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Simple Tax Guide for Americans in Malaysia

Simple Tax Guide for Americans in Malaysia

US Expat Taxes - Malaysia

At Taxes for Expats we have been preparing U.S. tax returns for U.S. Citizens and green card holders working in Malaysia for over 8 years. Our clients hail from all parts of the country - Kuala Lumpur and Johor Bahru, Ipoh and Kuching, Kuala Terengganu and Kuantan.

As a U.S. Citizen or green card holder you are legally required to file a U.S. tax return each year regardless of whether you already pay taxes in your residence country.

We offer professional tax services. That means we figure out the best and most optimal way to file your U.S. tax return and avail you of all possible exclusions and deductions. But just as importantly - avoid the errors that would allow IRS to disallow your return and levy fines & penalties on top. You can also do them yourself - not that we recommend it. For more information please see IRS.

The expatriate Foreign Earned Income Exclusion can only be claimed if you file your tax return on a timely basis. It is not automatic if you fail to file and can even be lost.


We have many clients living in Malaysia and know how to integrate your U.S. taxes into the local income taxes you pay.  Any Malaysian income tax you already pay can be claimed as against the tax liability on your U.S. return on the same income.
 

As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. You must, however, pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.

There are other forms which must be filed if you have foreign bank or financial accounts;  foreign investment company; or own 10% or more of a foreign corporation or foreign partnership.   If you do not file these form or file them late, the IRS can impose penalties of $10,000 or more per form.  These penalties are due regardless of whether you owe income taxes or not.

We have helped hundreds of expats around the world catch up with their past U.S. taxes because they have failed to file U.S. tax returns for many years. This is, in fact, our specialty and we offer a 10% discount to clients to wish to file multiple tax returns at once and get in full compliance with the IRS.

Work with a recognized expert to help you prepare your American tax return. We can also provide tax planning and advice with other expatriate tax; we look forward to working with you.

Malaysia Individual Income Tax Rates


Below we include information on the Malaysian Tax System for the American Expatriates.
 

As of 2018, Malaysia individual income tax rates are progressive, up to 28%. Individuals who do not meet residence requirements are taxed at a flat rate of 26%.

Taxable Income (RM) Tax Rate
0-5,000 0%
5,001-20,000 1%
20,001-35,000 3%
35,001-50,000 8%
50,001-70,000 14%
70,001-100,000 21%
101,000-250,000 24%
250,001-400,000 24,5%
400,001-600,000 25%
600,001-1 million 26%
Above 1 million 28%

Basis – Individuals are taxed on income derived from Malaysia. Foreign-source income is not taxable in Malaysia.
 

Residence – An individual is considered tax resident if he/she is in Malaysia for 182 days or more in a calendar year. Alternatively, residence may be established by physical presence in Malaysia for a mere day if it can be linked to a period of residence of at least 182 consecutive days in an adjoining year.
 

Tax Filing status – A married couple living together may opt to file a joint or separate assessment.
 

Taxable income – Resident individuals are taxed at progressive rates ranging from 0% to 26%. Employment income includes most employment benefits whether in cash or in kind.
 

Capital gains – Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the alienation of shares in a real property company. The real property gains tax, which applied to such gains, had been suspended since 1 April 2007, but is reinstated at a rate of 5% as from 1 January 2010.
 

Tax Deductions and tax allowances – Various allowances and personal deductions are available.
 

 

Other taxes on individuals
 

Capital duty – No

Stamp duty – Stamp duty is levied at varying rates between 1% to 3% of the transacted value of property transfers and 0.3% on share transaction documents.

Capital acquisitions tax – No
 

Real property tax – Individual states in Malaysia levy "quit" rent and assessment at varying rates.
 

Inheritance/estate tax – No

Net wealth/net worth tax – No
 

Social security – Employees are required to make contributions to the EPF at a rate of 8% of remuneration and may contribute a nominal amount to the Social Security Organisation (SOCSO).
 

