By : NOR AZIZAN ADNAN NON RESIDENT BRANCH INLAND REVENUE BOARD OF MALAYSIA 1
A NON RESIDENT PERSON (includes an individual and a corporation) SHALL BE CHARGED TO TAX ON INCOME ACCRUING IN OR DERIVED FROM MALAYSIA 2
A COMPANY : IF THE MANAGEMENT AND CONTROL OF ITS BUSINESS IS EXERCISED OUTSIDE MALAYSIA AN INDIVIDUAL : IF HIS PHYSICAL PRESENCE IN MALAYSIA IS LESS THAN 182 DAYS 3
NON RESIDENT INDIVIDUAL IS NOT ENTITLED TO ANY PERSONAL RELIEF AS ENJOYED BY A RESIDENT GENERALLY TAXED AT 26% EXCEPT FOR INCOME WHICH IS SUBJECT TO WITHHOLDING TAX RATE LIKE INTEREST, ROYALTY, TECHNICAL FEE OR PUBLIC ENTERTAINER 4
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BUSINESS PROFESSIONAL INCOME TAXED AT 26% ON NET PROFIT NON RESIDENT DIRECTOR (EMPLOYMENT) OF A MALAYSIAN RESIDENT COMPANY IS ALSO TAXED AT 26% 7
RENDERED / PERFORMED SERVICES IN MALAYSIA: CONTRACT OF SERVICES (EMPLOYMENT) CONTRACT FOR SERVICES (INDEPENDENT PERSONAL SERVICE) FOREIGN ARTISTES/ PUBLIC ENTERTAINERS 8
EMPLOYMENT GENERAL RULE : Employment income is taxed in the State / jurisdiction in which the employment is exercised (i.e. State of source) EXCEPTION : Employment exercised aboard a ship or aircraft operated in international traffic taxed in the jurisdiction in which place of effective management is situated 9
EXERCISE OF EMPLOYMENT Refers to physical presence when performing duties Regardless of when or where the remuneration is paid 10
EMPLOYMENT TAX AT 26% EXEMPTION IF EXERCISED IN MALAYSIA NOT EXCEEDING 60 DAYS DTA COUNTRIES: EXEMPTION UNDER DEPENDENT SERVICE ARTICLE (DPS) IF ALL THE FOLLOWING CONDITIONS APPLICABLE: 11
3 CONDITIONS : 1. LESS THAN 183 DAYS IN MALAYSIA 2. REMUNERATION PAID BY FOREIGN EMPLOYER NOT RESIDENT IN MALAYSIA AND 3. THE REMUNERATION IS NOT BORNE BY A P.E. WHICH THE EMPLOYER HAS IN MALAYSIA 12
In Malaysia Malaysian Employer Foreign Employer (P.E. exists) Foreign Employer (No P.E.) <60 days exempted exempted exempted <182 days >182/183 days flat rate 26% scale rate flat rate 26% scale rate Exemption scale rate Under DTA 13
MALAYSIA TAX SCALE RATE Chargeable Income Calculations (RM) Rate % Tax(RM) 0-2500 On the First 2,500 0 0 2,501-5,000 Next 2,500 1 25 5,001-10,000 On the First 5,000 Next 5,000 3 25 150 10,001-20,000 On the First 10,000 Next 10,000 3 20,001-35,000 On the First 20,000 Next 15,000 7 35,001-50,000 On the First 35,000 Next 15,000 12 50,001-70,000 On the First 50,000 Next 20,000 19 70,001-100,000 On the First 70,000 Next 30,000 24 Exceeding 100,000 On the First 100,000 Next RM 26 175 300 475 1,050 1,525 1,800 3,325 3,800 7,125 7,200 14,325 14
INDEPENDENT PERSONAL SERVICES INCLUDES INDEPENDENT PROFESSIONAL ACTIVITIES OR VOCATION LIKE, JOCKEYS, FILM DIRECTOR, CHEF, ETC TAX AT 26% ON NET INCOME 15
TECHNICAL FEES: PROVISION OF ANY SERVICES OF TECHNICAL, MANAGERIAL OR CONSULTANCY NATURE IN MALAYSIA IN THE ABSENCE OF A P.E. IS SUBJECT TO A WITHHOLDING TAX OF 10% ON GROSS OR LOWER DTA PREFERENTIAL RATE 16
FOREIGN ARTISTES / PUBLIC ENTERTAINERS OR SPORTSPERSON : SUBJECT TO A FINAL WITHHOLDING TAX OF 15% ON GROSS PAYMENT 17
INTEREST: SUBJECT TO A WITHHOLDING TAX OF 15% ON GROSS OR LOWER DTA PREFERENTIAL RATE INTEREST PAID BY ANY BANK OR FINANCE COMPANY IN MALAYSIA AND RECEIVED BY A NON RESIDENT PERSON IS EXEMPTED FROM TAX 18
