Dealing with taxes is tricky for many, and that’s not a problem fixable in just one or two days. There are lots of terms that we don’t fully understand about. This is where the confusion starts to bubble up and make you dizzier the math of taxes is not understandable sometimes.
Let alone if there are additional or new rules that you are not aware of. Need a light and easily understood Malaysia personal income tax guide? Here you go.
Knowing How Your Tax is Calculated
Before delving deep into it, you should know first that the taxable income counted is in the form of annual one not a monthly or even weekly. Plus, the amount of taxable income may not be the same with your full-year income figures. There are some reliefs and exemptions that you may be thankful for its existence.
Additionally, you need to fully understand that Malaysia applies progressive tax rate system. This simply means that you will pay higher tax if the amount of taxable income is above the threshold rate. For this, we will discuss it later.
Plus, it is recommended that you know the definition of these terms below before proceeding to a deeper understanding:
- Tax exemptions
- Tax reliefs
- Tax rebates, and
- Tax deductibles
Counting the Taxable Income
1. How much money is the minimum amount to register a tax file?
Starting in 2015, the person who earns more than RM34,000 annually (after EPF deduction), will have to file for their income tax.
2. What kind of income that is taxable?
- Employment salary
- Profession/business
- Dividends, under specific circumstances
- Interests (bank deposit excluded)
- Royalties
- Collected rent
- Discounts
- Pensions
- Perquisites
- Annuities
3. Tax exemptions
There are various conditions set by LHDN that happen to exempt your income from tax filing processes. Some of them will include:
- Dividends that you earned from exempted companies, unit trust funds validated by the Minister of Finance, and cooperative societies.
- Interest that earned from eligible financial institutions according to several banking and financial acts in different various years, Lembaga Tabung Haji, etc.
- Loss of employment compensation (terms and conditions applied)
- Income that is remitted from outside the country
- Income that comes from cultural appearances
- Scholarships
- Royalties that surpass the exemption limits
- Gifts from your employer
- Research findings, expert services fees or honorarium
- Special service awards, travelling stipends
- Women that return to workforce if they were not working for at least two years, etc.
Tax deductions and reliefs
1. Tax deductions
Tax deductions come as the result of gifts and donations that you made to some government-approved charity organization. The tax deductions will also be applicable of you are donating to the government directly. Keep in mind that it is not in the form of bribery or any other law-violating donations and gifts.
One example of contribution that may become a relief for your tax is your contribution in gifting manuscripts, artifacts, or paintings. Another example will include money or medical equipment donation to any Ministry of Health-approved healthcare facility.
Is there any minimum amount that may deduct your tax? Yes, there is, especially if we are talking about charity donations. As for income tax 2020, the minimum contribution you need to pay out is RM 2,500. And through this amount, you can get 7% reductions from your taxable income.
2. Tax reliefs
Talking about Malaysia personal income tax guide, you will not be astray from tax relief. What does this mean? The reliefs are defined as certain behaviors which are encouraged by the government to lighten our financial burdens. Each relief has different amount that may reduce the amount of our taxable income.
Some good examples will include taking life insurance, husband/wife alimony payments, education fees, parental medical expenses, IVF treatments, payment to raise disabled child/children, child care fees, etc.
The amount of taxable income
Now that you know things that may reduce your tax, you can calculate the tax you are paying for the assessment year. For this Malaysia personal income tax guide, let’s try to mention figures to make it easier, including the reliefs and deductions.
Case:
Meet Maryam, a marketing manager in an advertising company. Her monthly salary is RM 5,000. It means her annual income will be RM 60,000. Since it already surpasses the minimum threshold, Maryam needs to pay her income tax. Let’s say that she has another income from freelancing for local customers, and that pays her RM 10,000. Another source is rental which comes with RM 10,000. What is the taxable income of Maryam?
According to the aforementioned Malaysia personal income tax guide, since there are no exemptions matched for her income, the total income she has is RM 80,000. As for the exemptions, she has EPF and life insurance (RM 6,000), medical insurance (RM 750), and Self Dependent (RM 9,000). These three reliefs should be deducted from her total income, which means she has RM 64,250 left as taxable income. This is the number that may be taxed given that she has nothing categorized as tax deduction or other kinds of reliefs.
