Chapter 1

Overview of
Malaysian Tax
Topics Addressed

Profile of the Inland Revenue Board

Taxes under the preview of the Inland
Revenue Board
Basis of Malaysian income tax
Taxation system in Malaysia
 Profile of the
Inland Revenue
Board of Malaysia
(IRB)
 Profile

Prior to March 1996, known as the Department of Inland

Revenue Malaysia (under the Ministry of Finance).
Became a Statutory Board on the 1st of March, 1996.
Generally speaking the Inland Revenue Board (IRB) is
responsible for:
formulation of new tax policies for both the private and
public sectors,
tax collection; and
compliance enforcement.
 Specific Functions

Act as an agent of the Malaysian Government and to provide

services in administering, assessing, collecting and enforcing payment
of taxes under the IRB.
Advice the Malaysian Government on matters relating to taxation
and to liase with the appropriate Ministries and statutory bodies on
such matters;
Participate in or outside Malaysia in respect of matters relating to
taxation;
Perform such other functions as are conferred on the Board by any
other written law;
Act as a collection agent for and on behalf of any body for the
recovery of loans due for repayment to that body under any written
law.
 Taxes Under
Preview of IRB
 Taxes under IRB

Type of tax Relevant Act (s) or Ordinance (s)

Income Tax Income Tax Act 1967

Promotion of Investment Act 1986
Labuan Offshore Business
Activity Tax Act 1990
Petroleum income tax Petroleum (Income Tax) Act 1967
Real Property Gains Tax Real Property Gains Tax 1976
Estate Duties Estate Duty Ordinance
Stamp Duties Stamp Act 1949
 Basis of
Malaysian Income
Tax
Scope of Taxation
 Sec 3 of ITA 1967

A tax known as income tax shall be charged

for each year of assessment upon the
income of any person accruing in
or derived from Malaysia or
received in Malaysia from outside
Malaysia.
 Characteristics of Income

Repetitive from a source of income

received in the ordinary course of business.
Periodical return “coming in” with some sort of
regularity or expected regularity from defined sources.
Nature of gains or profits has to fall into any of the
sub-paragraphs under section 4 and 4A of ITA 1967.
 Person

Includes:
•Company

•A body of persons
Unincorporated body of persons (not being a
company), including a Hindu joint family but excluding
a partnership.
Include trust, club, co-operative societies and etc.
Individual.
 Accrued

Carries the meaning “earned” or “right to receive”.

Does not mean “received”.
Income from a particular source can be earned
and received in the same period.
 E.g. Accrued versus Received

Humayun Ibrahim , bought a semi-detached house in Island Glades,

on the 31st of December, 2014. On the 1st of February, 2015, she
rented out the house to Jaafar for a monthly rental of RM900. Since
occupying the house Jaafar, has being paying the rental on the due
date that is on or around the first of the month concerned. The only
exception was December 2015’s rental, which was only paid on the
10th of January 2016 together with the rental for January 2016.

Advise Humayun Ibrahim on whether the rental for December 2015,

will be taxed in the calendar year (1st January to 31st December)
2015 or 2016.
 E.g. Accrued versus Received

Discussion: The rental for December 2015, will be subject to income

tax in the calendar year 2015 because:

The rental was “earned” in 2015 as Humayun had the right to

receive the said rental in that period.
The scope of charge in the Income Tax Act 1967 generally works on
an “earned” and not “receipt” basis.
 Derived

Rules differ according to the source of income

examined.
Classsification and Derivation of Income

Section Sources of income Derivation section

4(a) Business 12
4(b) Employment 13(2) and 13(3)
4(c) Dividends, interest 15
and discounts
4(d) Rents, royalties and 15
premiums
4(e) Pensions, annuities 17(1) to 17(3)
and other periodical
payments
4(f) Special classes of 15A
income
Malaysian Derived Employment Income

“Gross income in respect of gains or profits from an

employment for any period during which the
employment is exercised in Malaysia; shall be deemed
to be derived from Malaysia”.
Malaysian Derived Employment Income

Dr. Sunil Singh, a computer programmer signed an

employment contract in India with CMC Ltd (an Indian
government owned company) on the 31st of December
2014. With effect from 1 January 2015, he was assigned to
Malaysia by CMC Ltd to assist Penang Port Sdn Bhd (a
client of CMC) in developing its computerized container
handling system. Seventy percent of his remuneration for
2015 was received in India. The remainder was paid in
Malaysia.

