Expatriate Employees Working in Malaysia 30092006

EXPATRIATE EMPLOYEES WORKING IN MALAYSIA

EXPATRIATE EMPLOYEES WORKING IN MALAYSIA

Page

A What you need to know 1 Scope of tax

1

2 Employment income 1

3 Rates of tax and personal reliefs 2

4 Schedular Tax Deduction (STD) System 2

5 Exemption 2-3

B What you have to do 1 Upon arrival in Malaysia 4

2 Submission of income tax return 4

3 Before leaving Malaysia 4

Appendix

1 Personal reliefs and separate assessment 5

2 Income tax rebates for individuals 6

3 Income tax rates – Resident Individuals 7

4 Tax Residence 8-10

EXPATRIATE EMPLOYEES WORKING IN MALAYSIA

A. WHAT YOU NEED TO KNOW 1. SCOPE OF TAX

An individual is taxed on his income accruing in or derived from Malaysia. He will not be taxed on any income received in Malaysia from outside Malaysia.

2. EMPLOYMENT INCOME

Under the Malaysian Income Tax Act, employment income is deemed to be derived from Malaysia:- a. For any period during which the employment is exercised in Malaysia; b. For any period of leave attributable to the exercise of the employment in

Malaysia; or

c. For any period during which the employee performs outside Malaysia duties incidental to the exercise of the employment in Malaysia.

In view of the foregoing, an employee exercising an employment in Malaysia is taxable on his full income from the exercise of the employment, notwithstanding that part of his income may be paid to him outside Malaysia or that his employer does not have any offices in Malaysia.

Employment income includes the following:- i. Any wages, salary, remuneration, leave pay, fees, commission, bonus, gratuities,

perquisites or allowance, payment of household expenses, club subscriptions, subsidized interest on loan, school fees for children (whether in money or otherwise);

ii. Payment of income tax borne by the employer; iii. The value of the use of or enjoyment of any benefits or amenities (e.g. use of

company’s motor vehicle, provision of food, clothing, household furniture, driver’s services, club membership);

iv. The value of living accommodation provided by the employer;

v. Payment of the employee’s personal expenses, e.g. utility bills, insurance

premium;

vi. Provision of overseas leave passages exceeding RM 3,000 per annum.

2

3. RATES OF TAX AND PERSONAL RELIEFS 3.1 For residents, the rate of tax is on a graduated scale on the chargeable income after

deduction of reliefs. The reliefs available and rates of tax are as shown in Appendices 1 and 2 respectively.

3.2 For a non-resident, the rate of tax is 28% on the gross income. No reliefs are available

to a non-resident. 4. SCHEDULAR TAX DEDUCTION (STD) SYSTEM

The STD System applies to all employment income assessable under the Income Tax Act 1967. Basically, the above system refers to the deduction of tax by employers from employees’ monthly emoluments based on a schedule which pre-determines the amount of tax to be deducted. The STD system also applies to expatriate employees. It is the Inland Revenue‘s policy to collect tax in advance (PAYE) in respect of an expatriate employee by monthly salary deduction. For example, tax payable for Year of assessment 2006 (i.e. based on income earned in 2006) will be settled by means of monthly deductions in 2006. Upon submission in the year 2007 of the income tax return for Year of Assessment 2006, the tax paid in advance in 2006 will be utilized to set-off against the tax charged for Year of Assessment 2006. Where there is a surplus deduction, the employees concerned can apply for a refund of the tax overpaid. However, if the tax deducted in the year 2006 is insufficient, the difference is required to be paid by 30th April, 2007 For those employees who are provided with taxable benefits-in-kind, the amount of tax to be deducted can be determined based on the total remuneration received divided by the number of months he is employed in a particular year. The advantage of this method is that the final tax payable will be almost the same amount of tax deducted.

5. EXEMPTION 5.1 Period of less than 60 days in Malaysia

The income of an individual who is not a tax resident, from an employment exercised in Malaysia is exempted from tax where the employment is exercised for the following period(s):-

a. for a period or periods which together do not exceed sixty (60) days in a calendar

year; or b. for a continuous period (not exceeding sixty days) which overlaps over two

calendar years.