 

Administration and compliance
 

Malaysia tax year – Malaysia tax year is the calendar year
 

Tax Filing and Tax payment – Tax on employment income is withheld by the employer under a pay as you earn (PAYE) scheme and remitted to the tax authorities. Malaysia imposes a self-assessment regime. An individual deriving employment income or business income must file a tax return and settle any balance owed by 30 April or 30 June respectively in the following calendar year.
 

Penalties – Penalties at various rates apply for failure to comply.
 

Malaysia Corporate Tax
 

The standard corporate tax rate in Malaysia is 24%, while resident small and medium-sized companies (i.e. companies capitalised at RM 2.5 million or less and not part of a group having a company exceeding the above capitalisation threshold) are taxed at 17% on the first RM 500,000, with the balance taxed at the 24% corporate tax rate:
 

Company with paid up capital not more than RM2.5 million:  
- On first RM500,000     17%
- Subsequent Balance 24%
Company with paid up capital more than RM2.5 million 24%

Residence – A corporation is resident in Malaysia if its management and control are exercised in Malaysia.
 

Basis – Corporations are taxed on income derived from Malaysia. Foreign-source income is not taxable unless the corporation is carrying on a business in the banking, insurance, air transport or shipping sectors.
 

Taxable income – Taxable income comprises all earnings derived from Malaysia, including gains or profits from a trade or business, dividends, interest, rents, royalties, premiums or other earnings.
 

Taxation of dividends – As from assessment year 2008, Malaysian companies are transitioning to the single tier system (STS) and phasing out the imputation system. Corporations in Malaysia have until 31 December 2013 to adopt the STS. Dividends received under the imputation system are taxable with a credit available for underlying corporate tax paid. Dividends paid by companies using the STS are not taxable.
 

Capital gains – Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the alienation of shares in a real property company (RPC). The real property gains tax, which applied to such gains, had been suspended since 1 April 2007, but is reinstated at a rate of 5% as from 1 January 2010.

Losses – While losses can only be carried back for assessment years 2009 and 2010, they may be carried forward indefinitely (except where there is a substantial change in corporate ownership of a dormant company).
 

Surtax – No
 

Alternative minimum tax – A Labuan offshore company may elect to pay MYR 20,000 or to be taxed at 3% of the audited accounting profit.
 

Foreign tax credit – Foreign tax paid may be credited against Malaysian tax on the same profits (limited to 50% of foreign tax in the absence of a tax treaty), but the credit is limited to the amount of Malaysian tax payable on the foreign income.
 

Participation exemption – No, but foreignsource income is not taxable and local dividends do not attract further tax or are tax exempt.
 

Holding company regime – An investment holding company (IHC) is a company whose activities consist mainly of the holding of investments and that derives not less than 80% of its gross income, other than gross income from a source consisting of a business of holding of an investment, from such investments. Generally, only expenses falling within the definition of "permitted expenses" in the tax legislation would qualify for tax deduction in respect of an IHC.
 

Tax Incentives – A wide range of incentives are available for certain industries, such as manufacturing, IT services, biotechnology, Islamic finance, energy conservation and environment protection. Available incentives include: tax holidays of up to 10 years (pioneer status); investment tax allowances (i.e. 100% allowance on capital investments made up to 10 years); accelerated capital allowances; double deductions; and reinvestment allowances (i.e. 60% allowance on capital investments made in connection with approved projects).

Withholding tax
 

Dividends – Malaysia does not levy withholding tax on dividends.

Interest – A withholding tax of 15% applies to interest paid to nonresidents, which may be reduced under an applicable tax treaty.

Royalties – A withholding tax of 10% applies to royalties paid to nonresidents, which may be reduced under an applicable tax treaty.

Other – A withholding tax of 10% applies to rentals of movable property, technical fees for services rendered in Malaysia and certain one-time income paid to nonresidents, which may be reduced under applicable tax treaties.

Branch remittance tax – No

Other taxes on corporations
 

Capital duty – Capital duty is levied at rates ranging from RM 1,000 to RM 70,000.