Issue: Dr. Sunil wants to know whether the portion received

in India will be taxed in Malaysia.
Malaysian Derived Employment Income

Discussion: The portion received in India is derived from

Malaysia because it relates to a period during which the
employment was exercised in Malaysia. Therefore, the
income will be taxed in Malaysia although it was received in
India.
Malaysian Derived Business Income

Income from a business source that is attributable

to operations of the business carried on outside
Malaysia is not deemed to be derived from Malaysia
(Foreign income).
 Malaysian Derived Business Income

Mplant Sdn Bhd is a Malaysian resident company, involved in

the provision of professional computer services. It has a branch
in Jakarta, Indonesia. Mplant has signed a contract with a
commercial bank in Indonesia, to provide computer services
for the bank’s network of branches in Indonesia. The service
was provided by Mplant’s employees stationed in Jakarta. The
duration of the project is expected to be for a period of least 20
months. Work on the project commenced in January 2015.
Mplant’s financial year ends on December 31.

Advise the Financial Controller of Mplant Sdn Bhd on whether

the income from the Indonesian project is derived from
Malaysia.
 Malaysian Derived Business Income

Income derived by Mplant from the Indonesian contract

for the year of assessment 2015 is not deemed to be
derived from Malaysia as it is clearly attributable to a
project carried on outside Malaysia.
 Foreign Source -- Taxable Remittance

(a) The remittance must be out of income, which has accrued or derived
from overseas sources. It must flow from a foreign trade or foreign
profession including income from a partnership or from an
employment the duties which, are performed overseas.
(b) The remittance income must belong to the resident taxpayer.
(c) The income must be received in or brought into Malaysia.
(d) The foreign source from which the income arises must not have
ceased where the remittance is made.
(e) Income must be from a source that is taxable if the source were
located in Malaysia.
 Received

Not defined in ITA 1967.

Means “come into possession” or in other words “physically
received”.
“Received” and “Remittance” are not the same.
Paragraph 28 of Schedule 6 to ITA 1967

Foreign source income received by any

person (other than a resident company
carrying on the business of banking,
insurance, sea or air transport) will be
exempted from income tax.
 Section 3B of ITA 1967

Income derived by an offshore company in

respect of offshore business activity is not
chargeable to income tax.
 Scope of Charge of Income Tax
(from YA 2004)

Capital Income

Other Income Offshore business

No Tax activity income by
offshore company

Received in M’sia from Accrued in or

outside Malaysia derived from
Malaysia

Resident bank, insurance, Other Persons Not

sea and air transport Chargeable
Taxed
irrespective of
(Sec. 3B)
Exempted from resident status
Taxed Income Tax of person
Scope of Charge – Individuals

With effect from year 2004, individuals (resident and

non-resident) are assessable only on income accrued in
and derived from Malaysia.
Foreign source income is exempted from income tax by
virtue of paragraph 28, Schedule 6 of the Income tax Act
1967.
Capital gains on the other hand are not subject to
income tax as the Income Tax Act 1967 only imposes tax
on transactions that are 'income' in nature.
 World Income Scope

Resident companies carrying on the business of

banking, insurance, shipping and air transport are
assessed under the world income scope.
Income wherever derived would be taxed in
Malaysia on an accrued basis.
Whether the income is remitted into Malaysia is of
no relevance.
If the foreign income has also suffered foreign tax,
bilateral relief or unilateral relief would be accorded
accordingly.
Income Tax Rate
for Individuals
 Tax rate for Resident Individuals
Assessment Year 2018

Chargeable Income Calculations (RM) Rate % Tax(RM)

0 - 5,000 On the First 2,500 0 0
On the First 5,000 0
5,001 - 20,000 Next 15,000 1 150

On the First 20,000 150

20,001 - 35,000 Next 15,000 3 450

On the First 35,000 600

35,001 - 50,000 Next 15,000 8 1,200

On the First 50,000 1,800

50,001 - 70,000 Next 20,000 14 2,800

On the First 70,000 4,600

70,001 - 100,000 Next 30,000 21 6,300

On the First 100,000 10,900

100,001 - 250,000 Next 150,000 24 36,000

On the First 250,000 46,900

250,001 - 400,000 Next 150,000 24.5 36,750

On the First 400,000 83,650

400,001 - 600,000 Next 200,000 25 50,000

On the First 600,000 133,650

600,001 - 1,000,000 Next 400,000 26 104,00

On the First 1,000,000 237,650

Exceeding 1,000,000 Next ringgit 28
Mahfooz an expatriate lecturer at Universiti Sains Malaysia is a
resident (after application of section 7(1)(a) of the Income Tax
Act 1967) for the year 2018. His chargeable income for the said
year is RM90,250.
Issue: Compute his income tax chargeable for the year of
assessment 2018.
Discussion: His income tax chargeable is computed using the
table on the previous slide:
RM
First RM70,000 4,600
Balance 20,250@21% 4,253
--------
8,853
--------
 Tax Rate for Non-Resident Individual

The tax rate for a non-resident individual is 28%.

In the case of example 1, if Mahfooz was a non-

resident, his income tax payable would be:
RM25,270 (90,250 x 28%).
The End