Income Tax Malaysia: A Definitive Guide

Income Tax Malaysia 2019

Hello readers! We have here for you a definitive guide to Income Tax in Malaysia 2019 and 2020. You can expect to learn more about Income Tax for both Personal Income Tax as well as the Corporate Tax. Let us walk you through how to both calculate and file your taxes online and give you some details about how you can maybe do it offline as well. 

If this is your first time tackling your personal or business income tax, then welcome, we’ll take you through the motions of how to file your taxes in Malaysia. If you already know, stay anyway, there’s always something new to learn. 

Personal Income Tax Malaysia 

How do I know I need to pay Personal Income Tax?

If you have an annual income of RM 34,000 or earn roughly RM 2,833.33 monthly, after EPF deductions, then you need to file your taxes. As the name suggests, you will need to pay taxes on all forms of income. Income tax is chargeable on the following class of income:

  1. Gains or profits from a business;
  2. Gains or profits from employment;
  3. Dividends or interests;
  4. Rents, royalties, premiums;
  5. Pensions, annuities or other periodical payments; and/or
    Gains or profits not falling under any of the foregoing classes. All income of a legal person other than a company, limited liability partnership, co-operative or trust body is assessed on a calendar year basis. As such, taxpayers are required to submit their income tax returns to Inland Revenue Board of Malaysia (“LHDN”) within the prescribed time frame by LHDN, usually by 30 April in the year following the tax assessment for individuals without business income or by 30 June in the year following the tax assessment for individuals with business income.

The classification of the rate of income tax is divided into two: resident and non-resident. An individual will be regarded as a tax resident if he is in Malaysia for at least 182 days in a calendar year. Foreigners who qualify as tax residents follow the same progressive tax rate as Malaysians and are required to file income tax unless they fall into the categories of foreigners who are exempt from income tax due to the Double Taxation Agreement and other exceptions ie. foreign nationals employed onboard a Malaysian ship etc.. 

What is the Personal income tax rate in Malaysia for 2020? 

The rate of tax for resident individuals for the assessment year 2020 are as follows: the tax rate for 2019/2020 sits between 0% – 30%. For non-residents in Malaysia, the income tax rate ranges from 10% – 28% for YA 2019. It should be highlighted that based on the LHDN’s website, for the assessment year 2020, the max tax rate stands at 30%. 

Listed below are the progressive income tax rates for the Year of Assessment 2020. The rates below are specifically for Malaysian income earners only. 

 

Chargeable Income (RM) Calculations (RM) Rate (%) Tax (RM)
0 – 5,000 On the First 2,500

0

0

5,001 – 20,000 On the First 5,000

1

0

Next 15,000

150

20,001 – 35,000 On the First 20,000

3

150

Next 15,000

450

35,001 – 50,000 On the First 35,000

8

600

Next 15,000

1,200

50,001 – 70,000 On the First 50,000

14

1,800

Next 20,000

2,800

70,001 – 100,000 On the First 70,000

21

4,600

Next 30,000

6,300

100,001 – 250,000 On the First 100,000

24

10,900

Next 150,000

36,000

250,001 – 400,000 On the First 250,000

24.5

46,900

Next 150,000

36,750

400,001 – 600,000 On the First 400,000

25

83,650

Next 200,000

50,000

600,001 – 1,000,000 On the First 600,000

26

133,650

Next 400,000

104,000

1,000,001 – 2,000,000 On the First 1,000,000

28

237,650

Next 1,000,000

Exceeding 2,000,000 On the First 2,000,000
Next ringgit

30

517,650

 

On the other hand, the rate of tax for non-resident individuals for the assessment year 2020 are as follows:

Listed here are the income tax rates for non-residents in Malaysia. 

 

Types of Income Rate (%)
Business, employment income, discounts, rents, premiums, pensions, annuities, other periodical payments and other gains or profits 30 – With Effect From Year Assessment 2020
Public entertainer

Interest

15
Royalty

Payments for services in connection with the use of property or installation, operation of any plant or machinery purchased from a non-resident

Payments for technical advice, assistance, or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme

Rent or other payments for the use of any movable property

10

How to file your Personal Income Tax Online 

Now that you know your tax residence status, income bracket and tax rates, let’s get into the ‘how-to’ details of filing your taxes online. In Malaysia, you can file your taxes both online and in person. However, keep in mind that depending on which form you are filling, there are different deadlines as mentioned above.

Register for First Time

Before we can get into filing our taxes, there are 2 things we need to do first. 

  1. Register as a Taxpayer on e-Daftar to get your Income Tax number.
  2. Get your PIN number from the nearest LHDN branch so you can log into ezHASiL.

