Worldwide Individual Taxes Summaries(2002-2003)——Malaysia
Worldwide Individual Taxes Summaries(2002-2003)——Malaysia
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Changes to tax rates for resident individuals were introduced with effect rom year of assessment 2002. The maximum rate was reduced from 29% to 28%,with the intervening bands broadened (see "Tax Rates"). The tax rates for nonresident individuals were also reduced from 29% to 28%.
The exit levy that was imposed on the repatriation of profits from porfolio investments was abolished as from May 2,2001.
TERRITORIALITY AND RESIDENCE
An individual resident in Malaysia is taxed on any income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. A nonresident is taxed only on income accruing in or derived from Malaysia.
The status of individuals as residents or nonresidents determines whether or not they can claim personal allowances and the benefit of graduated tax rates. Resident status is determined by reference to the number of days an individual is present in Malaysia. Generally, an individual who is in
Malaysia for a period or periods amounting to 182 days or more in a calendar year will be regarded as a tax resident.
Basis of assessment/ As from year of assessment 2000, assessment of income is on a current-year basis. An individual is taxed on income from nonbusiness sources for a year of assessment on a calendar-year basis.
Business sources of income are assessed for a year of assessment on the basis of the finanCIAl/accounting year ending on a day in that particular year of assessment.
Employee gross income/An employee is taxed on employment income earned for work performed in Malaysia, regardless of where payment is made. Employment income includes salary, allowances, perquisites, benefits-in-kind, tax reimbursements, and rent-free accommodation provided by the employer.
Medical benefits, as well as childcare benefits provided by the employer, are not taxable. Leave passages, restricted to one overseas trip, up to a maximum amount of RM3,000 and tree local trips per year, are also tax exempt in the hands of the employee. Cars or other household items provided for private use are valued at prescribed rates that are lower than the actual cost incurred by the employer. Rent-free accommodation provided by the employer I valued at the lower of 30% of the employee's total cash remuneration or the actual rental value. Gifts of new computers by employers are not deemed benefits in kind and hence not taxable.
Short-term visiting nonresident employees are not subject to tax on income from employment exercised in Malaysia if the period of employment does not exceed 60 days in a calendar year. If the period of employment straddles two calendar years, they are exempt if the total period of their employment
over the two years does not exceed 60 days.
Area representatives of nonresident companies using Malaysia as a base for activities extending to other countries in the Far East are taxed on the remuneration relating to the time actually spent in Malaysia.
Capital gains and investment income/ Capital gains on the disposal of real property (including shares in real property company-"RPC") situated in Malaysia, are subject to real property gins tax. The tax is levied at rates ranging form a maximum rate of 30% (for assets held for less than two years) to 0% (for assets held for more than five years). Capital losses on the sale of real property (other than losses on the disposal of RPC shares ) are allowed as offset against gains arising on the sale of real property. (A real property company is a controlled company than owns real property or RPC shares with a defined value of not less than 75% of its total tangible assets.) Other capital gains are not subject to tax.
An individual who is not a citizen or a permanent resident in Malaysia is subject to real property gains tax on gains arising from the disposal of real property or RPC shares on or after October 17,1997 at a rate of 30% on disposals within five years and at 5% on disposals after five years.
A resident is generally subject to income tax on all investment income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. A nonresident is not taxed on income derived outside Malaysia.
Interest received by a resident individual is subject to income tax at a flat rate of 5%. Interest received on deposits for a period of 12 months or more is tax exempt. Interest received from certain types of bonds or securities is also exempt from tax.
Interest paid to a nonresident individual by commerCIAl or merchant banks or finance companies operating in Malaysia is exempt from tax.
Business deductions/ employees are allowed a deduction for any expenditure incurred wholly and exclusively in the performance of their duties, but no allowance is given for tax depreCIAtion. Expenses of a private or domestic nature are expressly excluded from deduction; for example, the cost of
traveling to and from a place of employment is not deductible.
Nonbusiness expenses/ Nonbusiness expenses, for example, domestic or household expenses and taxes, are not deductible. Mortgage interest incurred to finance the purchase of a house is deductible only if income is derived from the house. Donations to approved funds and subscriptions to assoCIAtions related to the individual's profession are deductible.
Personal allowances/ A resident individual receives a personal deduction of RM8,000, an allowance of RM3,000 for the spouse (except in a case where a husband and wife have ceased to live together during the year) and child allowances of RM800 for each child. A child allowance of up to two or four times the normal deduction is given where certain conditions are satisfied.