Payroll tax – Tax on employment income is withheld by the employer under a pay as you earn (PAYE) scheme and remitted to the tax authorities.

Real property tax – Individual states in Malaysia levy "quit" rent and assessments at varying rates.

Social security – Employers and employees are required to make social security contributions to the Social Security Organisation (SOSCO). Generally, an employer contributes 1%-1.25% of an employee's remuneration. Employers and employees also must contribute to the Employees Provident Fund (EPF) at the rate of 12% and 8% of the employee's remuneration, respectively.

Stamp duty – Stamp duty is levied at varying rates between 1% to 3% of the transacted value of property transfers and 0.3% on share transaction documents.

Transfer tax – No, except for stamp duty.

Other – Equity requirements have been substantially relaxed as from 2009.
 

Anti-avoidance rules
 

Transfer pricing – Transfer pricing rules are imminent and guidelines have been issued by the tax authorities. Taxpayers can request an advance pricing agreement.

Thin capitalisation – There are no specific thin cap rules, but legislation has been amended to allow for such rules.

Controlled foreign companies – No

Disclosure requirements – Yes

Administration and compliance
 

Malaysia Tax year – Fiscal year (i.e. generally the accounting year).
 

Consolidated tax returns – Consolidation is not permitted as each company is required to file a separate tax return. However, subject to certain conditions, 70% of a company's adjusted loss may be used to set off profits of a related entity.
 

Tax Filing requirements – Malaysia imposes a self-assessment tax regime. Advance corporate tax is payable in 12 monthly instalments. A tax return must be filed within 7 months of the company's year end.
 

Penalties – Penalties at various rates apply for failure to comply.
 

Rulings – Taxpayers may request an advance ruling on the tax treatment of a specific transaction. Public rulings also are issued.
 

Malaysia sales tax / service tax
 

Service tax and sales tax are currently the two major types of consumption taxes imposed on certain prescribed goods and services. Sales tax is be imposed at the rate of 0%, 5%, 10% or a specific rate for petroleum products and the service tax is at the rate of 6%.
 

From 1 September 2018, the Sales and Services Tax (SST) replaced the Goods and Services Tax (GST) in Malaysia.

SERVICE TAX
 

From 1 September 2018, the Sales and Services Tax (SST) replaced the Goods and Services Tax (GST) in Malaysia. Service tax is a single stage tax applicable to certain prescribed goods and services in Malaysia. The tax also applies to professional and consultancy services as prescribed by the Malaysian customs authorities. The rate of service tax currently is fixed at 6% of the price, charge, or premium of the taxable goods or services prescribed.

Professional services provided by a company to companies within the same group will be exempted from service tax, subject to terms and conditions.
 

Generally, the imposition of service tax is subject to a specific threshold based on an annual turnover ranging from RM500,000 to RM1500,000, subject to the types of taxable services and taxable person. The threshold would not apply for certain prescribed professional and consultancy services.
 

Service tax ia also imposed on credit cards and charge cards including those issued free of charge as follows:

  • RM25 per year on the principal card
  • RM25 per year on the supplementary cards.
     

 

SALES TAX
 

From 1 September 2018, the Sales and Services Tax (SST) replaced the Goods and Services Tax (GST) in Malaysia. Sales tax is a single stage tax imposed on taxable goods manufactured locally and/or imported. "Taxable goods" means goods of a class or kind not for the time being exempted from sales tax. Generally, all exports are exempted from sales tax.
 

Manufacturers of taxable goods are required to register with the custom authorities and to levy, charge and collect the tax from their customers. For imported goods, sales tax is collected from the importer upon the release of taxable goods from customs control.

Sales tax is generally an ad valorem and can be computed based on the value of taxable goods sold, used, disposed of, or imported.  The ad valorem rates are as follows:

Class of goods Rate
Fruit juices, certain foodstuff, biulding materials, personal computers, telephne and watches 5%
All other goods except petroleum subject to specific rates na dgoods not specifically exempted 10%