 

Log into your ezHASiL 

Once you’re logged in, click on e-Filing to fill up your Income Tax Return Form (ITRF). Here are the different types of ITRFs depending on which category you fall into:

Income Tax Return Form (ITRF) Category
e-B/e-BT For residents earning income from business/knowledge or expert worker
e-BE For residents earning income without a business
e-M/e-MT For non-resident individuals/knowledge workers

 

This online form filing can be done in both English and Bahasa Malaysia, so you get to pick whichever language you are most comfortable with. 

Here is a breakdown of what your form filing will look like if you are a regular salaried employee without a business to your name. 

Individual Particulars

 

Double, triple and quadruple check to see if the information displayed is correct. This form auto-fills certain information, so make sure to update the information if it is wrong or out of date. 

  1. Type of assessment – Depends on if you are single, filing together, separately with your spouse, and so on.
  2. The incentive under section 127 refers to the Income Tax Act 1976 – Applicable only to those who have incentives claimable as per government gazette or with a minister’s approval letter.
  3. A TAC – This is required to sign and submit your e-form. The TAC will be sent to your LHDN registered mobile number, so ensure it is correct.
  4. Bank account information – Your tax refund (if any) will be credited to your registered account, so double check your bank account information to ensure that it is correct. 
  5. Disposal of assets under the Real Property Gains Tax Act 1976. It will only apply to you if you have disposed any property within the assessment year.

Income 

The income declaration segment of your e-filing requires you to state any and all types of income you have. 

Statutory Income, Total Income, and Non-Employment Income of Preceding years not declared. 

In this section, you are required to fill out all your income from every available source. As a regular salaried employee, your main source of income would be your salary.

Based on Section 83(1A) of the Income Tax Act, it is statutorily required for an employer to prepare and render to each employee the statement of remuneration of that employee before the last day of February following the assessment year. This statement of remuneration is referred to as the “EA Form”. Bust out that EA Form to see your annual income calculations and the taxable total for work. 

You’ll also want to put down any income you gain from rent, a property you are collecting rent from. As well, as any freelance income, it’s not unusual these days for us to take up a freelance job to make ends meet, so put that down as well. 

Once you have completed this section, the form will calculate your aggregate income. Before we get into the fun bit, ‘tax relief and deductions’, there is one more thing to do. 

At the bottom of this form, there is a field for your total Monthly Tax Deductions, otherwise known as, Potongan Cukai Bulanan (PCB). It is the compulsory component where employers deduct monthly tax payments from a taxable employee’s salary. If you’re not sure where to find this information, it will be available on your EA Form, or you can ask your HR department for a PCB form.

Tax Reliefs and Deductions 

 

If we didn’t explain this earlier, tax reliefs can reduce your chargeable income, bringing down your tax rate and your tax amount. Check out the full list of tax reliefs you can claim on the LHDN website. The list is updated every year, so pay close attention to your Year of Assessment. 

After you have claimed all your tax reliefs, the form has calculated your chargeable income, and your tax rate and amount are decided. Now you can include any Zakat and fitrah to be claimed as a tax rebate for the actual amount expended up until the total tax amount. 

Summary

 

Yay! You have reached the summary page. Here you should find the final tax amount displayed. If your tax amount is negative (-) don’t be alarmed, it means that you have already paid through MTD. At this point, you can still go back and make changes to your form, if you have missed something. If there is nothing to change, go ahead and click on ‘Continue’.

The final step! You’ll be directed to a declaration and verification page. Where you can request for a TAC number for your LHDN registered phone number. Once you key it in, enter your NRIC or Passport number into the pop-up along with your password. Then hit ‘Sign and Submit’. Now you are DONE! 

Remember to print out or save the acknowledgement of your submission and BE form for record-keeping. 

Personal Income Tax Payment

After filing, you might find that you either gain a tax refund or you might need to pay additional taxes. If you are indeed eligible for a refund, you’ll find that return credited to your registered bank account within 30 days of filing your taxes. 

However, if you owe on your taxes, that is a whole other process. Here are a few ways you can pay your income taxes in Malaysia. 

Method Details
Online banking through FPX Requires a bank account with AffinBank, Alliance Bank, Ambank, Bank Islam, Bank Muamalat, BankRakyat, BSN, CIMB, Citibank, Maybank, OCBC, Public Bank, Deutsche Bank, HLB, HSBC, KFH, RHB, Standard Chartered, or UOB
Online using credit card on ByrHASiL Visa, Mastercard, American Express accepted
Pos Malaysia Over the counter (cash only) or online
Via ATM Only at Public Bank, Maybank, and CIMB

 

Remember to keep in mind the deadline for your payments for taxes. If you are late in paying your taxes, then there is a penalty fee of 10% imposed on the balance of your unpaid taxes. If your taxes are still pending payment 60 days after the deadline, a further fee of 5% is imposed on top of the 10%. 