Income Tax Rates for Personal Income Tax in Malaysia
| Chargeable Income (RM) | Calculations (RM) | Rate % | Tax (RM) |
|---|---|---|---|
| 0 – 5,000 | On the first 5,000 | 0 | 0 |
| 5,001 – 20,000 | On the first 5,000 | 0 | |
| Next 15,000 | 1 | 150 | |
| 20,001 – 35,000 | On the first 20,000 | 150 | |
| Next 15,000 | 3 | 450 | |
| 35,001 – 50,000 | On the first 35,000 | 600 | |
| Next 15,000 | 8 | 1200 | |
| 50,001 – 70,000 | On the first 50,000 | 1800 | |
| Next 20,000 | 14 | 2800 | |
| 70,001 – 100,000 | On the first 70,000 | 4600 | |
| Next 30,000 | 21 | 6300 | |
| 100,001 – 250,000 | On the first 100,000 | 10900 | |
| Next 150,000 | 24 | 36000 | |
| 250,001 – 400,000 | On the first 250,000 | 46900 | |
| Next 150,000 | 24.5 | 36750 | |
| 400,001 – 600,000 | On the first 400,000 | 83650 | |
| Next 200,000 | 25 | 50000 | |
| 600,001 – 1,000,000 | On the first 600,000 | 133650 | |
| Next 400,000 | 26 | 104000 | |
| 1,000,001 – 2,000,000 | On the first 1,000,000 | 237650 | |
| Next 1,000,000 | 28 | 280000 | |
| Exceeding 2,000,000 | On First 2,000,000 | 517650 | |
| Next ringgit | 30 | ……….. |
Income Taxes in Malaysia For Non-Residents
| Types of Income | Rate (%) |
|---|---|
| Business, trade or profession | 28 |
| Employment | 28 |
| Dividends | 28 |
| Rent | 28 |
| Public entertainer | 15 |
| Interest | 15 |
| Royalty | 15 |
| Payments for services in connection with the use of property or installation, operation of any plant or machinery purchased from a non-resident | - |
| Payments for technical advice, assistance, or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme | - |
| Rent or other payments for the use of any movable property | - |
Counting the Real Tax
The next step is to count the tax by applying a certain rate. Here is the rate for income tax that applies for Maryam, given that her taxable income is RM 64,250.
- First RM5,000 -> RM0
- Next RM15,000 (1%) -> RM150
- Next RM15,000 (3%) -> RM450
- Next RM15,000 (8%) -> RM1,200
- Next RM14,250 (14%) -> RM1,995
So, with the taxable income of RM64,250, the tax is RM3,795.3
Which on Forms Should I Use?
The forms you use will depend on your source of income and residency status.
| Forms | Details |
|---|---|
| Form e-BT/BT | Specialised/experts (knowledge worker) |
| Form e-B/B | With business source (own and run a business) |
| Form e-BE/BE | Without business source (employed individuals) |
| Form e-M/M | Non-resident (employed or won and run a business) |
| Form e-MT/MT | Non-resident knowledge worker |
Step by Step Register First Time Taxpayer on e-Daftar
How to Register e-Filing Online
- Open https://edaftar.hasil.gov.my
- Click Online Registration Form
- Input your identity details.
Click Submit.
Register e-Filing at LHDN Office
- Go to LHDN Office at nearest.
- Bring documents (a copy Mykad or Equivalent, a copy Latest Salary slip EA/EC, a copy marriage certivicate (if applicable)
- LDHN will email income tax number to you within 3 working days. Alternatively, you can: Check via e-Daftar or call the LDHN office (hotline : 03- 8913 3800)
- Get your on-time PIN to register for e-Filling (LDHN customer feedback website or LDHN office)
- Log in to e-Filling with your PIN and set up your account
How to Login e-Filing
- Visit at https://ez.hasil.gov.my
- Click First Time Login
- Enter your PIN Number and Reference Number.
- Click Submit.
How to Pay Income Tax Online Malaysia
You will have to pay them before the due date which is 30 April 2021. Here are a few of the ways you can pay your income taxes in Malaysia.
| Pay Income Tax via | Details |
|---|---|
| Pos Malaysia | Over the counter (cash only) or online |
| Online using credit card on ByrHASiL | Visa, Mastercard, American Express accepted |
| Via ATM | Only at Public Bank, Maybank, and CIMB |
| Online banking through FPX | Requires a bank account with AffinBank, Alliance Bank, Ambank, Bank Islam, Bank Muamalat, Bank Rakyat, BSN, CIMB, Maybank, OCBC, Public Bank, Deutsche Bank, HLB, HSBC, KFH, RHB, Standard Chartered, or UOB |
- Once you’ve filled up the e-Filing form, and double-checked your details, your taxes will be calculated automatically.
- Once submitted, you will also be able to download a copy the form. Make sure you download and keep it.
- If you have excess paid, it will be paid out to you through the bank account you provided.
Another Chance to Cut Down the Tax
RM3,795 can be considered as a quite high tax for some. But, that is not all. There is a chance of lowering it given you need to pay Zakat (for Muslims) or contributing to charity organizations. For example, if Maryam contributes to a charity organizations and Zakat for RM400, then she will have to pay annual income tax of RM3,395. Both Zakat and charity contributions are deducting your final taxable income and are included as tax rebates.
Well, that’s the basic information about Malaysia personal income tax guide. It is important to know about all things contributing to your tax, at least before getting ‘surprised’ with the tax amount in the end.
