Introduction
The Inland Revenue Board of Malaysia (LHDN) has issued Public Ruling No. 6/2025 on the Taxation of Income from Employment on Board a Ship. This ruling is crucial for seafarers to understand their tax obligations and eligibility for tax relief. The primary objective of this guide is to explain the tax treatment and the specific conditions that must be met to qualify for the Malaysia Seafarer Income Tax Exemption.
What is the Taxation of Income from Employment on Board a Ship?
The general rule under Malaysian tax law is that an individual’s employment income is deemed derived from Malaysia and thus subject to Malaysian tax, if the employment is exercised on board a ship or aircraft, and the business operating that vessel is resident in Malaysia for the relevant year of assessment.
Who Qualifies as a ‘Seafarer’?
For the purpose of this ruling, a “Seafarer” is any person employed or engaged on board a ship, with the exception of those not directly employed for the ship’s normal manning (deck, engine, or catering departments).
The ruling explicitly excludes the following individuals from the definition of a seafarer:
- Pilot, superintendent, surveyor, auditor, or inspector.
- Scientists, researchers, divers, or specialist offshore technicians whose work is not part of the ship’s routine business.
- Personnel working solely within a port or port facility.
- Military and armed personnel.
- Temporary riding crew.
Key Criterion 1: Derivation of Income (Is Your Income Taxable in Malaysia?)
The first and most critical step is determining if your income is deemed derived from Malaysia under the Income Tax Act 1967 (ITA):
- If the ship is operated by a person (company) resident in Malaysia: Your employment income on board the ship is deemed to be derived from Malaysia and is subject to tax.
- If the ship is operated by a person (company) NOT resident in Malaysia: Your employment income is deemed not to be derived from Malaysia and is therefore not subject to Malaysian tax. This applies even if you are a Malaysian citizen.
Key Criterion 2: The Three Conditions for Malaysia Seafarer Income Tax Exemption
Even if your income is deemed derived from Malaysia (Criterion 1 is met), you may still qualify for a full tax exemption under Paragraph 34, Schedule 6 of the ITA, provided all three of the following conditions are met:
Condition 1: Must be a Seagoing Ship
The employment must be exercised on board a “ship” that is used in a business. A “ship” means a sea-going ship other than excluded vessels like ferries, tug-boats, supply vessels, dredgers, and fishing boats.
- A sea-going ship must be a vessel that sails beyond the port limit for the transportation of passengers and cargo.
Condition 2: Employer is a Malaysian Resident Business Operator
The business operating the ship must be operated by a person who is resident in Malaysia.
Condition 3: Employer Must Be a Registered Ship Owner (MSO 1952)
The most specific condition is that the Malaysian resident person operating the business must be the registered owner of a ship under the Merchant Shipping Ordinance (MSO) 1952.
- Important Note: The exemption can still apply even if the seafarer works on a chartered foreign ship, provided the business operator is resident in Malaysia and also the registered owner of at least one other ship under the MSO 1952.
What if Your Employment is Not Solely on Board a Ship? (Partial Exemption)
If a seafarer is employed for a period that includes both duties exercised on board a ship and duties exercised onshore (such as being seconded to the employer’s shore-based office), the income from the shore-based duties is subject to tax.
- Calculation: The taxable income is calculated based on the proportion of time spent performing duties in the land-based office compared to the total employment period.
- Example: If your total income is RM120,000 for the year, and you spent 2 months in the shore office, the income subject to tax is calculated as (2 months / 12 months) x RM120,000 = RM20,000. The remaining RM100,000 would be eligible for the tax exemption.
Key Takeaways
- Derivation is Key: Your income is only subject to Malaysian tax if the ship operator is a Malaysian resident.
- Three Conditions for Exemption: For full tax exemption, the employment must be on a sea-going ship, operated by a Malaysian resident, and that operator must be a registered ship owner under MSO 1952.
- Onshore Duty is Taxable: Any income earned during time spent performing duties onshore is calculated on a prorated basis and is subject to income tax.
Frequently Asked Questions (FAQ)
Q1: What documents should I keep to prove my eligibility for the tax exemption?
You should submit and retain documents such as your Seaman card, Seaman’s book, employment contracts detailing your rank and period of employment, and the registration certificates of the vessels you worked on.
Q2: Does the exemption apply to all types of vessels that sail internationally?
No. Vessels specifically listed as ferries, barges, tug-boats, supply vessels, crew boats, lighters, dredgers, and fishing boats do not qualify as a “ship” for the purpose of this exemption.
Q3: As a seafarer, do I still need to file an Income Tax Return Form (ITRF)?
Yes. Where your income does not qualify for the full tax exemption, you are required to file your income tax return form online via the MyTax system. The employer is also responsible for complying with the Monthly Tax Deduction (MTD) schedule for the non-exempt portion of the income.
ANC Group – Your Personal Tax Advisor
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If you need professional tax advisory services regarding the Malaysia Income Tax Act 1967, our team is ready to assist you. Contact us here to discuss how we can support your business.