Appealing Income Tax Notice of Assessment. 

Notice of Assessment is a written statement provided by LHDN that states your taxable income, the amount due and the breakdown of your tax calculation. If you find that you are not in agreement with the stipulated account, you as an individual can file an income tax appeal. If you think there’s an error, either on your part or from LHDN, use this appeal. 

Any appeal must be made to LHDN within 30 days from the date of invoice writing. You will be required to fill in a Q form, write a letter documenting the mistake or miscalculation, and specify clearly where they are in your documents.

Submit any supporting documentation, and the appeal will be directed to the Special Commissioners of Income Tax. 

If by chance you have missed the 30-day window, then be sure to have an extremely good reason. Fill in the N form, and continue with your appeal submission. Both of these procedures need to be done manually, which means you need to make your way to the nearest LHDN branch. You’ll find both the Q and N forms needed for this process. 

Corporate Tax – for SMEs 

Personal Income Tax is something most Malaysians are familiar with, if you’ve made it this far in the article, then you’ve read all about it. However, if you are an SME looking to answer questions on how to file taxes for a corporation, chill. Welcome to the one-stop-shop!

Income Tax Malaysia

What is Corporate Tax?

In general, corporations are taxed on all income that is derived from Malaysia by virtue of the Income Tax Act. Like the personal income tax, the tax status of a company may be divided into two categories: resident company and non-resident company.

A company will be considered as a tax resident in Malaysia if the management and control of the company are exercised in Malaysia. It is important to determine the tax status of a company as there are differences in the income tax rate chargeable to the companies. The tax rates may vary based on the annual Malaysia Budget proposals, the finance bills to be passed by the parliament, or the incentives announced by the government of Malaysia.    

The following table shows the tax rates effective for Year of Assessment 2020:

Type of Company Chargeable Income (RM) Corporate Tax (%)
Resident or Non-Resident Company Any Amount

24%

Resident Company (SMEs)

> With paid-up capital of RM2.5 million or less, and gross business income of RM50 million or less

> That does not directly or indirectly control another company with more than RM2.5 million paid-up capital

> That is not directly or indirectly controlled by another company with more than RM2.5 million paid-up capital.

First RM600,000

17%

Excess of RM600,000

24%

 

Any company registered as Sendirian Berhad and Berhad companies are eligible for Income Tax filing. Sole proprietorships and partnerships are reflected as individual business income and need to be filed under Forms B and P. Both of which are available online on LHDN’s website and at your local LHDN branch. 

Why is Corporate Tax Submission in Malaysia Important?

As mentioned previously, our income taxes contribute significantly to the wealth and growth of our country. It is one of the reasons why the Malaysian authority has been rolling out initiatives to support the growth of Malaysian SMEs as of late. Even amidst a global pandemic, our government has been generous in providing sustainable stimulus packages that centre around keeping SMEs alive. 

Originally at 40% in the late 1980s, the Malaysian tax rate for businesses had experienced a gradual reduction standing at a rate of 24% today. Aside from this drop in our regular tax rates, in 2019, the Malaysian authority has recognised the importance of SMEs by giving the SMEs a special rate of 17% on the first RM 500,000 chargeable income for the year of assessment 2019. 

It is also important to file the corporate tax in a timely manner and within the prescribed time to ensure compliance with the relevant laws such as the Income Tax Act. Any business or company registered with the Companies Commission Malaysia (better known as Suruhanjaya Syarikat Malaysia, SSM) is required to file and pay their income taxes to avoid non-compliance penalties.

How to File and Pay Corporate Tax in Malaysia? 

If you have never filed for the corporate tax before, stay tuned. Get the in on what you need to know right here with Funding Societies. 

Corporate Tax Deadlines

Unlike personal income tax, filing for corporate requires you to calculate an estimated tax as well as file for your regular taxes. This means you essentially make 2 tax payments. One for your estimated tax value and another one when you close your accounts for the year and file your taxes. 

The table below outlines submission deadlines, forms and for SME Income Tax filing.

