Are you paying too much Tax? Save RM100′s by reading this guide and claiming from a tax refund!
UPDATE: This tax guide is for the 2011 tax year (for filing in 2012), for the latest tax year, ie 2012 tax year for filing by May 2013, check out our Malaysia Personal Income Tax Guide 2013 article.
September 2012 The Malaysian Budget 2013 has now been announced, some small changes were introduced! To find out more about how taxes have changed, click our Malaysian Budget 2013 article here.
Do you earn more than RM29,775.00 per year (about RM2,480 per month) including all benefits, allowances, bonuses, overtime and commissions? You need to have a tax file with your income tax automatically deducted from your income, and reading this guide could save you up to RM100s on your tax expense!
If you earn less than RM29,775.00 per year, you don’t have to open a tax file and should not be paying any tax. If your employer is still deducting tax from your salary you should claim it all back. Read this guide to find out how!
If you are a salaried worker or civil servant under a Potongan Cukai Bulanan (PCB) or Monthly/Schedular Tax Deduction (MTD) system, you may be overpaying (or underpaying!) RM100’s of tax. Use our income tax calculator to find out how much you should be been paying, and how much you have actually been paying under the MTD system.
If you are self-employed or own your own business you may still be overpaying or underpaying on your tax.
For both employees and businesspeople, there are many widely known and less widely known ways to legally and legitimately reduce your tax via exemptions, relief and rebates.
This guide was written for the January-December 2011 tax year. If you would like to see some preliminary changes for the year 2012, and can’t wait for our update in 2013, you can check our our Malaysian Budget 2013 article here.
The SaveMoney Malaysia Income Tax Calculator
Our very nerdy web team has created a simple tool which helps you calculate your tax based on how much you earn (or hope to earn!). Many people may be paying the wrong amount of tax!
Click for a quick and simple way to find out how to see how much the taxman will take from you (or has already taken)!
Resident of Malaysia Income Tax Rate Table for 2011
The personal income tax rate for Residents of Malaysia follows a progressive tax schedule, this means that the higher your chargeable income, the higher the tax rate you will have to pay.
For most non-residents (people who stay in Malaysia less than 182 days per year) the tax rate is 26% on all income earned in Malaysia with the exception of some professions which can be taxed at 15% (Public Entertainers etc) and 10% (payment for equipment servicing, technical advice and rent).
Note that your chargeable income is not the same as your gross salary or actual income for the year (in fact chargeable income is usually much lower), more on this later.
|Chargeable Income||Tax Rate||Cumulative Tax|
|From RM0 - RM2,500||0%||RM0|
|From RM2,501 - RM5,000||1%||RM25|
|From RM5,001 - RM10,000||3%||RM175|
|From RM10,001 - RM20,000||3%||RM475|
|From RM20,001 - RM35,000||7%||RM1,525|
|From RM35,001 - RM50,000||12%||RM3,325|
|From RM50,001 - RM70,000||19%||RM7,125|
|From RM70,001 - RM100,000||24%||RM14,325|
|RM100,001 and Above||26%|
If your chargeable income was RM20,000 you will have to pay RM475 of tax. This can be done by either calculating each tax rate one by one (0% x RM2,500 + 1% x RM2,500 + 3% x RM5,000 + 3% x RM10,000 = RM475) or using the Cumulative Tax column.
If your chargeable income was RM25,000, you will have to pay RM475 + (7% x RM5,000) = RM475 + RM350 = RM825 of tax.
How do I calculate chargeable income?
Chargeable Income = Taxable income – Tax exemptions – Tax Reliefs
You have RM60,000 salary, RM1,000 local bank interest income and RM10,000 property rental income a year, so your taxable income is RM71,000. You get the standard RM9,000 individual tax relief as well as the RM6,000 relief for EPF contributions (your EPF contribution should have been 11% of RM60,000, ie RM6,600 but you only get to minus off max RM6,000). All local bank interest income is Tax Exempted (see below).
So your Chargeable Income is
Chargeable Income = RM71,000 – RM1,000 – (RM 9,000 + RM6,000) = RM55,000.
