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Generally, all
income of companies and individuals accrued in, derived from
or remitted to Malaysia are liable to tax. However, income
remitted to Malaysia by resident companies (other than
companies carrying on the business of banking, insurance,
air and sea transportation), non-resident companies and
non-resident individuals are exempted from tax.
Apart from income
tax, there are other direct taxes such as real property
gains tax, and indirect taxes such as sales tax, service
tax, excise duty and import duty.
Currently, income
tax is assessed on the income earned in the preceding year
according to the Official Assessment Systems.
As a measure to
modernise and streamline the tax administration system, the
assessment of income tax will be changed to the current year
assessment from the year 2000. The present Official
Assessment System will be changed to the Self-Assessment
System in stages as follows :
| Group |
Year of Implementation |
| Companies |
2001 |
| Businesses, partnerships
and cooperatives |
2003 |
| Salaried group |
2004 |
-
To facilitate the changeover, all income received in 1999
will be waived from income tax and losses incurred 1999
will be allowed to be carried forward.
SOURCES
OF INCOME LIABLE TO TAX
Sources of
income which are liable to income tax are as follows :
· Gains and profits from trade, profession and business
· Salaries, remunerations, gains and profits from an
employment
· Dividends, interest or discounts
· Rents, royalties or premiums
· Pensions, annuities or other periodic payments
· Other gains or profits of an income nature not
mentioned above.
Chargeable
income is arrived at after adjusting for expenses incurred
wholly and exclusively in the production of the income.
Specific provisions or reserves for anticipated losses or
contingent liabilities are not tax deductible. No
deduction for book depreciation is allowed although
capital allowances are granted. Unabsorbed losses may be
carried forward indefinitely to offset against future
income.
COMPANY TAX
A company, whether resident
or not, is assessable on income accrued in or derived from Malaysia.
Income derived from sources outside Malaysia and remitted by a
resident company is not subject to tax, except in the case of banking
and insurance business and sea and air transport undertakings. A
company is considered a resident in Malaysia if the control and
management of its affairs are exercised in Malaysia. Places of control
and management are considered on the basis of where meetings of the
Board of Directors are held.
A tax rate of 28% is
applicable to both resident and non-resident companies. In the case of
a company carrying on petroleum production, the applicable tax rate is
38%.
PERSONAL INCOME TAX
All individuals are liable
to tax on income accrued in, derived from or remitted to Malaysia. The
rate of tax depends on the resident status of the individual which is
determined by the duration of his stay in the country (as stipulated
under Section 7 in the Income Tax Act 1967).
Resident Individual
A resident individual is
taxed on his chargeable income at graduated rates from 2% to 30% after
the deduction of tax reliefs. However, an individual with chargeable
income of less than RM 2,500 is taxed at zero rate.
Personal Reliefs
| The chargeable income of an individual
resident is arrived at by deducting from his total income the
following personal reliefs : |
| · Personal |
RM5,000 (a further relief of RM 5,000 if the
taxpayer is a disabled person) |
| · Wife |
RM3,000 (a further relief of RM 2,500 if the
wife is a disabled person) |
| · Medical expenses of parents |
up to a maximum of RM 5,000 |
| · Medical expenses for serious illnesses for
the individual, his wife or child |
up to a maximum of RM 5,000 |
| · Expenditure for the purchase of basic
support equipment for the individual, his wife, child or parent
who is disabled |
up to a maximum of RM 5,000 |
| · The maximum relief for unmarried children
(regardless of age) receiving full-time education in universities
and institutions of higher education in Malaysia is four times the
normal relief. |
| · Incapacitated children per child |
RM 5,000 |
| · Contributions to the Employees Provident
Fund and insurance or takaful premiums for life policies are
allowed a maximum total tax relief of RM 5,000. A further tax
relief of RM 2,000 is given for insurance or takaful premiums with
respect to medical and educational purposes. |
A married woman whose
income is separately assessed generally has her overall tax liability
reduced, although this may not always be the case. The separate
assessment covers all her income sources. She may, however, elect for
joint assessment, in which case, the husband is given a wife relief of
RM 3,000.
Tax rebate
Tax liability of a resident
individual is reduced by rebates which are granted as follows :
· For an individual with
income not exceeding RM 10,000, a rebate of RM 110 is given. A further
rebate of RM 60 is given for his wife. A wife who is assessed
separately will be entitled to a rebate of RM 110 if her chargeable
income does not exceed RM 10,000.
