenue Board of Malaysia website. This is also known as the LHDN or HASiL.

There's lots of info on the HASiL website about who is liable for income tax in Malaysia, how to file a tax return and key deadline dates to remember.

But to help you get started, here are a few key facts about the Malaysian income tax system that it could be useful to know⁵:

• The Malaysian tax year is from 1st January to 31st December, the same as the calendar year. This differs from other countries such as the UK, where the tax year runs from April to April.
• Malaysia uses the self-assessment system, where taxpayers are responsible for submitting annual tax returns. Self-assessment requires the taxpayer to calculate their own chargeable income and the amount of tax payable, and arrange to make the required payment.
• The tax return and payment deadline is 30th April (for non-business income) or 30th June (if you have business income to declare).
• Online filing of tax returns is available at the HASiL website - you can login here.
• It is possible to file joint tax returns with your partner. Tax returns in Malaysia are issued and filed separately by each spouse. However, you can choose to be taxed jointly if your spouse is a Malaysian resident or citizen.
• Malaysia also has the Pay As You Earn (PAYE) system, in which tax payments for employees are made through compulsory salary deductions. If your total income tax for the year is equivalent to the amount deducted from your pay under the PAYE system, you can choose not to submit a tax return.
• Newcomers to the country who are subject to tax must notify the tax authorities within one month after arrival⁶.
• There are lots of different ways to pay your income taxes in Malaysia when the time comes. This includes payment by credit/debit card at post offices and banks, online transfers, payment via ATM machines, telebanking or cash deposit machines. You can even arrange payment of income tax using a monetary transfer form if you're overseas⁷.

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Summary

Getting to grips with the tax system in a new country can often be complicated and confusing, and you're bound to have questions. But hopefully some of these have been answered after reading this guide.

We've covered the definition of a tax resident according to the country's rules, looked at rates of foreigner tax in Malaysia and run through a few of the basics of the Malaysian tax system. So, you should have a better understanding of how taxes work in Malaysia, and what your obligations will be when you move there.

Sources checked on 09.09.2022.