Using the table above, your income tax for the year is RM3,325 + (19% x RM5,000) = RM4,275.00
*This is a simple example, for more information on your actual situation please use our Income Tax Calculator or continue reading this guide.
Lembaga Hasil Dalam Negeri (LHDN) classifies taxable income as the following:
- Business or Profession
Tax exemptions are income items which can be deducted from your taxable income. An example of this is to deduct bank interest income from your taxable income licensed under the local laws. For a full list of tax exemptions please see below:
Leave passage within Malaysia not exceeding three times in a year and one leave passage outside Malaysia not exceeding RM3,000.
Medical and dental benefit
With effect from the year of assessment 2008, medical benefits exempted from tax is expanded to include maternity expenses and traditional medicine like ayurvedic and acupuncture without limit.
The full amount of gratuity received by an employee on retirement from employment is exempt if:
- The Director General of Inland Revenue is satisfied that the retirement is due to ill health;
- Retirement on or after reaching the age of 55 years/compulsory age of retirement and the individual has worked 10 years continuously with the same employer or companies within the same group;
- The retirement takes place on reaching the compulsory age of retirement pursuant to a contract of employment or collective agreement at the age of 50 but before 55 and that employment has lasted for 10 years with the same employer or with companies in the same group.
Gratuity paid out of public funds
Gratuity paid out of public funds on retirement from an employment under any written law.
Gratuity paid to a contract officer
Gratuity paid out of public funds to a contract officer on termination of a contract of employment regardless of whether the contract is renewed or not.
Compensation for Loss of Employment
This is payment made by an employer to his employee as compensation for loss of employment either before or after the date of termination. This compensation is exempted from tax:
- If compensation received is due to ill health
- Compensation received in other cases:
- Termination before 1st July 2008 – exemption of RM6,000 for every completed year of service with the same employer or with companies in the same group
- Termination on or after 1st July 2008 – exemption of RM10,000 for every completed year of service with the same employer or with companies in the same group
Compensation received by a director (not service director) of a Control Company is fully taxable.
Pensions received by an individual are exempt under the following conditions:
- He retires at the age of 55 or at the compulsory age of retirement under any written law; or
- If the retirement is due to ill health and the pension is received from the government or from an approved pension scheme.
For an employee in the public sector who elects for optional retirement, his pension will be taxed until he attains the age of 55 or the compulsory age of retirement under any written law. Where an individual receives more than one pension, the exemption is restricted to the highest pension received.
Monies received as death gratuity is fully exempted from income tax.
Any monies paid by way of scholarship to an individual whether or not in connection with an employment of that individual is exempted from income tax.
Income of an individual resident in Malaysia in respect of his appearances in cultural performances approved by the Minister. Money received under this category is exempted from tax on condition it is approved by the Minister.
Income in respect of interest received by individuals resident in Malaysia from money deposited with the following institutions is tax exempt with effect from 30 August 2008:
- A bank or a finance company licensed or deemed to be licensed under the Banking and Financial Institutions Act 1989;
- A bank licensed under the Islamic Banking Act 1983;
- A development financial institution prescribed under the Development Financial Institutions Act 2002;
- The Lembaga Tabung Haji established under the Tabung Haji Act 1995;
- The Malaysia Building Society Berhad incorporated under the Companies Act 1965;
The Borneo Housing Finance Berhad incorporated under the Companies Act 1965.
The following dividends are exempt from tax:
- Dividends received from exempt accounts of companies.
- Dividends received from co-operative societies.
- Dividends received from a unit trust approved by the Minister of Finance such as Amanah Saham Bumiputra.
Dividends received from a unit trust approved by the Minister of Finance where 90% or more of the investment is in government securities..
Royalties received in respect of the use of copyrights/patents are taxable if they exceed the following exemption limits:
|No.||Types of Royalty||Exemption (RM)|
|1||Publication of artistic works/recording discs/tapes||10,000|
|2||Translation of books/literary works||12,000|
|3||Publication of literary works/original paintings/musical compositions||20,000|
However, the exemption stated above does not apply if the payment received forms part of his emoluments in the exercise of the individual’s official duties.
