Malaysia adopts a territorial system on income taxation. Whether resident or not, a company is assessable on income accrued in or derived from Malaysia.
Income derived from outside Malaysia and remitted by a resident company is exempted from tax, except in the case of the banking and insurance business, and sea and air transport undertakings.
For YA 2017 to YA 2018, resident company with paid up capital of RM2.5 million and below at the beginning of the basis period (SMENote 1) is subject to 18% of tax rate on the first RM500,000 chargeable income; and 24% on the subsequent chargeable income. Resident company with paid-up capital above RM2.5 million at the beginning of the basis period will be subject to a tax rate of 24%; that same rate applies to Non-resident company.
Note 1: A SME is defined as a company resident in Malaysia which has a paid up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a YA provided:
- not more than fifty per cent of the paid up capital in respect of ordinary shares of the company is directly or indirectly owned by a related company;
- not more than fifty per cent of the paid up capital in respect of ordinary shares of the related company is directly or indirectly owned by the first mentioned company; or
- not more than fifty per cent of the paid up capital in respect of ordinary shares of the first mentioned company and the related company is directly or indirectly owned by another company.
Where a SMENote 1 first commences operations in a year of assessment, the SME is not required to furnish an estimate of tax payable for a period of two years beginning from the year of assessment in which the SME commences operations. However, the IRB has confirmed that SMEs are still required to submit the Form CP204 within the stipulated deadline but without estimate of tax payable.
A SME that is exempted from furnishing an estimate of tax payable as mentioned above is advised to submit the Form CP204 informing the IRB of its SME status to avoid any penalty for non-submission being mistakenly imposed by the IRB.
Under the self assessment system, every company is required to submit a prescribed form (Form CP204) an estimate of its tax payable for a year of assessment, 30 days before the beginning of the basis period. However, when a company first commences operations (i.e. during the first basis period), the estimate of tax payable must be submitted to the IRB within three months from the date of commencement of its business and thereafter no later than 30 days before the beginning of the basis period.
For companies which first commence operations, the company must submit CP 204 within 3 months from date of commencement of operations only if the basis period for that year is not less than 6 months.
Note that the estimate of tax payable for a year of assessment must not be less than 85% of the estimate of tax payable for the immediately preceding year of assessment.
Note 1: A SME is defined as a company resident in Malaysia which has a paid up capital of ordinary shares of RM2.5 million or less at the beginning of the basis period of a YA provided:
The Company is allowed submit the CP 204A to revise the estimate of tax payable in the 6th or 9th month of the basis period.
It is important to note that where the tax payable for a particular year of assessment exceeds the estimate of tax payable, by an amount of more than 30% of the tax payable under the final assessment, the difference between that amount and 30% of the tax payable under the final assessment shall be increased by a sum equal to 10% of the amount of that difference, and that sum shall be recoverable as if it were tax due and payable.
If no estimation is furnished by a company, such final tax payable shall be increased by a sum equal to 10% of the tax payable and that sum shall be recoverable as if it were tax due and payable.
The estimated tax payable has to be paid in equal monthly instalments beginning from the second month of the basis period for a year of assessment.
When a company has determined its actual tax payable, balance of tax which is the actual tax payable after deducting total instalments on the tax estimate, has to be paid within 7 months from the close of the accounting period.
A penalty will be imposed on any late payment of tax.
Typically, any refund for excess tax credit should be completed within 30 working days from the date of submission if the submission is done within the due date through e-filing.
If the submission is done manually, it should take 3 months from the date of submission if the submission is done within the due date.
However, delays may occur in the refund process due to the need for auditing of the return form that was furnished.
A double tax agreement is an agreement regarding the avoidance of double taxation. From the context of Malaysia, a DTA is usually signed by a cabinet minister representing the country. Hence, it is an agreement between two sovereign states which are distinct political entities.
In other words, a DTA is a contract signed by two countries (referred to as the contracting states) to avoid or alleviate territorial double taxation of the same income by the two countries.
Malaysia offers a wide range of tax incentives for the promotion of investments in selected industry sectors. This includes manufacturing and agricultural sectors, as well as those involved in Islamic financial services, ICT, education, tourism, healthcare and research and development.
By doing so, the Government aims to attract foreign direct investments (FDIs) as investors from abroad by incentivising them to relocate or set up their operations in Malaysia.
These tax incentives come in different forms, such as exemption on income, extra allowances on capital expenditure incurred, double deduction of expenses, special deduction of expenses, preferential tax treatments for promoted sectors, exemption of import duty and excise duty, etc.
