Understanding Income Tax

Personal income taIncome Taxx is a key revenue source for the government in Malaysia. It is levied on individuals based on their income from various sources, including salaries, interest, dividends, and pensions.

 

Resident Taxpayers in Malaysia

Individuals who stay in Malaysia for 182 days or more in a calendar year are considered tax residents. They are taxed on their worldwide income, while non-residents are taxed only on income earned within Malaysia. Tax residents benefit from progressive tax rates and various personal reliefs, whereas non-residents are subject to a flat tax rate.

Calculating Personal Income Tax

Malaysia employs a progressive tax rate system for resident individuals. For the assessment year 2023, the tax rates are as follows:

  • 0% on the first RM5,000
  • 1% on the next RM15,000
  • 3% on the next RM15,000
  • 8% on the next RM15,000
  • 14% on the next RM20,000
  • 21% on the next RM30,000
  • 24% on the next RM150,000
  • 24.5% on the next RM150,000
  • 25% on the next RM200,000
  • 26% on the next RM400,000
  • 28% on the next RM2,000,000
  • 30% on amounts exceeding RM2,000,000

Non-resident individuals are taxed at a flat rate of 30% on total taxable income.

 

Penalties for Non-Compliance

Non-compliance with tax regulations can lead to significant penalties:

  • Failure to Furnish Income Tax Return: A fine between RM200 and RM20,000, imprisonment up to 6 months, or both.
  • Late Payment of Taxes: A penalty of 10% on the unpaid tax amount, with an additional 5% if not settled within 60 days.
  • Wilful Evasion or Assistance in Evasion: A fine between RM1,000 and RM20,000, imprisonment up to 3 years, or both, plus 300% of the tax undercharged.

Exemptions from Personal Income Tax

Certain individuals may be exempt from personal income tax in Malaysia, including:

  • Diplomatic and Consular Staff: Exemptions apply under specific conditions based on international law.
  • Foreign-Sourced Income: From 1 January 2022 to 31 December 2026, foreign-sourced income received by tax-resident individuals is exempt from tax, except for income received through a partnership business operating in Malaysia.

It’s essential for individuals earning income in Malaysia to understand their tax obligations to ensure compliance and avoid penalties.