immediate preceding calendar year or in the first half of the immediate following calendar year. Periods of temporary absence are considered part of a period of consecutive presence if the absence is related to the individual’s service in Malaysia, personal illness, illness of an immediate family member or social visits not exceeding 14 days.
• They are present in Malaysia during the calendar year for at least 90 days and have been resident or present in Malaysia for at least 90 days in any three of the four preceding years.
• They have been resident for the three preceding calendar years and will be resident in the following calendar year. This is the only case in which an individual may qualify as a resident even though he or she is not physically present in Malaysia during a particular calendar year.
For the purposes of determining residence, presence during part of a day is counted as a whole day.
Income subject to tax. The taxation of various types of income is described below.
Employment income. Gross income from employment includes wages, salary, remuneration, leave pay, fees, commissions, bonuses, gratuities, perquisites or allowances (in money or otherwise) arising from employment. An individual employed in Malaysia is subject to tax on income arising from Malaysia, regardless of where the employment contract is signed or the remuneration is paid. Gross income also includes income for any period of leave attributable to employment in Malaysia and income for any period during which the employee performs duties outside Malaysia incidental to the employment in Malaysia.
Education allowances provided by employers to their employees’ children are taxable for income tax purposes.
Employee benefits and amenities not convertible into money are included in employment income. The cost of leave passages for an employee and the employee’s immediate family are also taxable, but the following items are exempt:
• Leave passage within Malaysia, up to three times in a calendar year
• One leave passage in a calendar year from Malaysia to any place outside Malaysia, up to a maximum of MYR3,000
Certain allowances, perquisites and benefits-in-kind are exempt from tax, including, among others, the following:
• Petrol/traveling allowances with respect to travel for official duties, up to MYR6,000 a year
• Meal allowances
• Parking
• Telephone, including mobile phone (effective from 1 July 2020, expanded to include mobile phones, notebooks or tablets, up to MYR5,000)
• Allowances or subsidies for childcare, up to MYR2,400 a year
• Medical benefits (including maternity expenses and traditional medicines such as Ayurvedic medicine and acupuncture) and dental benefits
The above list is not exhaustive and some other tax-exempt benefits may apply if certain circumstances exist or if certain conditions are met.
The cost of relocation expenses to take up employment in Malaysia, approved pension contributions, and the cost of any medical or dental treatment borne by an employer are not taxable to an employee.
Short-term visitors to Malaysia enjoy a tax exemption on income derived from employment in Malaysia if their employment does not exceed any of the following periods:
• A period totaling 60 days in a calendar year
• A continuous period or periods totaling 60 days spanning two calendar years
• A continuous period spanning two calendar years, plus other periods in either of the calendar years, totaling 60 days
Non-citizen individuals working in Operational Headquarters (OHQs), Regional Offices, International Procurement Centres (IPCs) and Regional Distribution Centres (RDCs) are taxed only on that portion of income attributable to the number of days that they were in Malaysia until the expiration of the incentive (generally 10 years) granted by the Malaysian Investment Development Authority. The incentive is granted to the company and begins with the year of assessment stipulated in the approval letter issued by the Malaysian Investment Development Authority.
Effective 1 May 2015, the new Principal Hub incentive scheme has been implemented to replace these OHQ, IPC and RDC incentives. This scheme allows multinational companies to enjoy several benefits including hiring expatriates based on their business requirements. However, the above special incentive for individuals to be taxed only on the portion of income attributable to the number of days that they were in Malaysia is no longer available under the Principal Hub incentive scheme and will only be applicable for non-citizens working with Regional Offices.
Self-employment and business income. All profits accruing in Malaysia are subject to tax. Remittances of foreign-source income into Malaysia by tax residents of Malaysia were not subject to Malaysian income tax until 31 December 2021. For the period from 1 January 2022 to 31 December 2026, a conditional tax exemption applies to foreign income received by a person resident in Malaysia, excluding any source of income from partnership business in Malaysia.
Income from any business source is subject to tax. A business includes a profession, a vocation or a trade, as well as any associated manufacture, venture or concern.
Contract payments to nonresident contractors are subject to a total withholding tax of 13% (10% for tax payable by the nonresident contractor and 3% for tax payable by the contractor’s employees).
Income derived in Malaysia by a nonresident public entertainer is subject to a final withholding tax at a rate of 15%.
