Introduction to Malaysia Income Tax System  

Income tax refers to an amount of tax that an individual or company is obligatory to fulfill according to their annual income. The amount is determined according to government’s graduated scale. Malaysian government imposes various kind of tax that can be divided into income tax, gift tax, property tax, corporate tax, estate tax and many more. Income tax is imposed based on territorial basis.

Starting from 1st of January 2004, foreign income sent into Malaysia does not have to fulfill the tax. Income tax imposed on individuals vary from 0 up to 28 percent after deducting personal relief while for non-resident, tax imposed is 28 percent without personal relief.

Malaysian government evaluates taxpayers’ liability in two different methods that are formal assessment system and also self-assessment system. Formal assessment system is whereby taxpayers need to fill up forms to affirm their income. Later on, taxpayers are required to pass the forms back to Inland Revenue Board (IRB, commonly known as Income Tax Office). The board would then determine the final assessment. Taxpayer will receive a notice of assessment prepared by the board. The form states the tax amount that the taxpayers need to settle to IRB. While in self-assessment system, taxpayers also need to fill up forms before submitting it back to IRB.

However, the next step is different from formal assessment system. In formal assessment system, the notice of assessment would be sent to taxpayers. In self-assessment system, no notice of assessment would be issue to taxpayers. Instead, taxpayers need fulfill the required amount through monthly payments before the due date. The amount is based on the estimation by the taxpayers themselves.

As referred to the above system, residents need to fill up tax return form (FORM BE) the latest by 30th April the following year. Taxpayers need to settle the balance after filling up the form and upon receiving notice of assessment that is by 30th of June. Taxpayers with business source income are also required to file in From B and settle the amount of tax as imposed by IRB.

Non-resident who does not have business source income is also required to fill up Form M and submit it the latest by 30th April the following year. They have to settle the balance by 30th of April. While for non-resident with business source income, they need to submit the tax return form by 30th of June the following year. The balance is due on 30th of June.

In Malaysia, anyone earning personal income are subjected to the Malaysian income tax scheme. This include those who are under employment by companies from both the private and public sectors while for those who have earned dividends and profit from trade too or any sort of profit from economic transactions too would need to pay tax.

Income tax rates in Malaysia varies each year although the variations are not very much and are stipulate under Section 7 of the Malaysia Income Tax Act 1967. It is also provided that for those earning below RM2,500 would not need to pay income tax. Otherwise, individuals would need to pay between 2% to 30% of their annual income after deductions from the tax relief allowed.

Previously, individuals would need to submit their tax declaration forms where they will have to state their yearly income and all the deductions that they are eligible for. This need to be done before the end of April each year. Once they have done that, any surplus will either be refunded or carried forward. They will need to pay the balance if there are shortages. Individuals now can submit their forms electronically through the E-filing system where calculations and such are automated through the self-assessment system.


Introduction to Malaysia Income Tax System

Taxes in Malaysia (Tax Rates Included)
Tax Free Income
Goods and Services Tax (GST)
Investment and Capital Gains Taxation
Malaysian Import Duty
Real Property Gains Tax (RGPT)
Sales and Service Tax
Corporation Tax
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