Income Remitted from Outside Malaysia
With effect from the year of assessment 2004, income derived from outside Malaysia and received in Malaysia by a resident individual is exempted from tax.
Fees or Honorarium for Expert Services
With effect from the year of assessment 2004, fees or honorarium received by an individual in respect of services provided for purposes of validation, moderation or accreditation of franchised education programmes in higher educational institutions is exempted.
The services provided by an individual concerned have to be verified and acknowledged by the Malaysian Qualifications Agency (MQA). However, the exemption does not apply if the payment received forms part of his emoluments in the exercise of his official duties.
Income Derived from Research Findings
With effect from the year of assessment 2004, income received by an individual from the commercialization of a scientific research finding is given tax exemption of 50% on the statutory income in the basis year for a year of assessment for 5 years from the date the payment is made.
The individual scientist who received the said payment must be a citizen and a resident in Malaysia. The commercialized research finding must be verified by the Ministry of Science, Technology and Environment.
Tax Relief for Malaysian Residents
What is a tax relief? Simply put, it is a way for you to reduce your chargeable income.
Say you earned RM25,000 from employment in 2010. Assuming that there were no tax rebates or reliefs, your chargeable income will thus be RM25,000 and tax for the year would have been RM825 as we saw before.
Now say the Government decides that all Residents of Malaysia should get a personal tax relief of up to RM9,000 per year. Your chargeable income will now be RM25,000 – RM9,000 = RM16,000 which means that your tax expense is now RM355, saving you a total of RM470 per year.
These are the following reliefs available for Resident Malaysians:
|Included in MTD system||RM|
|Self and Dependent||9,000|
|Life insurance and EPF||6,000|
|Ordinary Child relief (per child)||1,000|
|Not usually included in MTD / PCB system but relevant to most taxpayers||RM|
|Interest expended to finance purchase of residential property. (only for first 3 years)||10,000|
|Net saving in SSPN's scheme||6,000|
|Education Fees (Individual)||5,000|
|NEW: PRS Voluntary Contribution||3,000|
|Purchase of personal computer (every 3 years)||3,000|
|Insurance premium for education or medical benefit||3,000|
|Purchase of books, journals, magazines and publications||1,000|
|Complete medical examination||500|
|Subscription fees for broadband registered in the name of the individual||500|
|Purchase of sport equipment for sport activities||300|
|Not included in MTD system but relevant to certain taxpayers||RM|
|Basic supporting equipment (for disabled self, spouse, child or parent)||5,000|
|Medical expenses for serious diseases||5,000|
|Medical expenses for parents||5,000|
|Child age 18 years old and above, not married and pursuing diplomas or above qualification in Malaysia @ bachelor degree or above outside Malaysia in program and in Higher Education Institute that is accredited by related Government authorities||4,000|
|Disabled Wife / Husband||3,500|
|Child age 18 years old and above, not married and receiving full-time tertiary education||1,000|
|Premium on new annuity scheme or additional premium paid on existing annuity scheme commencing payment from 01/01/2010 (amount exceeding RM1,000 can be claimed together with life insurance premium)||1,000|
Tax Rebate for 2010
How is a tax rebate different from a tax relief? A tax relief is a reduction in your chargeable income, a tax rebate is a reduction in your tax expense after you have calculated your tax for the year.
The income tax rebate for 2010 is RM400 for taxpayers with a chargeable income of less than RM35,000.
Ali, a single man with no children, has a gross employment income of RM29,000. He gets a tax relief of RM9,000 automatically as part of the ‘Self and Dependent ‘ relief and he paid EPF employee contribution RM3,190 which is less than the RM6,000 limit so he gets the whole RM3,190 off as a tax relief. His chargeable income is RM29,000 – RM9,000 – RM3,190 = RM16,810. Income tax on that is RM379.30.
As Ali has a chargeable income of less than RM35,000, he is eligible for the RM400 tax rebate. With the tax rebate of up to RM400, Ali will pay no income tax for 2010 as is tax expense before the rebate was less than RM400.