Instead of the normal child relief, an allowance of RM5,000 is granted for each physically or mentally handicapped child. Child relief can be claimed by a wife filing a tax return separately. Additional deductions of RM5,000 (personal relief) or RM2,500 (spouse)will be granted if the individual or spouse is disabled.
Medical expenses incurred for the individual's parents qualify for deduction, but this deduction is limited to a maximum of Rm5,000. An additional amount of up to RM5,000 is given for medical expenses for self, spouse or child on treatment of a serious disease (e.g., AIDS, leukemia). This amount includes
medical examination fees of up to RM500 incurred for self, spouse or child.
A wife filling a return separately is also eligible for these deductions.
Expenses of up to RM5,000 incurred for the purchase of disability-supporting equipment for the individual's own use if the individual is a disabled person, or for the use of a spouse, child, or parent who is disabled, would be allowed as a deduction.
Contributions to approved pension/ provident funds and annual premiums for insurance policies taken out by a resident employee on that employee's own life, a spouse's life or jointly are allowed, subject to a limit of RM5,000.
An additional amount of up to RM3,000 is given for premiums for insurance on education or for medical benefits incurred for the individual, spouse or child. Similar relief subject to limits of RM5,000 and RM3,000 is also given for contributions/premiums incurred by a spouse, where the spouse's income is separately taxed. An additional amount of up to Rm1,000 is also given for premiums on an insurance for annuity benefits.
A deduction limited to a maximum of RM5,000 is allowed for fees paid for a course of study in Malaysia undertaken to acquire technical, vocational or industrial, scientific, technological skills up to tertiary level. A deduction of up to RM500 is given for purchase of books, journals, magazines and other similar publications for purpose of enchancing knowledge.
Personal allowances are deducted in arriving at chargeable income of the resident individual.
A tax resident is entitled to claim foreign tax credits against Malaysian tax. Where a treaty exists, the credit available is the whole of the foreign tax paid or the Malaysian tax levied on the foreign-source income, whichever is lower. In the absence of a tax treaty, the credit due is restricted to one-half of the foreign tax paid.
There are no soCIAl security taxes or local taxes on income.
Real property gains tax/ Real property gains tax is imposed at rates from 0% to 30% on gains arising from the disposal of real property (which includes the disposal of shares in a real property company ) situated in Malaysia (see "Capital gains and investment income").
Exit levy/ With effect from May 2,2001, the exit levy that had been imposed on repatriation of profits from portfolio investments was abolished altogether.
Returns/Returns are filed jointly by the taxpayer and the taxpayer's wife.
The income of a wife living with her husband is taxed separately from that of the husband. However, a wife who is a resident or a Malaysian citizen can elect to be taxed jointly with her husband.
From year of assessment 2001, a husband who has no income may also elect to be assessed jointly with his wife under the wife's name. Where husband and wife are jointly assessed in the wife's name, she is entitled to claim “husband relief” of RM3,000. Up to year of assessment 2000, only a husband can claim "wife relief" of the same amount.
Returns are required by law to be filed within 30 days from the date of the issue of the tax return form.
Payment of tax/Tax is payable 30 days from the issue of an assessment notice.
However, tax payments by employees are collected through compulsory deductions from salary. From the year 2000, all deductions are made on a PAYE basis.
The following are the rates which are applicable to resident individual taxpayers from the year of assessment 2002.
Taxable income Tax on Percentage
Over Not over Column 1 on excess
RM 50,000 RM 70,000 RM 3,475 19
70,000 100,000 7,275 24
100,000 150,000 14,475 27
150,000 250,000 27,975 27
250,000 54,975 28
A nonresident individual is taxed at flat rate of 28% on total taxable income.
INDIVIAUAL TAX CALCULATION
Year of assessment 2002
Resident employee and wife, two children; one spouse earns all the income.
Tax computation Gross income:
alary RM 200,000
Interest (18,640)(1) _
Total gross income 200,000
Less-Approved donations 1,000 199,000
Self and wife 11,000
First child (over 18 and attending university) 3,200
Second child (under 18) 800
Medical expenses for parents (maximum) 5,000
Life insurance premiums and provident fund contributions
Premiums on education/ medical insurance (maximum) 3,000
Purchase of books for enhancing knowledge (maximum) 500 28,500
Taxable income RM 170,500
Income tax joint return rates (see table above) RM 33,510
1. Nonexempt interest received from banks and finance companies is subject to a withholding tax of 5% , which is a final tax. No further tax is payable thereon.
2. From September 1,1998 the exchange rate of the ringgit is fixed at: