Expatriate tax - Malaysia

An expatriate who requires a work permit must apply for their permit before taking up an employment in Malaysia.

An employment pass (EP) is issued with Multiple Entry Visa (MEV) by the Immigration Department. It is valid for a period of between 1 to 5 years and is renewable subject to approval by the Immigration Department. An expatriate must submit a renewal application preferably 3 months before expiration of their EP. An EP is issued on a case-by-case basis for positions that require specialised skills or experiences not generally available locally or that Malaysian citizens are not available to take up the positions.

An expatriate who intends to enter Malaysia for short-term assignments for the purpose of conducting trainings or involving in installation work or rendering servicing may apply for a Professional Visit Pass (PVP). A PVP is issued with MEV. It is valid for a period of between 1 to 6 months and is renewable up to a period of 12 months. No extension is granted beyond the 12 months period. In order to be eligible for PVP, the expatriate’s salary must be paid by an overseas company.

For expatriates who apply EP or PVP, they must have a sponsoring organisation in Malaysia to apply the pass on their behalf.

The tax year or year of assessment (YA) for individual tax runs from 1 January to 31 December (calendar year).  Malaysia adopts a current year basis of assessment. This means that income for the calendar year 2025 is taxable in the YA 2025. An individual carrying on a business in Malaysia is assessed tax based on the calendar year to be in line with the assessment year.

An individual is assessed based on the Self-assessment system (SAS) of taxation. Under the SAS, an individual has to submit his/her income tax return to the tax authority and settle the balance of tax payable if any, by 30 April in the year following the year of assessment if the individual derives employment income and other non-business income. If an individual also has business income in addition to his/her employment income and other non-business income, the individual has to submit his/her income tax returns by 30 June in the year following the year of assessment.

The income tax return submitted to the tax authority is deemed a notice of assessment under SAS. An appeal must be filed within 30 days from the notice of the deemed assessment if the person wants to amend his/her own income tax return.

An individual arriving in Malaysia who is liable to income tax in the following year of assessment is required to notify the tax authority within 1 month after arrival. Non-resident individuals who are subject to final withholding taxes do not need to file income tax returns unless advised by the tax authority to do so.

Employees’ taxes are made via the Monthly Tax Deduction Scheme (MTD) through deductions from their salaries. Any shortfall in the taxes due after MTD to the tax authority will be made at the time of filing their income tax returns.

Married persons are assessed individually on their own income unless they elect to be assessed jointly.  

Years of assessment 2024 and 2025

Taxable income                  Tax rate - %           Tax payable     Cumulative  

- MYR                                                                       -MYR             tax payable- MYR

0 - 5,000                                      0                       0                              0
5,001 - 20,000                             1                       150                           150
20,001 - 35,000                           3                      450                          600
35,001 - 50,000                          6                       900                          1,500
50,001 - 70,000                          11                       2,200                       3,700
70,001 - 100,000                         19                      5,700                       9,400
100,001 - 400,000                      25                      75,000                     4,400
400,001 - 600,000                     26                      52,000                     136,400
600,001 - 2,000,000                  28                      392,000                   528,400
Above 2,000,000                       30                      600,000                              -

Non-residents are subject to withholding taxes on certain types of income. Other income is taxed at a rate of 30%.

Residents and non-residents are subject to income tax on Malaysian-sourced income only.

An individual is considered resident in Malaysia for the basis year under the following situations:

• Resident in Malaysia for a period or periods amounting to a total to 182 days or more during the calendar year.
• Resident in Malaysia for a period of less than 182 days, and that period is linked by or to another period of 182 or more consecutive days. Periods of temporary absence are considered part of a period of consecutive presence if the absence is related to an individual’s service in Malaysia, personal illness of an immediate family member or social visits not exceeding 14 days.
• In Malaysia during the calendar year for a period or periods amounting in all to 90 days or more and have been resident or present in Malaysia for at least 90 days in any three of the four preceding years.
• 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 the person is not physically in Malaysia during a particular calendar year. 

Income from employment includes wages, salary, remuneration, leave pay, fees, commissions, bonuses, gratuities, perquisites, or allowances (in money or otherwise) arising from employment. Gross income from employment also includes income from any period of leave attributable to employment in Malaysia and income for any period during which the employee carries out duties outside Malaysia incidental to the Malaysian employment.

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 employee’s remuneration is paid outside Malaysia and is not received in Malaysia. In this case, the employment income is derived from a Malaysian source.

Benefits from employment income include perquisites, benefits-in-kind, and living accommodation benefit, are taxable and formed part of an employee’s employment income.  Perquisites can be in the form of cash or in kind, received casually or regularly. Perquisites have monetary value, i.e. they can be convertible into money as they can be sold, assigned, transferred or converted into cash.

