Taxation of expatriate employees in Malaysia

Expatriates taking up employment in Malaysia will be subject to Malaysian taxes and employment visa requirements. Grant Thorntons Tax team can help expatriates and their employers in dealing with Malaysian tax and employment visa matters. In particular Grant Thornton can assist expatriates and their employers in identifying Malaysian tax incentives, i.e. reliefs, and by reviewing tax equalisation policies, and providing compliance services regarding Malaysian tax filing procedures.
Pre-arrival procedures

resident in Malaysia or in Malaysia for periods amounting in all to 90 or more with respect to each of any three of the basis years for the four YA immediately preceding that particular YA; or he is resident in Malaysia for the basis year for the YA following that particular YA, having been so resident for each of the basis years for the three YA immediately preceding that particular YA.
Source of employment

An expatriate who requires a work visa must apply for the said visa before taking up an employment in Malaysia.
Employment visas

An expatriate taking up employment in Malaysia must apply for an employment pass before commencing employment. A local sponsor, who is usually the employing company in Malaysia, is required to support the application for an employment pass. If the expatriates spouse and children also relocate to Malaysia, they will require a dependents pass.
Tax year

The source of remuneration for services rendered is generally the place or location where the services are performed. The place where the remuneration is payable or the place where the contract is signed is not relevant. Where an employer outside Malaysia sends an employee to Malaysia to render services, the employee is taxable in Malaysia, notwithstanding that the employer is overseas, or that the employees remuneration is paid outside Malaysia and is not received in Malaysia. In this case, the employment income is derived from a Malaysian source.
Taxable income

The year of assessment (YA) runs from 1 January to 31 December. Malaysia adopts a current year basis of assessment. This means that income for the calendar year 2007 is taxable in the YA 2007.
Charge to tax

The definition of employment income for tax purposes includes any wages, salaries, remuneration, leave pay, fee, commission, bonuses, gratuities, perquisites and allowances in respect of having or exercising the employment. Also included is any benefit, amenity or living accommodation provided for the employee, a contribution made by the employer to an unapproved pension/ provident fund, and any amount received by way of compensation for loss of employment.
Benefits in kind

Income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia (foreign-source income received in Malaysia is not taxed, with effect from YA 2004).
Residence

An individual is resident in Malaysia for the basis year for a particular YA if: he is in Malaysia in that basis year for a period or periods amounting in all to 182 days or more; he is in Malaysia in that basis year for a period of less than 182 days, and that period is linked by or to another period of 182 or more consecutive days; he is in Malaysia in that basis year for a period or periods amounting in all to 90 days or more, having been a

Generally for Malaysian tax purposes, all wages, salaries and payments in cash or in kind in respect of employment exercised in Malaysia are taxable in full. The provision of certain benefits-in-kind is taxed on a concessionary basis. With proper implementation, certain benefits can be provided to an employee in a tax advantageous manner. The taxation treatment of each of the more common types of benefit is summarised below:

Accommodation

Where the employer provides accommodation rent-free to an employee or a service director of a controlled company, the individual is assessed on the defined value of living accommodation, or 30% of the individuals gross employment income, whichever is the lower. The above comparison is not applicable for a director of a controlled company, who will be assessed on the full defined value of the accommodation provided.
Car expenses

The employer is required to file a leaver form with the tax authorities no later than 1 month from the employees expected date of departure. For tax clearance purposes, the employer is required to withhold monies due to the employee from the date of notification of departure from Malaysia.
Social security taxes

The Employee Provident Fund (EPF) is a compulsory savings scheme for the employees retirement. Employees whose country of domicile is outside Malaysia (i.e. foreign citizens) are exempt from contributing; however they can make an election to contribute.
Investment income

The benefit assessed is the value of the private use of the car and fuel provided, based on a calculation table provided by the Malaysian Inland Revenue Board.
Share option scheme

The benefit derived by employees from an Employees Share Option Scheme in the form of shares offered at a discounted price is subject to tax.
Education

Generally, investment income (with certain exceptions) is aggregated with other types of income and subject to tax based on the tax rates set out above.
Real property gains tax (RPGT)

RPGT is exempted in respect of any disposal of a chargeable asset after 31 March 2007.
Local and wealth taxes

Tuition or school fees paid by the employer will be assessed fully as a benefit-in-kind on the employee.
Utilities

There are no Local and Wealth Taxes in Malaysia.

Inheritance and gift taxes

The amount of benefit that is taxable is based on actual service charges and bills paid by employer.
Foreign-source income

There are no Inheritance and Gift Taxes in Malaysia.

Foreign-source income remitted to Malaysia by individual taxpayers is exempt from tax in Malaysia.
Deductions against income

Expenses wholly and exclusively incurred in the production of income are tax deductible. However, there are a limited amount of deductions that are deductible against employment income.
Malaysian individual tax rates YA 2007

The tax charged for YA 2007 is at progressive rates, ranging from 0% (for the first RM2,500) to 28% (for income exceeding RM250,000).
Personal relief

Malaysian resident individuals are entitled to personal relief. Some of the more common types of relief are summarized below:
YA 2007 Personal relief Wife relief Children relief (per child) Disabled child (unmarried) Local higher learning Life insurance premium/ approved fund Insurance premium for education/ medical Rebate (employment/ visit/ work pass) Rm 8,000 3,000 1,000 5,000 4,000 6,000 3,000 Full rebate Contact information Seah Siew Yun Tax Director E seah@gt.com.my T +603 2692 4022 F +603 2721 2588 www.gt.com.my This fact sheet is issued in summary form exclusively for the information of clients and staff of Grant Thornton and should not be used or relied upon as a substitute for detailed advice. Accordingly Grant Thornton accepts no responsibility for any loss that occurs to any party who acts on the information contained herein without further consultation with us. Member firm within Grant Thornton International Ltd. Grant Thornton 2008. All rights reserved. Murugan Associate Tax Director E murugan@gt.com.my

Tax returns and compliance

An employee has to file an Income Tax Return by 30 April each year. There are Schedular Tax Deductions (i.e. pay-asyou-earn scheme) to be made for remuneration paid to an employee.