Investment income. Interest income received by individuals from monies deposited in approved institutions is exempt from tax.
Withdrawals of contributions from an approved Private Retirement Scheme (PRS) by an individual before the age of 55 (other than by reason of death or permanent departure from
Additional relief for personal disability
Spouse (if has no source of income or is jointly assessed) 4,000
Additional relief for spouse’s disability 5,000
Child
Younger than 18 years of age or, if 18 years of age or older, receiving full-time education or serving under articles 2,000
For each child 18 years of age or older, receiving full-time tertiary education or serving under articles in or outside Malaysia 8,000
For each disabled child studying in a recognized institution of higher learning in or outside Malaysia 8,000
Disabled child (in addition to child deductions) 6,000
Medical expenses for parents Up to 8,000
Purchase of basic support equipment for self, spouse, child or parent who is disabled Up to 6,000
Study fees incurred for courses of study (including post-graduate studies) at recognized institutions or professional bodies in Malaysia for the purpose of acquiring any skill or qualification or for courses for up-skilling or self-enhancement that are recognized by the Director General of Skills
Development (up to MYR2,000)
Life insurance premiums paid for self or spouse or voluntary contribution to approved provident fund (up to MYR3,000) and provident fund contributions (obligatory or voluntary up to MRY4,000)
Up to 7,000
Up to 7,000
Contribution to private retirement scheme and deferred annuity Up to 3,000
Contribution to Social Security Organisation (SOCSO) under the Employees’ Social Security Act 1969 (expanded to include employee’s contribution to Employment Up to 250 Insurance Scheme) (until 2021 year of assessment)
Up to 350 (effective from 2022 year of assessment)
Medical and educational insurance premiums paid for self, spouse or child Up to 3,000
Medical expenses for self, wife or child with serious disease, including fertility treatment; up to MYR1,000 each for complete medical examination, COVID-19 screening tests, mental health assessment or consultation
Amount of allowance
Type of allowance MYR cost, and dental examination and treatment expenses; up to MYR1,000 for vaccination expenses for self, spouse or child; and up to MYR4,000 for learning disability diagnosis and early intervention expenditure or rehabilitation treatment for children below 18 years old with a learning disability
Up to 10,000 (from 2023 year of assessment)
Child saving deposits, which are deposits paid into Skim Simpanan Pendidikan
Nasional for children’s education
Up to 8,000 (until 2024 year of assessment)
Lifestyle expenses (internet, newspapers, books, smartphones, tablets and computers, and selfenhancement courses [self-enhancement courses include courses such as language, photography and sewing courses]); gym membership and purchase of sports equipment have been removed from this relief from the 2024 year of assessment
Up to 2,500 Special tax relief (personal computer, smartphone or tablet not being used for business purchased from 1 June 2020 to 31 December 2022)
Up to 2,500 (until 2022 year of assessment)
Purchase of breastfeeding equipment
Up to 1,000 Fees paid to childcare centers and kindergartens for children six years old and younger
Up to 3,000 (until 2024 year of assessment)
Purchase of handphones, notebooks or tablets
Up to 2,500
Purchase of sports equipment, rental and entry fees for sports facilities, and registration fees in sports competition; from the 2024 year of assessment this relief has been restructured to include purchase of sports equipment and gym membership fees
Up to 1,000 (from 2024 year of assessment)
Amount incurred for the payment for installation, rental, purchase, including hire purchase equipment or subscription fees for the use of an electric vehicle charging facility
Up to 2,500 (2022 to the 2027 years of assessment)
Business deductions. The deductions and expenditure allowable against business income are those incurred wholly and exclusively in the production of gross income from the same source.
Depreciation charged in the financial accounts is not a deductible expense. However, straight-line capital allowances based on cost may be claimed on qualifying assets used in a business. In addition, an initial allowance of 20% of the cost of the asset is granted in the year of acquisition.
Under the Employees’ Provident Fund Act 1951, all employers and employees are required to make monthly contributions to the EPF. The statutory contribution rate is 23% or 24% of monthly wages. Employers pay at a rate of 12% if the employee’s monthly wages are above MYR5,000 per month or 13% if the employee’s monthly wages are below MYR5,000 per month. Employees contribute at a rate of 11% of monthly wages. For employees aged 60 years and above, employers are required to contribute at a rate of 4% of the employee’s monthly wages while no contribution is required from the employee.
