What salary makes you eligible for paying income tax in Malaysia?

Being true to the phrase “Wonder of Asia”, Malaysia truly exceeds one’s expectation. It is a country situated in the South-east Asia region. Malaysia is a developing country that aims to become a ‘developed nation’ by 2020. The Government of Malaysia has taken many important steps to ensure that the country is on the right track to achieve the benchmark. Malaysia invites local and foreign investor and entrepreneurs to invest in the country.

To encourage entrepreneurs, the government has simplified many processes. And many have an interest in owning a business in Malaysia. It is rest assured that businesses thrive in the country’s rapid economy growth. As it is with many countries in the world, Malaysia also impose several Taxes on its residents. Income Tax is one such tax. In this article, we will explain how much Salary makes you eligible for paying income tax in Malaysia?

First let us go into detail about what Income Tax is. It is a taxation system that is imposed on a persons’ yearly income. This includes the individual’s Salary, commission, bonuses, dividends, interests, royalties, premiums, pensions etc. If you are a business owner then the income you make, rent, annuities are taxable income. In short, you have to pay income tax for any income generated within Malaysia.

There are three categories that makes you eligible for paying income tax in Malaysia.

  • Resident of Malaysia: An Individual who resides in Malaysia for 182 days or more is subject to pay income tax.
  • Non- Resident of Malaysia: An Individual who resides for less than 182 days falls under this category as well.
  • However, any persons who resides in Malaysia for 60 days or less does not need to pay income tax. Also, income generated outside Malaysia is Tax exempted.

So, how much Salary makes it eligible for paying income tax?

In Malaysia, an individual earning RM.34,000 (after EPF deduction) per annum must pay income tax. A person who has a taxable monthly income of RM.2,833.33 (approx.) must register a tax file.

What is chargeable Income?

When dealing with income Tax there are certain terms you must be familiar with. In summary, chargeable income is when you deduct your tax exemptions, tax deductions & tax relief from Gross Income.

Chargeable Income = Gross Income – Tax Exemptions – Tax Deductions – Tax relief

Tax exemptions are types of income you don’t need to include in your income tax file. For example, perquisites you receive from your Employer. Perquisites also known as benefits-in-kind, are perks you receive in addition to your monthly salary. It is a broad range. But captured here are a few to give you an understanding. Petrol, toll charges which falls under travelling expenses is such a perquisite. In which case you receive a Tax Exemption up to RM.6,000 per year. Child care allowance is also such an allowance that is tax exempted up to RM. 2,400.

Moreover, income generated by rent is taxable. But Malaysian citizens receive tax exemptions for 50% of their rent income. Malaysia is a country where women are encouraged to work. Thus, women returning from the workforce become eligible for income tax exemption. This applies to women who have been away from the workforce for two or more years.

There are other tax exemptions which benefit Malaysia residents. Compensation for loss of employment, death gratuity, pensions after retirement age, scholarships are some other Tax exemptions.

What are tax deductions?

If you or your company contributes “Gifts or Donations” to the government or a government approved charity, then you can deduct up to 7% of your income.

You can receive Tax relief for purchasing lifestyle goods or if you have children who are below 18 years. The list goes on.

These are only a few of the vast list provided by the Malaysian Government. If you would like more details please don’t hesitate to contact S & F Consultants. We can offer you an extensive explanation & guidance.

Resident of Malaysia Tax rates are as follows (2019-2020)

Chargeable Income (Ringgit) TAX (Ringgit) Percentage on excess (%)
5,000 0 1
20,000 150 3
35,000 600 8
50,000 1,800 14
70,000 4,600 21
100,000 10,900 24
250,000 46,900 24.5
400,000 83,650 25
600,000 133,650 26
1,000,000 237,500 28
2,000,000 517,650 30 (With Effect from: 2020)

Let me give you an example on how to calculate your Income Tax based on the chart above. If your chargeable Income is RM.53,000, you will pay RM.1,800 + 420 = RM.2,220 as income tax.

First RM.50,000 = RM.1800

Excess = RM53,000-50,000 = RM.3,000

Percentage on Excess = 14%

                                       = RM.3000 * 14%

                                       = RM.420

Total Tax payable for RM.53,000 = RM.1800 + RM.420

                                                          = RM.2,220

  • Tax Rates for Non-residents

28% of Income Tax rate is applicable for these types of Income:

  • Business, Trade, Profession
  • Employment
  • Dividends
  • Rent

Public Entertainer, Interests received by non-resident; 15% Rate applies.

10% of tax rate applies to Royalty & rent earned by non-residents.

The aim of this article is to give you an in-sight about the amount of Salary that makes you eligible for paying income tax in Malaysia. Having said that, Malaysia’s Income Tax follows a self-assessment system. That means, that it is the individuals’ responsibility to register Income Tax, calculate and pay on time. By any chance if you pay in excess, the IRD will deposit the excess to the bank account that you provided. The government body which looks over taxing in Malaysia is the IRB (Inland Revenue Board of Malaysia). All filing and payment must be done at the IRB.

Deadline for manual Tax filing is: 15th April 2020
e-tax filing: Mid May 2020

You may drop in at the IRB head office, submit all documents and get an income tax number to proceed with payment. Or, the IRB also has introduced an e-filing method which helps you attend to all these tasks online. You can register for income tax and also pay online via their website https://ez.hasil.gov.my/CI

As the tax season approaches, you might face many issues. Especially if you are a new tax payer or if you have joined a new company & have to file income tax. If you need any assistance in tax filing and payment, please feel free to contact S&F Consulting. We will do our best to keep you updated regarding the amount of Salary that makes you eligible for paying income tax in Malaysia and relevant tax rules & regulations as well as tax filing.

Note: Read another article on tax resident in Malaysia


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