Benefits-in-kind on the other hand, are benefits not convertible into money, even though they have monetary value, i.e. the benefit is provided to the employee and that benefit cannot be sold, assigned or exchanged for cash either because of the employment contract or due to the nature of the benefit itself.

As for living accommodation benefit, living accommodation provided to the employee by his employer is a benefit-in-kind which is not convertible into money. This benefit which arises in respect of having or exercising an employment is to be included as gross income of the employee from the employment.

Perquisites, benefits-in-kind, and living accommodation benefits are taxable as part of employment income in Malaysia, except for certain categories that meet specific requirements.

Short-term visitors to Malaysia enjoy an income tax exemption on employment income in Malaysia if their employment does not exceed any of the following periods:

• A period of employment totalling 60 days in a calendar year.
• A continuous period of employment totalling 60 days, spanning 2 calendar years.
• A continuous period of employment spanning 2 calendar years, plus other periods in either of the calendar years, totalling 60 days.

Foreign source income received in Malaysia by resident individuals is subject to income tax with effect from 1 January 2022.  However, the Government has by concession allows foreign source income to continues to be exempted from income tax from 1 January 2022 to 31 December 2036 except for individuals earning foreign source income through a partnership business (IIPs) carried on in Malaysia provided that:

• the income has been subjected to tax in the country of origin; or
• tax is not imposed in the country of origin due to reasons outlined in the guidelines issued by the Malaysian tax authorities

For foreign dividend income received by IIPs, such income is qualified for exemption from 1 January 2022 to 31 December 2026 provided that:

• the foreign dividend income subject to tax of a similar character to the income tax under the law where the income arises at a minimum tax rate of 15%; or
• comply with the economic substance requirements.

Remittances of foreign-source income into Malaysia by non-residents remains exempt from income tax in Malaysia.

Generally, the deductions against employment income are professional subscriptions and specific travels and entertainment incurred for the employer’s business. The cost of traveling from home to work is not deductible. Donations of cash to the government or organisations approved by the tax authority are tax-deductible.

Resident individuals are entitled to deduct certain types of allowance as personal reliefs against their taxable income. Some common types of reliefs are summarised below:

Types of allowance                                 YA 2024 (MYR)             YA 2025 (MYR)
Personal relief - self                                     9,000                               9,000

Spouse (if no source of income
or combined assessment)                          4,000                               4,000

Additional relief for taxpayer or
spouse disability                                         
• Taxpayer                                                     6,000                              6,000
• Spouse                                                        5,000                              5,000

Supporting equipment for disable             
taxpayer, spouse, children or parent        6,000                               6,000                                                                                                     
Child relief (claimed by either self or spouse)
1. Per child (below 18 years of age)           1. 2,000                           2,000
2. Per child (over 18 years of age
receiving full-time tertiary education)      2. 8,000                          8,000
3. Disabled child                                           3. 6,000                          6,000
Medical expenses for parent (maximum)  8,000                             8,000

Medical expenses for self, spouse and
children of serious diseases                        106,000                         10,000

Contribution to approved provident
fund such as Employees’
Provident Fund (EPF)                                    4,000                             4,000

Life insurance premium                                3,000                            3,000

Insurance premiums for education
or medical benefits                                       3,000                            4,000

Lifestyle expenses (internet, newspapers,
books, smartphones, tablets/computers,
sports equipment, gymnasium fee
and electronic newspapers)                         2,500                          2,500

Deferred annuity and contribution
to Private Retirement Scheme                      3,000                          3,000

Amount deposited into National
Education Savings Scheme                           8,000                         8,000

Social Security Organisation
(SOCSO) Scheme                                          350                              350

Breastfeeding equipment                             1,000                           1,000

Fees paid to child care centres
and kindergartens                                         3,000                           3,000

Interest paid on housing loans                  Not applicable             7,000 or 5,000

Purchase of sports equipment,
rental/entry fees for sport facilities
and registration fees in sport competition,
gymnasium membership fees,
sport training fee. (Taxpayer, spouse
or children), with effect from YA 2025,
the scope is expanded to include parents   1,000                          1,000

Electronic vehicle (EV) – payment of
installation, rental, purchase of
equipment or subscription fees for use
of EV charging facility)
To include the purchase of food
waste compost machines for household
purpose to be claimed once within 3 YAs
With effect for YAs 2025 until 2027)             2,500                          2,500

Study fees for acquiring post graduate
study at recognised institutions or
professional bodies in Malaysia for
the purpose of acquiring any
skill or qualification                                       7,000                           7,000

Effective from 1 January 2024, capital gains tax (CGT) is introduced which levied on capital gains derived from disposals of capital assets situated in Malaysia. The tax applies to gains derived by both resident and non-resident companies, LLP, trust body or co-operative society.