Employers may increase their contributions up to 19% without restrictions by the Malaysian tax authorities, and still deduct the amounts for corporate tax purposes. Employees’ contributions are deducted at source. No ceiling applies to the amount of wages subject to EPF contributions. Non-Malaysian citizens and nonMalaysian permanent residents are not required to contribute to the EPF, but may elect to contribute to take advantage of the available tax relief.
Self-employed persons may elect to contribute to the EPF. The individual may make voluntary contributions at a fixed monthly rate of any amount from up to MYR5,000.
EPF contributions and interest credited are not subject to Malaysian tax on withdrawal. The contributions may be withdrawn by an employee on reaching 55 years of age or at an earlier time if the employee leaves Malaysia permanently with no intention of returning. Contributions may also be withdrawn on the death of an employee or if he or she is physically or mentally incapacitated and is prevented from further employment. Employees may make partial withdrawals to purchase a house or to finance medical treatment or education, or when they attain 50 years of age. Effective 11 May 2024, the EPF introduced Account 3 (or flexible account), which provides flexibility for individuals to meet their short-term financial needs and will comprise 10% of all new contributions subsequent to the above date. Savings in Account 3 can be withdrawn anytime according to each individual’s personal needs.
D. Tax filing and payment procedures
The year of assessment in Malaysia is the calendar year. The base year for assessing tax is the calendar year coinciding with the year of assessment. An individual carrying on a business in Malaysia is assessed tax on the business income for the calendar year coinciding with the year of assessment, regardless of the accounting period adopted by the business.
A self-assessment system of taxation for individuals is in effect in Malaysia. Under the self-assessment system, an individual must submit his or her tax return to the tax authorities and settle any balance of tax payable by 30 April in the year following the year of assessment if he or she has employment and/or passive income only or by 30 June in the year following the year of assessment if he or she has business income. A notice of assessment is deemed served on the submission of the tax return to the tax authorities. An appeal must be filed within 30 days from the date of the deemed notice of assessment (that is, within 30 days of the date of submission of the tax return).
To broaden the income tax base, a tax identification number (TIN) has been implemented. From 2022, a TIN is issued to the following persons:
• Any person who is assessable and chargeable to tax
• Any person who is required under the Malaysian tax legislation to furnish a tax return
• Any person who is a citizen and aged 18 years old and above
An individual arriving in Malaysia who is subject to tax in the following year of assessment must notify the tax authorities of chargeability within one month after arrival. Nonresidents who are subject to final withholding taxes do not need to file tax returns unless required to do so by the tax authorities.
For employees, tax payment is made through mandatory monthly withholdings under the Monthly Tax Deduction Scheme (MTDS). All employers must deduct tax from cash remuneration (for example, salaries, overtime payments, and commissions), benefits-in-kind (BIK) and the value of living accommodation (VOLA), which are subject to the MTDs. The date for payment of the taxes withheld to the tax authorities is the 15th day of the following calendar month. Employers must withhold tax at a rate of 30% from wages, BIK and VOLA paid to nonresident employees.
Taxpayers have the option to treat the amount of the monthly tax deduction as the final tax paid. If they exercise this option, they are not required to submit their annual income tax returns. However, this applies only if certain conditions are fulfilled.
Married persons are taxed as separate individuals. Each spouse is assessed on his or her own income and is given tax relief through his or her own tax deductions and allowances. An individual may elect to have his or her income aggregated with the income of the spouse and to be jointly assessed in the spouse’s name. This election enables the individual to utilize all allowances if his or her own income is insufficient to make full use of the available deductions and allowances.
For taxpayers who derive other income (for example, rental or business income but excluding employment income), the tax authorities may issue a bimonthly installment scheme (Form CP500) based on their best judgment. The installment is payable in six bimonthly instalments, and payments are to be remitted within 30 days of each due date. Penalties are imposed for any late payments.
Taxpayers are given options to apply to revise the installment payment no later than 30 June and/or 31 October of the relevant year by submitting the Form CP502 to the tax authorities. If successful, a revised notice of installment payments (Form CP503) is issued. However, if the actual tax liability (determined on filing of tax return) exceeds the revised amount and the difference between the two amounts is greater than 30% of the actual tax liability, a penalty of 10% of the difference is imposed.
