Income Tax in Malaysia

Updated on Thursday 17th September 2020

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The income tax system in Malaysia is divided between personal income taxes and corporate income taxes. The income tax in Malaysia will thus vary based upon these two basic categories in terms of the tax rate charged for the income of an entity, but also on the manner in which the entity has to submit tax returns with the local institutions. 
 
Foreign businessmen or local businessmen who want to open a company in Malaysia can request legal and tax advice on the income tax system imposed to companies from our team. Our consultants in company formation in Malaysia can present in-depth information on the corporate income tax and can also help you register with the local tax institutions. 
 

What is the personal income tax rate in Malaysia?
 

Natural persons gaining an income in Malaysia are required to pay taxes for the respective income. It must be noted that not only natural persons who are tax residents of Malaysia have to pay local taxes, but also foreigners obtaining an income (persons who have the status of non-residents) in this country. 
 
There is a difference, however, in the manner in which the taxes are paid, as natural persons who are tax residents of Malaysia will need to pay taxes here on their global income, while non-residents will be required to pay taxes here only for the income deriving from activities performed in this country. The income tax is charged on a progressive system and the income tax rate in Malaysia will also vary based on the income of the natural person, as presented in the list below: 
 
  • income of RM 5,000 is exempted from the income tax in Malaysia, but the income of up to 20,000 is charged with a tax rate of 1%;
  • the income of minimum RM 20,000 is charged with RM 150, while excess of up to 35,000 is charged with an income tax rate in Malaysia of 3%;
  • the yearly income of minimum RM 35,000 is charged with RM 600 and the excess of up to RM 50,000 will be imposed with a rate of 8%;
  • the minimum income of RM 50,000 is imposed with RM 1,800 and excess of up to 70,000 has a tax rate of 14%;
  • the income of minimum RM 70,000 has a flat tax of 4,600 and the excess income of to 100,000 is charged with a tax rate of 21%. 
     
The above mentioned tax brackets regarding the personal income tax in Malaysia represent only the first five types of tax thresholds. It must be noted that for the financial year of 2020 there are other six additional tax brackets, which can be presented by our team of specialists in company formation in Malaysia. The rates for the taxation of natural persons can increase to up to 30%. 
 
With regards to the taxation of non-resident natural persons, it must be noted that such persons will be liable to the personal income tax in Malaysia as long as they spend at least 182 days on the Malaysian territory and obtain a taxable income (the number of days is calculated as a period of time spent here in a single financial year). 
 

What is the corporate income tax rate in Malaysia?
 

All companies operating in Malaysia, regardless if they are resident companies or non-resident companies, are required to pay the income tax. Those who want to open a company in Malaysia must know that there are different tax rates based on the residency of the business. In the case of non-resident companies, there is a standard income tax rate in Malaysia, charged at a rate of 24% on the income of the company. 
 
When we refer to resident companies, they are also charged with the standard tax rate of 24%, but companies can also be charged on a different tax system (more advantageous), if specific conditions are met. Companies obtaining their income from petroleum exploitation will be charged with a much higher tax rate, of 38%.  
 
Local companies can benefit from a lower income tax rate in Malaysia, of only 17% charged for the first RM 600,000 and then charged with the standard tax rate, of 24%, for the excess income, if the company has a paid-up capital of RM 2,5 million or less. Additional conditions have to be satisfied and they can be presented by our team of consultants in company registration in Malaysia
 
Both natural persons and legal entities that are liable to the payment of the income tax in Malaysia have to submit tax returns, in due time, with the local tax authority. This has to be completed with the Inland Revenue Board of Malaysia, where the taxpayers can create an account. 
 
Persons who need more information on the income tax in Malaysia are invited to address to our specialists for advice. Our team of consultants in company formation in Malaysia can provide tax consultancy services and can also help you minimize the level of taxation of your local business, if applicable.