Taxation in Kuala Lumpur, Malaysia
What are the tax rates in Kuala Lumpur, Malaysia? How are corporations taxed? Here’s Teleports overview of personal, corporate and other taxation topics in Kuala Lumpur, Malaysia.
Kuala Lumpur
Personal taxation in Kuala Lumpur
Effective personal income tax rate
| Annual income | $25,000 | $40,000 | $80,000 | $125,000 | $200,000 |
|---|---|---|---|---|---|
| Rate | 13% | 17% | 21% | 22% | 23% |
Teleport city rankings for personal income tax
Personal taxation puts Kuala Lumpur in position 40 of all Teleport Cities.
Basis
Individuals are taxed on income derived from Malaysia. Foreign-source income is exempt in Malaysia.
Residence
An individual is considered a tax resident if he/she is in Malaysia for 182 days or more in a calendar year. Alternatively, residence may be established by physical presence in Malaysia for a mere day if it can be linked to a period of residence of at least 182 consecutive days in an adjoining year.
Filing status
A married couple living together may opt to file a joint or separate assessment.
Rates
Income tax is imposed at progressive rates up to 28% (increased from 25% with effect from YA 2016) for resident individuals. Individuals who do not meet the residence requirements are taxed at a flat rate of 28% (increased from 25% with effect from YA 2016).
Deductions and allowances
Various allowances and personal deductions are available.
Taxable income
Taxable income comprises all earnings derived from Malaysia, including gains or profits from a trade or business, employment, dividends, interest, rents, royalties, premiums or other earnings. Employment income includes most employment benefits, whether in cash or in kind.
Capital gains
Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the sale of shares in a real property company. The rate is 30% for such disposals of property made within three years after the date of acquisition. The rates are 20% and 15% for disposals in the fourth and fifth years after acquisition, respectively, and an exemption applies for disposals after five years. For disposals by an individual who is not a citizen or a permanent resident, the rates are 30% and 5% for disposals within and after five years after acquisition, respectively.
Other taxes on individuals
Stamp duty
Stamp duty is levied at rates between 1% and 3% of the value of property transfers, and at 0.3% on share transaction documents.
Social security
Both the employee and the employer are required to make contributions to the EPF at a rate of 11% and 12%/13% of remuneration, respectively, as well as to the SOCSO.
Compliance for individuals
Filing and payment
Tax on employment income is withheld by the employer under a pay-as-you-earn (PAYE) scheme and remitted to the tax authorities. Malaysia imposes a self-assessment regime. An
Penalties
Penalties apply for failure to comply with the tax law. Goods and services tax:
Rates
The GST rate is 6%.
Taxable transactions
Malaysia levies goods and services tax (GST) on certain goods and services.
Registration
The threshold for GST registration is MYR 500,000.
Corporate taxation in Kuala Lumpur
Teleport city rankings for corporate income tax
Corporate taxation puts Kuala Lumpur in position 92 of all Teleport Cities.
Basis
Corporations are taxed on income derived from Malaysia. Foreign-source income is exempt unless the corporation is carrying on a business in the banking, insurance, air transport or shipping sectors.
Taxation of dividends
All corporations in Malaysia are required to adopt the single-tier system (STS). Dividends paid by companies under the STS are not taxable.
Residence
A corporation is resident in Malaysia if its management and control are exercised in Malaysia.
Losses
Losses may be carried forward indefinitely (except where there is a substantial change in corporate ownership of a dormant company). The carryback of losses is not permitted.
Incentives
A wide range of incentives are available for certain industries, such as manufacturing, information technology services, biotechnology, Islamic finance, energy conservation and environmental protection. Incentives include tax holidays of up to 10 years (pioneer status); investment tax allowances (i.e. a 60% to 100% allowance on capital investments made up to 10 years); accelerated capital allowances; double deductions; and reinvestment allowances (i.e. a 60% allowance on capital investments made in connection with qualifying projects).
Rate
The standard corporate tax rate is 24% with effect from year of assessment (YA) 2016, while the rate for resident small and medium-sized companies (i.e. companies incorporated in Malaysia with paid-up capital of MYR 2.5 million or less and that are not part of a group containing a company exceeding this capitalization threshold) is 19% on the first MYR 500,000, with the balance being taxed at the 24% rate with effect from YA 2016.
Alternative minimum tax
A Labuan company carrying on a Labuan business activity may elect to pay a fixed amount of MYR 20,000, or to be taxed at 3% of the audited accounting profit.
Foreign tax credit
Foreign tax paid may be credited against Malaysian tax on the same profits (limited to 50% of foreign tax in the absence of a tax treaty), but the credit is limited to the amount of Malaysian tax payable on the foreign income.
