Taxes have been much in the news in Malaysia since May 2018’s watershed election led to a change in government.
As the winning coalition led by Mahathir Mohamad formed its new government, it swiftly fulfilled its campaign promise to scrap the unpopular 6 per cent goods and services tax. The government is now considering the reintroduction of a 10 per cent sales and services tax, to plug the revenue hole that will be left by the GST. With Malaysia’s high debt burden, raising new revenue is of concern.
On the other side of the government’s ledger, plans to curb spending have also been announced: large public infrastructure projects such as the High Speed Rail between Kuala Lumpur and Singapore have been put on hold, thousands of contract workers will be let go, and cabinet ministers’ pay will be cut.
Here are some of the key taxes:
Malaysia considers a company to be resident if its management and control is exercised in Malaysia - where it is incorporated is irrelevant. Resident and non-resident companies are taxed only on income accrued in, or derived from, Malaysia. Resident companies engaged in banking, insurance, shipping, or air transport activities are taxable on global income.
The corporate income tax rate is 24 per cent, reduced in 2016 from an earlier 25 per cent tax rate.
Resident small and medium enterprises (companies incorporated in Malaysia with paid-up capital of RM2.5 million or less) get a concessionary tax rate of 18 per cent on the first RM500,000 of their chargeable income. The balance is taxed at the 24 per cent rate. Small companies that are directly or indirectly controlled by or related to companies with paid-up capital of more than RM2.5 million do not qualify for the concessionary rate.
For YA 2017 and YA 2018, companies whose chargeable income has grown by 5 per cent or more compared to the previous YA, are eligible for a lower tax rate on a portion of their income. They get a 1 per cent to 4 per cent reduction on the standard tax rate, which applies to the amount of chargeable income representing the year-on-year increase.
Tax exemptions and incentives
Malaysia offers companies tax exemption, deductions, allowances and other incentives, to boost economic activity in sectors such as manufacturing, biotechnology, education, financial services, petrochemicals, regional operations, research and development, logistics. Companies operating within special economic corridors may also qualify for some incentives, if they meet certain requirements.
Dividends: No withholding tax on dividends.
Interest: 15 per cent withholding tax on interest paid to a non-resident. But interest paid to a non-resident by a bank operating in Malaysia is exempt from tax, except for interest accruing to the non-resident’s place of business in Malaysia and interest paid on funds required to maintain “networking funds”.
Royalties: 10 per cent withholding tax on royalties paid to a non-resident.
Malaysia’s new government has abolished the 6 per cent good and services tax (GST) and intend to replace it with a version of the sales and service tax (SST) that was in place prior to the introduction of the GST in 2015. This is expected in September 2018.
Malaysia’s personal income tax rates for residents follow a progressive schedule: the higher the income earned, the higher the marginal income tax levied. The highest personal income tax rate at the moment is 28 per cent. This applies to the highest chargeable income bracket of above 1 million ringgit. Foreigners who stay or work in Singapore for 182 days or more in a calendar year are considered residents. Non-residents are taxed at a flat rate of 28 per cent.
Income derived from Malaysia is taxed, but foreign-source income is tax-exempt.
Need more information?
Official: Inland Revenue Board of Malaysia
KPMG: Malaysia Tax Profile (Updated June 2015)
PwC: Malaysia Tax Summary