· The equivalent of amount
paid in respect of any zakat, fitrah or other Islamic religious dues
which are obligatory
· A sum of RM 400 for the
purchase of a computer by an individual or his wife.
· The amount of fee paid
to the government for the issue of an employment pass, visit pass or
work permit.
Non-resident Individual
Generally, a non-resident
individual is liable to tax at the rate of 30% and he is not entitled
to any personal relief. However, for the following types of income,
non-resident individuals are subject to a withholding tax which is a
final tax :
| · Special income of classes |
10% |
| · Technical advice, assistance or services |
|
| · Installation services on the supply of
plant, machinery, etc. |
|
| · Personal services associated with the use
of intangible property |
|
| · Services of a public entertainer |
15% |
| · Interest rate |
15% |
An employee on a short-term
visit to Malaysia enjoys tax exemption in respect of his income from
an employment exercised in Malaysia when his presence does not exceed
60 days in a calendar year. However, the income of a non-resident
individual who performs independent services such as consultancy
services is not exempted from tax.
REAL PROPERTY GAINS TAX
Capital gains are generally
not subject to tax in Malaysia. Real Property gains Tax is charged on
gains arising from the disposal of real property situated in Malaysia
or of interest, options or other rights in or over such land as well
as the disposal of shares in real property companies. The rates of tax
are as follows :
| · Disposal within 2 years |
30% |
| · Disposal in the 3rd year |
20% |
| · Disposal in the 4th year |
15% |
| · Disposal in the 5th year |
5% |
| · Disposal in the 6th year and thereafter -
company |
5% |
| - individual |
nil |
For individuals who are
citizens or permanent residents, gains from disposal of real property
held after five years are not subject to this tax. They are also
entitled to an exemption of RM5,000 or 10% of the gains, whichever is
the greater. In addition, they also enjoy a one-time tax exemption on
the gains arising from the disposal of one private residence.
For non-citizens and
non-permanent resident individuals, gains from disposal of real
property within 5 years are subject to tax at a flat rate of 30%.
However, disposal in the sixth year and thereafter will be taxed at
5%.
SALES TAX
This is an ad valorem stage
tax imposed at the import and manufacturing levels. Manufacturers are
required to be licensed under the Sales Tax Act 1972. Manufacturers
whose annual sales turnover do not exceed RM100,000 are exempted from
licensing. These companies are taxed based on their inputs. However,
to alleviate the burden of small manufacturers from sales tax upfront
on their inputs, these companies can opt to be licensed under the
Sales Tax Act 1972 in order to purchase tax-free inputs. With this
option, manufacturers will only have to pay sales tax on their
finished products.
The general rate for sales
tax is 10%. However, raw materials for use in the manufacture of
taxable goods are eligible for exemption from the tax. Inputs for
selected non-taxable products are also exempted. Certain non-essential
foodstuffs and building materials are taxed at 5% while cigarettes and
liquor are taxed at 15%. Primary commodities, basic foodstuffs, basic
building materials, certain agricultural implements and heavy
machinery for use in the construction industry are exempted. Certain
tourist and sports goods, books, newspaper and reading materials are
also exempted.
SERVICE TAX
This tax is imposed on
certain goods and services provided in certain prescribed
establishments. The goods include food, drinks and tobacco, while the
main services are provision for premises for meetings, conventions and
cultural and fashion shows; health services, and professional and
consultancy services provided by legal, engineering, surveyor,
architectural, accounting, advertising and other consultancy firms and
services provided by insurance companies, motor vehicles service and
repair centres, telecommunication services, security and guard
services, recreational clubs, estate agents, parking space services,
courier service firms, dentist, veterinary doctors, provision of
accommodation and food by private hospitals and credit cards
companies. Currently, hotels having more than 25 rooms and restaurants
within or outside hotels are subject to this tax. The tax base has
been widened to include services provided by car rental agencies
licensed under the Commercial Vehicles Licensing Board Act, 1987 and
having an annual sales turnover of RM300,000 and above; employment
having an annual sales turnover of RM150,000 and above; and companies
providing management services including project management
coordinating services having an annual sales turnover of RM300,000 and
above. Generally, the imposition of service tax is subject to a
specific threshold based on annual turnover ranging from RM150,000 to
RM500,000.
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General Section