Estimated Tax Payable Payment Deadline for Estimated Tax Filing for Tax Return Payment Deadline for Tax Balance
New Companies Within 3 months of Operation 15th of each month, beginning from the 6th month of the assessment year Within 7 months after the end of the assessment year. Balance Tax to be paid within 30 days of filing
New SMEs

(With paid-up capital of RM2.5 million or less)

Exempted for first 2 assessment years, form to be submitted with zero tax estimation Exempted for first 2 assessment years Within 7 months after the end of the assessment year. Balance Tax to be paid within 30 days of filing
Existing Companies 30 Days before the start of New Assessment Year 15th of each month, beginning from the 2nd month of the assessment year Within 7 months after the end of the assessment year. Balance Tax to be paid within 30 days of filing
Forms Required CP240 / e-CP240 CP270 / e-CP270 Form C / e-C

Malaysia SME Tax Deductions

Tax deductions for SMEs and Businesses are similar in concept to personal income tax deductions. They are business expenses incurred by the business for the purpose of gross income generation. These deductible expenses are allowed under the provisions of the Income Tax Act 1967. 

By deducting your business outgoings and expenses you will get your business chargeable income.

Deduction  1:  Year to date business losses. (Current year)

This amount is restricted to only your aggregate income. To calculate that value, check out the formula down below:

Aggregate Statutory Income from Businesses and Partnerships. Business losses brought forward Aggregate Statutory Income from other sources e.g. dividends, interest, rents.

 

Deduction 2: Prospecting, Pre-Operational or Permitted Expenditure

There is a complete list of allowable deductions that can be found in the Form C guidebook. Released each assessment year. Click on this link to download a sample of the 2020 guidebook, that you can also get from the LHDN website. 

However, we do have a short version of this list right here. 

  1. Interest on money borrowed and used for the production of gross income.
  2. Interest on money borrowed and used on assets used or held for the production of gross income. 
  3. The rental expense of land or building occupied for production of gross income.
  4. Bad debts proved irrecoverable and calculated into gross income. 
  5. Employer contribution. an approved scheme (up to 19% of employee’s contribution).
  6. Replanting expenditure
  7. Equipment alteration or renovation of premises for disabled employees. 
  8. Translation or publication of books in the national language, approved by Dewan Bahasa dan Pustaka. 
  9. Revenue expenditure on the provision and maintenance of childcare centres for employees’ benefit. 
  10. Revenue expenditure by a company in obtaining certification in recognised quality system standard and halal certification (double deduction). 
  11. Remuneration of disabled employees (double deduction). 
  12. Freight charges for shipping goods from Sabah/Sarawak to Peninsular Malaysia (double deduction. 
  13. Advertising expenditure on Malaysian brands/products. 
  14. Promotional samples of products produced by a company.
  15. Approved expenses for the promotion of exports. 
  16. Lease rental of Motor vehicle. 
  17. Entertainment expenses directly related to sales provided to customers, dealers or distributors (not suppliers)
  18. Entertainment expenses related to local leave passage to employees to facilitate yearly company events. 
  19. The premium on fire insurance and loss of profit. 
  20. Incorporation expenses (for SMEs or companies with an authorised capital of RM2.5 million or less). 

Deduction 3: Approved Donations, Gifts and/or Contributions

1. Gift of money to the Government / State Government / local authority Restricted to 10% of Aggregate Income
2. Gift of money to approved institutions/organisations/funds
3. Gift of money for any sports activities approved by the Minister of Finance
4. Gift of money or cost of contribution in kind for any project of national interest approved by the Minister of Finance
5. Gift of money in the form of wakaf to any religious authority / religious body / public university or gift of money in the form of an endowment to a public university
6. Gift of artefacts, manuscripts or paintings Value to be determined by the Department of Museums Malaysia the National Archives
7. Gift of money for the provision of library facilities or to libraries Maximum of RM20,000, if the same claim has not been included in the calculation of aggregate statutory income.
8. Gift of paintings to the National Art Gallery or any state art gallery. Value to be determined by the National Art Gallery or state art gallery.

Deduction 4: Zakat Perniagaan

If your SME makes Zakat donations, you can claim a maximum of 2.5% of your aggregate income. 

Deduction 5: Claim for Loss under the Group Relief provision

The deduction for Group Relief provision is only applicable if the company is claiming the loss from a surrendering company within the same group. An SME or business may surrender up to 70% of its adjusted loss to another company within the same group. 

Perks of Knowing about Business Taxation 

As a business owner, it’s always a good thing to know the ins and outs of your business taxations. It allows you to make better decisions for your business and how to better plan for your business growth. 

Disclaimer: The information provided to you in this article is intended only for general information purposes only and does not constitute legal or professional advice on any subject matter. You should make your own assessment of the information and when in doubt, you should always seek professional advice. In no event will Funding Societies be liable to any party for any direct, indirect, incidental, special, consequential or punitive damages for reliance or use of such information by you or any third party.

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