Under the self-assessment system, individuals are required to:
Failure to submit a tax return and upon conviction, the taxpayer will be liable to a fine of not less than RM200 and not more than RM20,000 or to imprisonment for a term not exceeding six months or to both. The IRB reserves the right to impose penalty of up to 3 times the amount of tax and/or additional tax payable.
Malaysia’s personal income tax year is from 1 January to 31 December and income is assessed on a current year basis. The tax filing deadline for person not carrying on a business is by 30 April in the following year. For a person carrying on a business, the tax filing deadline is 30 June in the following year.
Reliefs are made available to an individual who is a tax resident in Malaysia in that particular YA to reduce the chargeable income and tax liability. Companies are not entitled to reliefs and rebates. The conditions of entitlement for each relief must be satisfied in order to minimize the income tax liability.
However, if the total relief exceeds the total income, the excess cannot be carried forward to the following YA. The chargeable income for that YA will be nil and no income tax is payable for that YA.
Typically, any refund for excess tax credit should be completed within 30 working days from the date of submission if the submission is done within the due date through e-filing.
If the submission is done manually, it should take 3 months from the date of submission if the submission is done within the due date.
However, delays may occur in the refund process due to the need for auditing of the return form that was furnished.
Withholding tax is an amount withheld by the party making payment (payer) on income earned by a non-resident (payee). This amount is to be paid to the Inland Revenue Board of Malaysia.
'Payer' refers to an individual/body other than individual carrying on a business in Malaysia. He is required to withhold tax on payments for services rendered/technical advice/rental or other payments made under any agreement for the use of any moveable property and paid to a -resident payee.
'Payee' refers to a non-resident individual/body other than individual in Malaysia who receives the above payments.
Service Tax is a form of indirect tax imposed on certain prescribed goods and services in Malaysia including food, drinks and tobacco. Professional and consultancy service providers, such as accountants, lawyers, engineers, etc. are subject to the service tax. Nevertheless, the service tax cannot be levied on any services that are not in the list of taxable service.
Under the Service Tax Act 1975, any taxable person who operates a business of giving taxable service must apply for a license. Voluntary licensing is also available to any person (be it an individual, a company, a society, etc.) who is not required to be licensed if he provides taxable service; or will run a business of providing taxable services.
The Sales Tax, a single stage tax, was levied at the import or manufacturing levels. It is mandatory that all manufacturers of taxable goods are licensed under the Sales Tax Act 1972. Companies with a turnover of less than RM100,000 and companies with Licensed Manufacturing Warehouse (LMW) status are allowed to apply for a certificate of exemption from licensing. Under this act, licensed manufacturers are levied on their output while others (manufacturers that are not licensed or exempted from licensing) will be taxed on their inputs.
Both Sales and Services Tax (SST) and Goods and Services Tax (GST) are consumption tax. The SST is a single stage consumption tax, while GST is a multi-stage consumption tax on goods and services that is levied at every stage of the supply chain.
Prior to the implementation of GST, the rates for SST are 10% (for sales tax) and 6% (for services tax) that applies to the final production and service only. Under SST, the range of taxable items and exemptions is lesser as compared to GST. Under SST, everything is exempted unless taxable. Typically, high-end restaurants and hotels would be the ones charging SST. In most cases, the low-middle income experience less impact by the SST tax system.
On the other hand, GST is charged on every stage of supply chain, from the supplier, manufacturer, whole seller and to the retailer. Under GST, everything is taxable unless exempted. However, the range of exemptions and taxable items are wider. This means that all the goods and services are subject to GST unless it’s exempted such as essential goods, healthcare services, and public transport.
Real Property Gains Tax (RPGT) is a tax chargeable on the profit gained from the disposal of a property. Based on the Real Property Gain Tax Act 1976, RPGT is a tax on chargeable gains derived from disposal of property. A chargeable gain is the profit when the disposal price exceeds the purchase price of the property. RPGT applies to both residents and non-residents.
You will be only be taxed on the positive net capital gains which is disposal price less the purchased price less the miscellaneous charges such as; (stamp duty, legal fees, advertisement charges ,etc). Additionally, a waiver on the taxable amount is granted to individuals (but not companies).
There are exemptions allowed for RPGT, among them are:
As prescribed by law, the purchaser’s solicitors are required to retain 3% of the purchase price from the deposit and remit the same to the Inland Revenue Board within sixty (60) days from the date of the sale and purchase agreement to meet the RPGT payable.
Any payment after 60 days may attract a penalty payable by the seller. The penalty is 10% of the amount payable as RPGT.