An employee is taxed on employment income earned for work performed in Malaysia regardless of where payment is made. Employment income includes salary, allowances, perquisites, benefits in kind, tax reimbursements, and rent-free accommodation provided by the employer.
Valuations of some types of employment income are as follows:
- Cars or other household items provided for private use are valued at prescribed rates that could be lower than the actual cost incurred by the employer.
- Rent-free accommodation provided by the employer is valued at the lower of 30% of the employee’s total cash remuneration or the actual rental value.
The following are exempt in the hands of the employee:
- Medical benefits, as well as childcare benefits provided by the employer.
- Leave passages, restricted to one overseas trip, up to a maximum amount of MYR 3,000, and three local trips (including meals and accommodation) per year.
- Full or partial exemption in respect of a variety of allowances (e.g. allowances for parking and meals, travel/petrol, or childcare allowances) or other benefits (e.g. telephones, pagers, etc. registered in the name of the employee or employer, monthly bills for telephones or broadband subscriptions, goods provided free or at a discount) for employees.
Exemptions and concessional tax treatment for expatriates
Exemptions or concessions are given in certain situations, such as:
- Income from employment exercised in Malaysia for short-term visiting non-resident employees (other than public entertainers) if the period of employment does not exceed 60 days in a calendar year. If the period of employment straddles two calendar years, they are exempt if the total period of their employment over the two years does not exceed 60 days. If a short-term visiting employee is resident in a country that has a double tax treaty (DTT) with Malaysia, the qualifying period is generally extended to 183 days, provided certain other prescribed conditions are satisfied.
- Exemption for an expatriate receiving fees as a director of a Labuan entity (until YA 2025).
- Expatriates working in regional operation centres in Malaysia that are accorded specified tax incentives are taxed only on the portion of chargeable income attributable to the number of days the employment is exercised in Malaysia.
- Special tax concession for individuals (including Malaysian citizens) who are displaced as a result of COVID-19 travel restrictions, subject to meeting the stipulated conditions. This concession is applicable for the duration of the Movement Control Order period implemented by the Malaysian government.
Capital gains on disposals of real properties are subject to RPGT (see the Other taxes section).
Malaysia is under the single-tier tax system. Dividends are exempt in the hands of shareholders. Companies are not required to deduct tax from dividends paid to shareholders, and no tax credits will be available for offset against the recipient's tax liability.
Interest received by individuals on money deposited in approved institutions, which include all licensed banks and financial institutions, is tax exempt. Interest received from certain types of bonds or securities is also exempt from tax.
Interest paid to a non-resident individual by commercial banks, merchant banks, or finance companies operating in Malaysia is exempt from tax.