Residence status is a very important question one has to question regardless whether you are a Malaysian or foreigner. It determines an individual’s liability to Malaysia income tax.
Year of Assessment (YA) for Individual
Liability to tax is determined on a year to year basis, i.e. 1 January to 31 December every year.
The Basic Distinction in Tax Treatment of an Individual between Resident and Non-Resident of Malaysia
|Tax at scale rate as specified in 2.3||
Tax at 28%
Entitled to claim
Not entitled to claim
|Rebates||Entitled to claim rebate under sub(s) 6A(2) of the ITA if chargeable income does not exceed RM35,000||
Not entitled to claim
Qualification to be a Tax Resident
The resident status of an individual for a basis year for a YA is determined by reference to physical presence of that individual in Malaysia, not by his nationality or citizenship.
There are 4 sets of circumstances in which an individual can qualify as a resident in Malaysia for the basis year for a YA. If an individual failed to fall within any of these 4 categories, then he is a non-resident for that basis year.
- In Malaysia for 182 days or more in a basis year and the period of stay in Malaysia does not have to be consecutive days under S.7(1)(a) of ITA.
- In Malaysia for less than 182 days in a basis year with certain conditions under S.7(1)(b) of ITA.
- In Malaysia 90 days or more with certain conditions under S.7(1)(c) of ITA.
- Not in Malaysia or in Malaysia for a period of less than 90 days in the basis year with certain conditions under s.7(1)(d) of ITA.
Conditions under S.7(1)(b) of ITA
The individual is in Malaysia less than 182 days (2019) and that period is linked to a period of 182 days or more consecutive days (2020) (relevant to staff new to Malaysia); or
The individual is in Malaysia less than 182 days (2019) and that period is linked by a period of 182 days or more consecutive days (2018) (relevant to staff leaving Malaysia).
In calculating the period of less than 182 days or the period of 182 days or more consecutive days, relaxation is given where the period of temporary absence shall be taken to form part of the period of 182 or more consecutive days.
The Temporary absence from Malaysia is illustrated in the ITA:-
- Absence which is connected with the individual’s service in Malaysia such as attending conferences, seminars or study abroad;
- Absence owing to ill-health involving the individual or member of his immediate family (parents, spouse and children); and
- Absence in respect of social visits not exceeding 14 days in the aggregate.
Conditions under S.7(1)(c) of ITA
If an individual is in Malaysia in the basis year for a particular YA for a period or periods amounting in all to 90 days or more (the days need not be consecutive days), he is resident for that particular YA if in each of any 3 out of 4 year of assessments immediately preceding that particular YA he was either:-
- Resident in accordance with s.7 of the ITA; or
- In Malaysia for a period or periods amounting in all to 90 days or more.
Condition under s.7(1)(d) of ITA
An individual is considered to be resident for the basis year for a YA if he is a resident for the immediately following basis year and had been resident for the 3 immediately preceding basis years. Therefore, an individual can be a resident in Malaysia pursuant to s.7(1)(d) of ITA even though he might never actually have been in Malaysia at all during the basis year.
It is very crucial for one, especially expatriate in Malaysia, to understand residence status. An income earner earning RM100,000, if he/she is a non tax resident, the tax rate would be 30%, which is RM30,000. As for a tax resident, the effective tax rate is approximately around 9%, RM9,000.
If you need any advise on tax filing, tax residence planning and advisory, please reach us at [email protected] or contact us at 011-12178183.