Are you considering setting up a business in Malaysia or moving to Malaysia for work? Malaysia is one of the most attractive countries for foreign investors. The cost of living is lower than in other countries, and the tax rate is generally considered attractive. If you decide to become a tax resident in Malaysia, you will benefit from a 15% tax rate scheme for knowledge workers and entrepreneurs.
First, a tax resident is a person who is subject to tax in Malaysia by the Malaysian Income Tax Act, of 1967. This means that you must live in Malaysia for 183 days or more in any given year to be considered a tax resident.
Once you become a tax resident, you become subject to Malaysia income tax system. You must file a tax return and pay taxes on your earnings yearly.
We’ll give you a step-by-step guide on how to become a tax resident in Malaysia.
Determine Your Tax Residency Status
The first step to becoming a tax resident in Malaysia is to determine your tax residency status. To do this, you must prove your physical presence in Malaysia during a specific period. If you have been present in Malaysia for at least 182 days in 12 months, then you are considered a tax resident in Malaysia.
Calculate Your Income Tax
Once you have determined your tax residency status, the next step is to calculate your personal income tax. This entails calculating your taxable income, which will include any income you’ve earned in Malaysia and any income you’ve earned from abroad. Keep track of all your expenses and deductions, which will help you reduce your taxable income.
Understand the 15% Tax Rate Scheme for Knowledge Workers
Starting businesses and startups may qualify for the 15% tax rate scheme for knowledge workers. This scheme applies to those in a field related to their qualification or profession, such as research, development, design, programming, engineering, etc. If you meet the criteria for this scheme, you can benefit from a reduced tax rate of 15%.
File Your Taxes
Finally, it’s time to file your taxes with the Malaysian Inland Revenue Board (MIRB). This can be done online through the MIRB portal, or you can use a tax agent to help you with the process. Make sure to keep all your documentation in order and follow the instructions on the portal carefully.
When it comes to tax computation and filings, you can use a tax professional’s services or the e-filing system via LHDN, the Inland Revenue Board of Malaysia. You’ll also want to familiarize yourself with Malaysia’s tax bands and rate system – the maximum tax rate is 26%, but you may qualify for the 15% tax rate scheme for knowledge workers.
Income tax for foreigners in Malaysia is different from income tax for Malaysian citizens. For example, Malaysia taxes foreign income that has been remitted to Malaysia, whereas Malaysia does not tax foreign income that has been earned overseas. Furthermore, foreign-sourced income remitted to Malaysia may be subject to a withholding tax.
If you are a foreigner coming to Malaysia on an employment pass, you will also have to consider the tax residence status of your employer. An employer will be considered to be a tax resident in Malaysia if they meet the following criteria:
- They are carrying on a business in Malaysia.
- They are incorporated in Malaysia.
- They have an office in Malaysia.
- They have an active presence in Malaysia.
Finally, if you are a foreign national coming to Malaysia to work, consider the Personal Income Tax Act. This law stipulates that foreign nationals are subject to income tax in Malaysia if they have been employed in Malaysia for over 60 days in any calendar year.
We hope to understand the details of how to become a tax resident in Malaysia. If you have any questions about becoming a tax resident in Malaysia or the taxes you may be required to pay, please feel free to reach out to tax and incorporation experts at Paul Hype Page Malaysia.