E. Tax treaties
Malaysia has entered into double tax treaties with the following jurisdictions.
G. Business visitors
All business travelers must apply for the necessary visa from Malaysian foreign missions abroad (if applicable) and are issued a Social Visit Pass (SVP), which has a validity of up to 90 days (depending on the nationality of the visitor), at the entry point, subject to the discretion of the immigration officers at the checkpoint.
Business visitors must have a valid return ticket and may be requested to show proof of sufficient funding to support their stay period in Malaysia.
Business visitors who enter Malaysia to conduct work activities beyond the scope of those allowed under an SVP may apply for a PLS@XPATS approval letter prior to their entry into Malaysia. The granting of the approval letter is limited only to visitors who are entering to perform urgent and critical work for the business of selected industries in Malaysia and are not able to wait for the processing of a work permit. They must provide proof of the urgency of the work by submitting online, among others, a detailed description and schedule of the work to be performed in Malaysia. If approved, the SVP with a work rights remark will be granted up to a maximum duration of 30 days only.
The following are the approved selected industries:
• Security and defense
• Manufacturing
• Construction; health and medical
• Oil, gas and energy
• Finance and banking
• Electrical and electronics
• Wholesale and retail
• Tourism; business services
• Commodity
• Education
• Agriculture
• Aviation
• Information technology and infrastructure
H. Work permit for professionals
A Malaysian work permit is required for any non-Malaysian person who wishes to enter Malaysia for work purposes, regardless of duration. A work permit for these individuals can be granted for a duration from 1 month to 60 months depending on, among other factors, the applicable type of work permit, merits of the applicant and the type of role. Renewals are allowed with sufficient justification to retain the employment of an employee for a role.
Employment Pass. The Employment Pass (EP) is the work permit required for any non-Malaysian person who is taking up employment with a Malaysian company or firm. It is issued by the Malaysian Immigration Department (MID). An EP is issued with the MEV for a duration of up to five years, subject to justification and consideration by the MID.
An EP is granted on a case-by-case basis for positions that require special technical knowledge or experience not available
locally or for positions that cannot be filled by Malaysian citizens. In general, to obtain an EP, an applicant must have the following:
• Relevant academic qualifications and work experience.
• A passport with a validity of at least 15 months or ideally for the full duration of the EP.
• A contract from the Malaysian employer with a minimum monthly salary of MYR5,000. Exceptions to this condition apply if the employment is in selected industries or if certain conditions are fulfilled with the necessary support from the authorities. Payroll can be administered by the home or host company.
• Passport (3.5 cm x 5 cm) photograph with blue background.
Also, the Malaysian company applying for the EP must fulfill certain requirements including, but not limited to, the following:
• Industry-specific requirements apply because different industries are governed by different ministries from which preapprovals may need to be obtained before the application can be submitted to the MID. For certain industries, the approving authority for the initial stage of the EP application may also be a Malaysian ministry or appointed body with differing application processes and requirements.
• Malaysian companies involved in selected industries are also required to provide necessary licenses in order to submit EP applications. These licenses include, but are not limited to, the Wholesale, Retail and Trade License or the Unregulated Services License from the Ministry of Domestic Trade and Consumer Affairs and the G7 Grade License issued by the Construction Industry Development Board.
• Malaysian companies that wish to apply for an EP must meet the minimum paid-up share capital requirement, which is MYR500,000 for wholly foreign-owned companies, MYR350,000 for foreign companies in a joint venture with local companies and MYR250,000 for 100% Malaysian-owned companies. The authorities for the applicable license may increase the minimum paid-up share capital requirement as a condition for the license.
• The Malaysian sponsoring company of an EP in West Malaysia must be registered with the Expatriate Services Division of the MID to which applications are submitted electronically. The only exception is for companies whose approving authority is the Malaysia Digital Economy Corporation.
• The company must obtain an EP projection approval before any applications can be submitted to either authority. The projection is granted on an annual basis whereby any balance unused by the end of the year will be forfeited. Additional projection can be applied throughout the year as required by the company.
• The company must fulfill Labor Market Testing (LMT) requirements before applying for an EP, if applicable. See Section I for more information.
