Malaysian Taxation: An Overview
Malaysia's taxation system is a mix of direct and indirect taxes, governed primarily by the Inland Revenue Board of Malaysia (IRBM/LHDN) and the Royal Malaysian Customs Department.
Here is a breakdown of the key taxes:
1. Direct Taxes
Direct taxes are levied on the income of individuals and companies.
A. Personal Income Tax (PIT)
System: Uses a progressive tax system for tax-resident individuals, meaning the tax rate increases as the chargeable income increases.
Tax Rates (Resident): Range from 0% up to 30% (for the highest income bracket).
Non-Residents: Taxed at a flat rate of 30% on all income derived from Malaysia and are not entitled to personal reliefs.
Chargeable Income: Determined after deducting tax reliefs (e.g., for self, dependents, lifestyle expenses, medical care, and contributions to the Employee Provident Fund (EPF)).
Basis of Taxation: Residents are subject to tax on Malaysian-source income and generally on foreign-source income remitted into Malaysia (with conditional exemptions that have been in place until the end of 2026).
B. Corporate Income Tax (CIT)
Standard Rate: 24% for both resident and non-resident companies.
Small and Medium Enterprises (SMEs): Benefit from a tiered, lower rate structure:
17% on the first RM600,000 of chargeable income.
24% on the remaining chargeable income.
Petroleum Income Tax: A separate rate of 38% applies to income derived from petroleum operations.
C. Real Property Gains Tax (RPGT)
This is a tax on the chargeable gains derived from the disposal (sale) of real property or shares in real property companies in Malaysia.
The rate depends on the holding period (how long the asset was owned) and the status of the disposer (individual citizen/permanent resident, non-citizen, or company).
D. Capital Gains Tax (CGT)
Starting from January 1, 2024, Malaysia generally imposed CGT on profits from the disposal of capital assets.
This primarily targets unlisted shares and certain foreign-sourced gains.
2. Indirect Taxes
Indirect taxes are levied on the consumption of goods and services.
A. Sales and Service Tax (SST)
SST is a single-stage consumption tax that replaced the Goods and Services Tax (GST) in 2018.
Sales Tax: Imposed on taxable goods manufactured in or imported into Malaysia.
Rates are typically 5% or 10%. Service Tax: Imposed on specified services provided by registered businesses in Malaysia.
The standard rate is currently 8% (as of March 1, 2024) for most services, though some basic services like food & beverage and telecommunications remain at 6%.
B. Other Indirect Taxes
Withholding Tax: An amount withheld by the payer on income earned by a non-resident (e.g., on interest, royalties, or services) and remitted to the IRBM.
Rates vary by payment type. Stamp Duty: A duty levied on legal documents and instruments, such as transfer of property, shares, and loan agreements.
Import and Excise Duties: Taxes on imported goods and certain locally manufactured goods (like tobacco and alcohol).
📍 Key Governing Body
The principal tax authority responsible for the administration of direct taxes (Income Tax, RPGT) is the Lembaga Hasil Dalam Negeri Malaysia (LHDN), or the Inland Revenue Board of Malaysia (IRBM).
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