Malaysia’s taxes are assessed on a current year basis and are under the self-assessment system for all taxpayers. There are two types of taxes: direct and indirect.
- Income Tax
- Real Property Gains Tax
- Petroleum Income Tax
- Goods & Services Tax
- Excise Duty
- Customs Duty
- Stamp Duty
Malaysia’s taxation system is territorial in scope. All income accrued in or derived from Malaysia is liable to tax. However, income of any person (other than a resident company carrying on the business of banking, insurance or sea or air transport) derived from sources outside Malaysia and received in Malaysia is exempted from tax.
Income tax is a direct tax regulated under Income Tax Act 1967. The Inland Revenue Board (IRB) is responsible for the overall administration of direct taxes in Malaysia at the moment.
An income tax is a government tax imposed on individuals or entities (tax payers) that varies with the income or profits (taxable income) of the tax payer. Partnership are not taxed; rather, the partners are taxed on their share of partnership profit.
Income tax generally is computed as the product of tax rate times taxable income. The tax rate will increase as taxable income increases. Capital gains in Malaysia are not taxable. There are various of tax reliefs and tax rebate may be allowed to reduce tax payer personal income tax.
The tax year/basis period for a business normally follows the financial year ending in that particular year of assessment. For example, the basis period for YA 2018 for a business that closes its accounts on 30 June 2018 is the financial year ending 30 June 2018.
Malaysia has an extensive number of double tax treaties available for the avoidance of Double Taxation.
Real Property Gain Tax
In Malaysia, RPGT is applicable on gains arising from the disposal of real property in Malaysia. RPGT is also charged on the disposal of shares in a real property companies (RPC). An RPC is a controlled company which owns real property or shares or both where the defined value of such assets is not less than 75% of the value of the company’s total tangible assets.
Currently, gains from the disposal of property under the Real Property Gains Tax Act 1976 are assessed formally. In tandem with the Government’s aspiration to modernize the tax system, it was proposed in the Budget 2015 that tax on gains from the disposal of property be self-assessed by the tax payer effective from the year 2016. Further details on the implementation of the self-assessment regime for real property gains tax will be provided in due course.
Petroleum Income Tax
Petroleum Income Tax is regulated under Petroleum (Income Tax) Act 1967. It is applicable on petroleum operations business in Malaysia. Every chargeable person shall for the basis period for each year of assessment, make up accounts of his profits or losses, arising from his petroleum operations, of that period. And submit to Director General a copy of his accounts (bearing an auditor’s certificate) within three months after the expiration of that period for that period.
Goods & Services Tax (GST)
Goods and Services Tax (GST) which is also known as VAT or the value added tax in many countries is a multi-stage consumption tax on goods and services. Malaysia is implementing GST since 1st April 2015 and that will cause indirect impact on local business which includes inflation and new compliance requirement.
GST is a broad based consumption tax covering all sectors of the economy (i.e all goods and services made in Malaysia) including imports except specific goods and services which are categorized under zero rated supply and exempt supply orders as determined by the Minister of Finance and published in the Gazette.
GST can only be levied and charged if the business is registered under GST. A business is not liable to be registered if its annual turnover of taxable supplies does not reach the prescribed threshold (e.g. RM500,000 yearly). Therefore, such businesses cannot charge and collect GST on the supply of goods and services made to their customers. Nevertheless, businesses can apply to be registered voluntarily.
Excise duty is a type of tax imposed on certain goods imported into or manufactured in Malaysia. The goods subjected to excise duty are:
- Cigarettes, tobacco and tobacco products.
- Motor Vehicles.
- Playing cards (Playing Cards).
- Mahjong tiles.
All above goods have to be declared in customs import declaration Form No. 1 and the duty / tax assessed paid to the customs office where goods are released from customs control.
Customs duty is a tax levied on imports by the customs authorities of a country to raise state revenue, and/or to protect domestic industries from more efficient competitors from abroad.
In Malaysia, all goods dutiable on import are put through customs duty according to Customs Duties Order, 1996. The types of duties are import duty, sales tax, and export duty. The duty rates depend on the types of goods imported or exported.
Stamp Duty is levied on instruments of transfers; this may include the transfers of real property, mortgages on real property and transfers of marketable securities. Rates vary from 1- 3 percent of the value of a property and 0.3 percent on share transaction documents.
Stamp duty on share transactions – for listed shares traded on Bursa Malaysia, the rate is capped. Exemptions may be available where assets are transferred under a restructuring of a company or assets are transferred within certain categories of company groups.