Aspect

Treatment and condition

Legislation

Employment income

The gross income is taxable in the country where the duties are performed, irrespective of the location the contract has taken place or where the remuneration is paid.

Employment income deemed derived from Malaysia

The income is deemed to be derived from Malaysia where:

·   The employment is exercised in Malaysia.

·   The income arises from leave attributable to the exercise of employment.

·   The income arises from duties performed outside Malaysia that are incidental to the employment exercised in Malaysia.

Subsection 13(2)(a)

Subsection 13(2)(b)

Subsection 13(2)(c)

Basis of assessment

·   The YA is assessed on a current calendar year basis.

·   Gross employment income receivable is taxed in the year it is received.

Section 21

Section 25(1)

Residence status

The residence status is determined based on the individual’s physical presence in Malaysia, where less than 182 days in a basis year will be regarded as non-resident.

For more information, please refer to https://www.kaizencpa.com/Knowledge/info/id/2038.html

Section 7(1) & 7(1B)

Tax rates

The tax rate is determined based on the individual’s residence status:

Resident individuals are taxed at a progressive tax rate and are able to claim personal tax reliefs.

Non-resident individuals are taxed at a flat tax rate of 30% and not eligible to claim any personal tax reliefs.

Special tax rates under certain incentives

For more details on tax rates, please refer to https://www.kaizencpa.com/Knowledge/info/id/2035.html

Paragraph 1, Part 1 of Schedule 1

Paragraph 1A, Part 1 of Schedule 1

Part XIV and XVIII of Schedule 1

Short-Term employment exemption

Applicable where:

·   Not exceeding 60 days in a basis year of a YA;

·   Continuous period (not exceeding 60 days) which overlaps the basis year of 2 successive YA;

·   Not exceeding 60 days, overlaps basis year of 2 successive YA which together with that continuous period does not exceed 60 days.

Paragraph 21(a)

Paragraph 21(b)

Paragraph 21(c)

Aspect

Treatment and condition

Double taxation

Arises where the same income is subject to tax in both Malaysia and the individual’s country of residence.

Applicability of DTAA

Malaysia has entered into DTAAs with various countries to mitigate the effects of double taxation and is subject to the terms and provisions as stipulated in the DTAAs between the two countries.

Article of Employment / Article of Dependent Personal Services in the DTAA

For foreign nationals exercising employment in Malaysia, the Article of Employment / Article of Dependent Personal Services of the relevant Malaysian DTAAs is applicable for tax treaty relief. The terms and conditions may vary from one contracting state to another.

Bilateral credit

A relief in the form of a bilateral credit under Section 132 of the Act is allowed if the foreign national who receives employment income in Malaysia is taxed in Malaysia and in a contracting state.

The credit is limited to the lower of:

Foreignincome(statutoryincome)Totalincome × Malaysiantaxpayablebeforebilateralcredit

or

Foreign tax payable in respect of the foreign income charged to tax twice

Whichever is lower.

Conditions for bilateral credit

The bilateral credit can only be deducted from Malaysia tax if the foreign national:

·   Is subject to Malaysian tax for the YA;

·   Is a resident for the basis period for the YA; and

·   Has employment income that is taxed in both Malaysia and the contracting state.

Aspect

Treatment and condition

Applicability

Applies where a foreign national derives employment income that is subject to tax in Malaysia and in a country with which Malaysia does not have a DTAA.

Unilateral tax credit

A relief in the form of unilateral tax credit under Section 133 of the Act is allowed in the absence of a DTAA between Malaysia and the foreign country, where the domestic tax law of Malaysia and the foreign country remain applicable.

The credit is limited to the lower of:

ForeignincomestatutoryincomeTotalincome × Malaysiantaxpayableinrespectofthatforeignincomebeforeunilateralcredit

or

½ of foreign tax.

Whichever is lower.

Conditions

The unilateral credit can only be deducted from Malaysia tax if the foreign national:

·   Is a Malaysian tax resident for the basis year; and

·   Derives foreign income (income derived from outside Malaysia) where the foreign income is taxed in both Malaysia and the foreign country.

Exemption Order

Applicable Individuals / Conditions

Effective

Income Tax (Exemption) (No. 60) Order 2003 [P.U.(A) 382/2023]

Non-citizen individuals are exempted from tax on income derived from employment an Operational Headquarters Company (“OHQ”) and Regional Office (“RO”), where the employment is exercised outside Malaysia.

YA2003

Income Tax (Exemption) (No. 2) Order 2008 [P.U.(A) 101/2008]

Extended the above exemption to non-citizen individuals employed by an International Procurement Centre Company (“IPC”) and Regional Distribution Centre Company (“RDC”).

YA2008

Income Tax (Exemption) Order 2008 [P.U.(A) 18/2008]

Non-citizen individuals who are not residents in Malaysia are exempted from tax on payments received for participating in the Malaysian Technical Co-operation Programme.

YA2007

Income Tax (Exemption) (No. 3) Order 2012 [P.U.(A) 184/2012]

Non-citizen individuals are exempted from tax on income derived from employment with a treasury management centre.

YA2012