There is no capital gains tax on gains derived by individuals in Malaysia. However, Malaysia imposes capital gain in the form of real property gains tax (RPGT) on disposal of real properties in Malaysia and gains derived from the sale of shares in closely controlled companies with substantial real property interests (RPC shares).

RPGT rates

Disposal                        Individuals             Company                 Company

                                        (Citizens and          incorporated       not incorporated

                                         Permanent             in Malaysia &        in Malaysia +

                                         Residents) - %      Trustees of              Individuals                                                                                            Trust - %                (Non-citizens                                                                                                                         and Permanent                                                                                                                     Residents) - %

Within 3 years                            30                     30                                30
In the 4th year                            20                     20                                30
In the 5th year                            15                      15                                30
In the 6th year or thereafter     0                       10                                 10

Effective from 1 January 2025, self-assessment system will be implemented for RPGT and the returns submitted will be deemed as assessments raised by the Director General of Revenue.

There are no inheritance, estate and gift taxes in Malaysia.

Interest income received by individuals from monies deposited in approved institutions is exempt from tax.

There are no local taxes in Malaysia.

Social Security Organisation (SOCSO) was established in 1971 under the Ministry of Human Resources to provide social security protection to all employees/workers in Malaysia. It is mandatory for all employers and employees (Malaysian and non-Malaysian) to contribute to SOCSO. 

Employees Provident Fund (EPF) is a statutory provident fund to provide employees for their retirement fund in Malaysia.  Malaysian employees are required to contribute to EPF. It is optional for expatriates to contribute to EPF.

All employers and employees are required to make monthly contributions to the EPF. Employers pay a rate of 12% if the employee’s monthly wages are above MYR5,000 per month and 13% if the employee’s monthly wages are MYR5,000 and below per month. Employees contribute at a rate of 11% per month.

Employee’s contributions are deducted at source.

Self-employed individuals may elect to contribute to the EPF. The individuals may make voluntary contributions of any amount between MYR1 to MYR100,000 annually. 

The contributions may be withdrawn by a contributor upon reaching 55 years of age or at an earlier time if the employee permanently leaves Malaysia with no intention of returning. Contributions may also be withdrawn on the death of an employee or if he/she is physically or mentally disabled and is prevented from future employment. There are conditions set by the EPF as to when a contributor is allowed to withdraw under other circumstances. Additionally, there is a flexible account which allows withdrawals at any time to address emergencies and immediate needs, subject to the applicable terms and conditions.

Employer stock options are subject to income tax as part of employment income. The taxable income is calculated based on the difference between the lower of market value of the underlying stock at the exercise date or exercisable date, and the option price. This amount is recognised at the time the option is exercised and taxed as the current year income.

There is no wealth tax in Malaysia.

With effect from the YA 2025, dividend paid, credited or distributed by a company to individual taxpayers with annual dividend income exceeding RM100,000 will be subject to a 2% tax on the chargeable dividend income, notwithstanding whether the dividend is received in monetary form or otherwise.

Item: Description

• Scope of taxation on dividends                   
  • dividend income received by individuals for dividends paid, credited or distributed from company profits; and        
  • individuals consist of resident individuals, non-residents and individuals who hold shares through nominees
• Formula to determine dividend chargeable income 
  • Determination formula: (A/B) *C = D
  • A - Dividend statutory income
  • B - Aggregate income
  • C - Chargeable income
  • D - Chargeable dividend income
• Tax rate
  • Description: 2% on chargeable dividend income    
• Exemption from Dividend Tax
  • dividend income from abroad;
  • dividend income distributed from the profits of companies that received pioneer status and reinvestment allowances;
  • dividend income paid, credited or distributed from the profits of shipping companies that is exempted from tax;
  • dividend income distributed by co-operatives;
  • dividend income declared by closed-end funds;
  • dividend income received by residents from Labuan entities; and
  • any exemption given on dividend income at shareholder level.
• Dividend Tax is not applicable to profit distributions made to contributors and depositors by:        
  • Kumpulan Wang Simpanan Pekerja (KWSP); 
  • Lembaga Tabung Angkatan Tentera (LTAT); 
  • Amanah Saham Nasional Bumiputera (ASNB); or 
  • Any unit trust                                                              

This is a new source of taxation which place the liability for dividend tax on high-value individual shareholders. This includes both residents and non-residents, as well as individuals holding shares through nominees.

It is important to highlight that corporate shareholders are exempt from this new dividend tax.

There are a number of tax planning opportunities possible especially in the area of benefits in kind provided to the employee by the employer.