ROYALTY : SUBJECT TO A WITHHOLDING TAX OF 10% ON GROSS OR LOWER DTA PREFERENTIAL RATE 4(f) INCOME : SUBJECT TO A WITHHOLDING TAX OF 10% ON GROSS (wef 1.1.2009) 19
DIVIDEND: INCOME RECEIVED FROM MALAYSIAN DIVIDEND IS NOT TAXABLE (wef YA 2008) (ONE-TIER CORPORATE TAX SYSTEM) 20
Rental income from immoveable properties situated in Malaysia is taxed at 26 % on net profit. Expenses deductible against gross rental same as any other resident individual. 21
Rental from moveable property taxed at 10% on gross or DTA preferential rate applies Example: Chartered hire fees on ships or oil rigs, heavy machinery etc. 22
DOUBLE TAXATION AGREEMENT (DTA) If an income is doubly taxed, the tax suffered or paid in the foreign country is allowed as a tax credit against the Malaysian tax payable on the same income Bilateral credit : with DTA Unilateral credit : without DTA 23
BILATERAL CREDIT S 132 relief only allowed to a resident taxpayer Income must be doubly taxed Tax relief cannot exceed the Malaysian tax computed on the doubly taxed income Computed tax relief compared with actual foreign tax suffered and the lower of the two amounts given as the relief 24
BILATERAL CREDIT Example : A taxpayer has income for a year of assessment of RM50,000 which includes income from a foreign source of RM10,000 (foreign tax RM500). The Malaysian tax charged on the total income of RM50,000 is RM2,000. The S 132 relief cannot exceed : 2000 X 10,000 = RM400 50,000 25
UNILATERAL CREDIT S 133 relief can be claimed by Resident or Non Resident individual Income must be doubly taxed Relief is the lower of : Malaysian tax on the foreign income, and One half of the foreign tax on the doubly taxed income 26
UNILATERAL CREDIT Example: Same as the bilateral credit example BUT the foreign income is from a country without DTA Proportion of Malaysian Tax Foreign tax : RM400 : RM500 Therefore, S 133 relief : ½ of RM500 27
NO DIFFERENCE BETWEEN A RESIDENT AND A NON RESIDENT COMPANY CONCERNING THE METHOD OF TAXATION OR THE TAX RATE (25% ON CHARGEABLE INCOME) SAME OBLIGATIONS AND RIGHTS UNDER THE DOMESTIC ACT 28
LIABLE TO MALAYSIAN TAX ON PROFITS WHICH ARE ATTRIBUTABLE TO THE PERMANENT ESTABLISHMENT NO DEFINITION OF P.E. UNDER THE DOMESTIC LEGISLATION BUT DEFINED UNDER DOUBLE TAXATION AGREEMENT (DTA) 29
INCOME RECOGNITION AND TREATMENT OF EXPENSES ARE BASED ON THE ARM S LENGTH PRINCIPLE ALL OUTGOINGS AND EXPENSES WHOLLY AND EXCLUSIVELY INCURRED FOR THE PURPOSES OF THE P.E. IS ALLOWABLE. MAY ACCEPT ANY REASONABLE METHOD OF ALLOCATION OF HEAD OFFICE EXPENSES DEPENDING ON THE NATURE OF BUSINESS 30
INCOME FROM CONTRACT PROJECT CARRIED ON, CARRIED OUT AND PERFORMED IN MALAYSIA IS SUBJECT TO: AN INTERIM WITHHOLDING TAX OF 10% + 3% ON SERVICE PORTION OF THE CONTRACT 31
10% IS THE ADVANCE TAX DEPOSIT ON ACCOUNT OF THE COMPANY 3% IS THE GUARANTEE DEPOSIT ON ACCOUNT OF THE EXPATRIATE EMPLOYEES **THIS INTERIM WITHHOLDING TAX WAS INTRODUCED TO ENSURE BETTER TAX COMPLIANCES 32
COMPREHENSIVE WITHHOLDING TAX SYSTEM EASY COMPLIANCE AND LOW TAX RATES FINAL WITHHOLDING TAX, NO OBLIGATION TO FILE TAX RETURNS 33
Thank You norazizan@hasil.gov.my TAXATION OF NON RESIDENT PERSONS IN MALAYSIA 34