Taxable income
Taxable income comprises all earnings derived from Malaysia, including gains or profits from a trade or business, dividends, interest, rents, royalties, premiums or other earnings.
Holding company regime
An investment holding company (IHC) is a company whose activities consist mainly of the holding of investments and that derives no less than 80% of its gross income (other than gross income from a source consisting of a business of holding of an investment) from such investments. Generally, only expenses falling within the definition of “permitted expenses” in the tax legislation qualify for a tax deduction in respect of an IHC.
Capital gains
Capital gains are not taxed in Malaysia, except for gains derived from the disposal of real property or on the sale of shares in a real property company. The rate is 30% for such disposals of property made within three years after the date of acquisition. The rates are 20% and 15% for disposals in the fourth and fifth years after acquisition, respectively, and 5% for disposals in the sixth year after acquisition and thereafter.
Participation exemption
No, but foreign-source income is not taxable and domestic dividends are tax-exempt.
Other taxes on corporations
Stamp duty
Stamp duty is levied at rates between 1% and 3% of the value of property transfers, and at 0.3% on share transaction documents.
Social security
Both the employer and the employee are required to make contributions to the Social Security Organization (SOCSO). The employer generally contributes 1.75% for each employee registered with the SOCSO. The employer and the employee also contribute to the Employees Provident Fund (EPF) at a rate of 12%/13% and 11% of the employee’s remuneration, respectively.
Other
Equity requirements have been substantially relaxed.
Transfer tax
No, except for stamp duty.
Capital duty
Capital duty is levied at rates ranging from MYR 1,000 to MYR 70,000.
Real property tax
Individual states in Malaysia levy “quit” rent and assessments at varying rates.
Payroll tax
Tax on employment income is withheld by the employer under a pay-as-you-earn (PAYE) scheme and remitted to the tax authorities.
Compliance for corporations
Consolidated returns
Consolidation is not permitted; each company is required to file a separate tax return. However, subject to certain conditions, 70% of a company’s adjusted loss may be used to offset profits of a related entity.
Penalties
Penalties apply for failure to comply with the tax law.
Rulings
Taxpayers may request an advance ruling on the tax treatment of a specific transaction. Public rulings also are issued by the authorities from time to time.
Filing requirements
Malaysia operates a self-assessment regime. Advance corporate tax is payable in 12 monthly installments. A tax return must be filed within seven months of the company’s year end.
Other taxation in Kuala Lumpur
Anti-avoidance rules
Thin capitalization
There are no specific thin capitalization rules, but legislation has been amended to allow for such rules.
Disclosure requirements
Transactions with related companies within or outside of Malaysia must be disclosed on the annual income tax return, including purchases, loans, other expenses and other income.
Transfer pricing
Transfer pricing rules apply. Taxpayers can request an advance pricing agreement.
Other
Malaysia has a general anti-avoidance rule that allows tax schemes that are entered with a primary or dominant purpose of obtaining a tax benefit to be disregarded. There also are several specific anti-avoidance rules.
Investment basics
Foreign exchange control
Malaysia maintains a liberal system of exchange controls. The repatriation of capital, profits, dividends, royalties, rents and commissions is freely permitted.
Accounting principles/financial statements
MFRS (mandatory for nonprivate entities) and Malaysian Private Entities Reporting Standards (MPERS) for private entities (effective for financial statements beginning on or after 1 January 2016). Private entities may opt to adopt MFRS.
Principal business entities
These are the public and private limited company, business trust, limited liability partnership, partnership, sole proprietorship and branch of a foreign corporation.
Withholding tax
Dividends
Malaysia does not levy withholding tax on dividends.
Other
A 10% withholding tax applies to the rental of movable property, installation fees for services rendered in Malaysia and certain one-time income paid to nonresidents, unless the rate is reduced under a tax treaty.
Technical service fees
A 10% withholding tax applies to technical service fees paid to a nonresident for services performed in Malaysia, unless the rate is reduced under a tax treaty.
Interest
A withholding tax of 15% applies to interest paid to a nonresident, unless the rate is reduced under a tax treaty. However, interest paid to a nonresident by a bank operating in Malaysia is exempt from tax, except for interest accruing to the nonresident’s place of business in Malaysia and interest paid on funds required to maintain “net working funds,” as prescribed by the Central Bank. Certain other interest paid to a nonresident also may be exempt.
Royalties
A withholding tax of 10% applies to royalties paid to a nonresident, unless the rate is reduced under a tax treaty.
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