Under the Malaysian Immigration Act 1959/63 (amended 2002), Immigration Regulations 1963 and Employment (Restriction) Act 1968 (Revised 1988), it is illegal to work without a valid work permit endorsed in an individual’s passport. The consequences of noncompliance include monetary fines, a jail term and caning. Other possible consequences include placing the
repatriation or deportation from Malaysia, termination of service by the employer, termination of service by the employee or abscondment without notice.
K. Long-term stay
The Malaysia My Second Home Program (MM2H Program) allows people from all over the world who fulfill certain criteria to reside in Malaysia as long as possible on a Long Term Social Visit Pass (LTSVP) issued with an MEV. The LTSVP is granted for an initial period of 10 years (subject to the validity of the applicant’s passport) and is renewable. The program is open to all citizens of jurisdictions recognized by Malaysia, regardless of race, religion, gender or age. Applicants may bring along their spouse and their unmarried children below 21 years old as dependents.
To qualify for the program, individuals 35 years or older must show proof of liquid assets worth a minimum of at least MYR1.5 million, an offshore income of MYR40,000 per month and a fixed deposit account of MYR1 million. An additional MYR50,000 in fixed deposit is required per dependent for applicants between the ages of 35 and 49.
MM2H visa holders may own a business in Malaysia but will not be allowed to be involved in the day-to-day operations of the business.
All participants in the MM2H Program and their dependents (spouse and children) must submit a medical report from a private hospital or registered clinic in Malaysia on approval or on the receipt of the Conditional Letter of Approval. Approved participants and dependents (spouse and children) must possess a valid medical insurance policy that applies in Malaysia. However, exemptions may be given for participants who face difficulty in obtaining medical insurance because of their age or medical condition.
Foreign citizens may apply for participation in the MM2H Program directly, without going through a third party, or they may use the services of MM2H agents licensed by the Ministry of Tourism, Arts and Culture.
The LTSVP described above is not a permanent residence permit. Recently introduced facilities. The Malaysian government recently introduced the Premium Visa Program (PViP) for foreign citizens or investors who wish to reside in Malaysia long term. Qualified participants of the PViP will be issued a LTSVP with a MEV and for up to 20 years. Unlike the MM2H Program, PViP participants are allowed to run businesses, find employment, invest and study in Malaysia. There are also no age restrictions imposed on interested participants.
To qualify for the program, applicants must, among other conditions, show proof of offshore income of MYR40,000 per month or MYR480,000 per year, a fixed deposit account of MYR1 million and pay a participation fee of MYR200,000 for the principal holder and MYR100,000 for each dependent.
All applications are to be made through an approved PViP agency registered with the MID.
L. Family and personal considerations
Family members
Working spouse. The spouse of an EP holder must cancel his or her Dependent Pass and obtain an EP from the MID to work legally in Malaysia. The MID does not provide a procedure for a DP holder to obtain a Permission to Work while retaining the DP.
Unmarried partner. A female unmarried partner of a male EP holder for certain nationalities are allowed to apply for the LTSVP with a maximum validity of one year if all conditions are fulfilled. The LTSVP is renewable.
Studying children. The child of an EP holder is allowed to study in Malaysia without having to change his or her Dependent Pass to a Student Pass if he or she obtains the necessary Permission to Study approval from the MID.
Children from 18 to 25 years old. The MID has set special rules regarding an application for the LTSVP for children from 18 to 25 years old only. For such children, the maximum validity of the LTSVP is one year, which is renewable up to the age of 25. An additional document to be provided is a letter from Commissioner of Oaths to confirm that the child is single, unemployed and in the custody of the EP holder.
Accompanying parent or parent-in-law. The parent or parent-inlaw of an EP holder can be granted a LTSVP with a maximum duration of one year. The LTSVP is renewable.
Driver’s licenses. Malaysians holding foreign driving licenses and participants in the MM2H Program can convert their foreign licenses to Malaysian driving licenses, effective from 1 November 2019.
Foreign driving license holders must use an International Driving Permit together with their respective domestic driving license to drive in Malaysia. Alternatively, it is advisable for them to apply for a Malaysia driving license via authorized driving schools based on existing procedures.
To obtain a new Malaysian driving license, the applicant must first pass a written examination on simple road signs and basic driving regulations and then apply for a temporary license, which is obtained by paying the fixed fee to the Road Transport Department of Malaysia. The relevant authority then conducts a practical test on basic driving skills.