What does the PCB / MTD system mean?
The PCB or MTD system means that your employer will automatically deduct a certain amount from your salary every month and pay tax on your behalf, which goes towards paying your tax for the year. This deduction is separate from your Employees Provident Fund (EPF) deduction as that goes towards your Personal Pension and is deducted first. SOCSO and other deductions are not considered under the MTD system. The MTD is then calculated from your Gross Salary minus EPF deduction of up to RM6,000 per year. If you sum up the total MTD for the year, if no deductions are taken into account then the figure will be very close to your actual tax expense for the year, minus or plus a few ringgit here and there.
Some MTD examples:
(1) In 2010, Ah Chong, a single man with no children, earned a gross salary of RM3,100/month. After deducting his EPF contribution of RM330/month to give his MTD salary of RM2,759, his MTD is to be deducted from his salary by the company is RM31/month.
|Ah Chong||Gross Salary||MTD Salary||MTD Deduction||Actual Tax Expense||Paid too much / (little)|
|Total for 2010||RM37,200.00||RM 33,108.00||RM372.00||RM362.56||RM9.44|
(2) In 2010, Aimi, a single woman with no children, earned a gross salary of RM5,000/month. Her EPF contribution is RM550/month but under the 2010 tax rules only a maximum of RM500/month or RM6000/year can be used to be deducted from gross salary so her MTD salary will be RM4,500/month. Aimi’s MTD will then be calculated to be RM224/month.
|Aimi||Gross Salary||MTD Salary||MTD Deduction||Actual Tax Expense||Paid too much / (little)|
|Total for 2010||RM60,000.00||RM54,000.00||RM2688.00||RM2725.00||RM(37.00)|
In both example (1) and (2), the difference between MTD deductions paid to the tax office (LHDN) by the employer and the actual tax payable by Ah Chong and Aimi is very small.
Typically your employer will use some standard tables in order to calculate the MTD, but other than marital status and number of children there are no adjustments for any additional tax reliefs or deductions. This is why your employer may have been overpaying for tax on your behalf.
Warning! The converse may be true, as you might have been paid bonuses and other Benefits-in-Kind (BIK) such as allowances and incentives some of which are subject to income tax. This causes your MTD to be much less than your tax expense and your employer may have been underpaying for tax on your behalf.
When should I file my tax returns?
The tax year follows the calendar year, so the 2011 tax year is effective from 1st January 2011 to 31st December 2011. Depending on your income source you can file this anytime from the 1st of January to 30th April/June in the following year, so for the 2011 tax year you will do it before 30th April/June 2012.
Latest Update (30th April 2012) : The due date for submission and payment of tax payable for non-business income has been deferred to 15 May 2012.
If you are employed first make sure your employer is paying the correct MTD on your behalf to LHDN. They are legally required to issue you a Form EA/EC at the end of February which tells you how much you earned and how much MTD they paid for you. Next, use our income tax calculator to see how much tax you will be paying taking into account all tax reliefs and rebates.
Submit! Your source of income will determine which form you have to fill up. You can now also do this online at www.hasil.gov.my. The due date for the submission of return forms are as follows :
- BE Form, for individuals without business source, the due date is on or before 30th April every year.
- B Form, for individuals with business source, the due date is on or before 30th June every year.
- M Form, for a non-resident individual without business source, the due date is on or before 30th April every year.
- M Form, for a non-resident individual with business source, the due date is on or before 30th Jun every year.
- P Form, for partnership, the due date is on or before 30th June every year.
Wait! Any refunds due to you will be refunded automatically. However, if you do not receive your refund you should send an email to firstname.lastname@example.org.
Keep Records! You must keep records for 7 years from the date of filing so don’t throw away any receipts or evidence of tax reliefs, keep them in a file sorted by tax year.
- Disclaimer, we do are not tax agents and do not have a tax licence, this guide does not constitute tax advice. For confirmation on your tax status please refer to a licenced practitioner
- We do not support tax evasion, only tax avoidance