3

5.2 Double Taxation Agreements Period of more than 60 days but less than 183 days in Malaysia

Malaysia has signed double taxation agreements (DTA) with more than 60 countries. Generally, the income of an individual from an employment exercised in Malaysia is exempted from Malaysian income tax where the following conditions are satisfied:- a. the employee is present in Malaysia for a period or periods not exceeding in the

aggregate 183 days (in the case of Singapore, 120 days) in the basis year;

b. the remuneration of the employee is paid by, or on behalf of, a person who is not a resident of Malaysia; and

c. the remuneration is not deductible in determining taxable profits of a permanent

establishment which that person has in Malaysia.

The precise conditions are provided in the DTA of the countries concerned. 5.3 Operational Headquarter/Regional Office

The income of a non-citizen who is employed by a company with Operational Headquarter status or a Malaysian regional office of a foreign company is exempted from income tax on income derived in respect of the period during which the employment is exercised outside Malaysia.

The exemption would only apply to the period when the employment is exercised outside Malaysia and would not be applicable for the number of days that the individual is outside Malaysia for personal reasons or on vacation.

5.4 Labuan Offshore Company

Managers

50% of gross income derived by a non-citizen exercising an employment in Labuan, in a managerial capacity in an offshore company, is exempted from income tax.

Effective: From Year of assessment 1992 to 2010

Directors

Fees received by a non-citizen individual in his capacity as a director of an offshore company is exempted from income tax. Effective : Year of Assessment 2002 to Year of Assessment 2010

Offshore Company

An offshore company refers to an offshore company incorporated under the Offshore Companies Act 1990, and includes a foreign offshore company registered under the Offshore Companies Act 1990, a licensed Malaysian offshore bank, an offshore limited partnership and an offshore trust.

4

B. WHAT YOU HAVE TO DO 1. UPON ARRIVAL IN MALAYSIA

An expatriate employee having a source of income in Malaysia for the first time is required to notify the Inland Revenue within two months of arrival in Malaysia.

2. SUBMISSION OF INCOME TAX RETURN

An expatriate employee is required to complete the Income Tax Return and submit it to the Inland Revenue before 30th April of each year. If you have not received an Income Tax Return by 31st March in each calendar year, you must immediately write to the Inland Revenue (i.e. the branch which issued you with the last Income Tax Return) for a Income Tax Return for the relevant year before 14th April.

3. BEFORE LEAVING MALAYSIA

An expatriate employee is required to obtain tax clearance before leaving Malaysia upon expiry of his employment contract or cessation of employment.

To determine the tax residence of an expatriate employee for tax purpose for the duration of his employment in Malaysia, the employee is required to submit his original passport together with a photostated copy thereof to the Inland Revenue for verification, before departure from Malaysia on completion of assignment. It is therefore important for the expatriate employee to ensure that all his entries and exits from Malaysia are properly recorded and stamped on his original passport. In the absence of the original passport or any other documentary proof of his stay in Malaysia, the Inland Revenue may tax the expatriate employee as a non – resident at the rate of 28% on his gross income without granting any personal reliefs. Where a “smart” card is used for entering and leaving Malaysia, the expatriate employee is required to obtain a summary of his movements into and outside Malaysia from the Malaysian Immigration Department for every entry and departure to facilitate the determination of his tax residence during the duration of his employment in Malaysia. The expatriate employee is advised to retain the counterfoil of all his air tickets for easy retrieval of information regarding his movements into and outside Malaysia. Where the employee has already left Malaysia without his passport being verified by the Inland Revenue, a photostated copy (complete passport) verified by the Malaysia Embassy/Consular overseas is acceptable by the Inland Revenue.

5

APPENDIX 1

PERSONAL RELIEFS AND SEPARATE ASSESSMENT

The following reliefs are available to a resident in Malaysia

PERSONAL RELIEFS RM Taxpayer – personal relief 8,000 Wife – if she has no source of income or elects for combined assessment 3,000

Husband – if he has no source of income or elects for combined assessment 3,000

Children: Each child (below 18 years old) Disabled child (unmarried) Each child (including disabled child) above 18 years old studying in universities, colleges or similar establishments – Outside Malaysia (at degree level and above In Malaysia (at diploma level and above

1,000

5,000

4,000 4,000

Life insurance premiums/ Approved fund contributions:

Taxpayer (Maximum)

6,000

Insurance premiums on insurance for education or medical benefits:

Taxpayer (Maximum)

3,000

Annuity premium on annuity purchased through EPF Annuity Scheme

Taxpayer (Maximum) 1,000 Medical expenses for parents (Maximum) 5,000

Medical expenses for taxpayer, spouse and children on serious diseases (include RM 500 for medical examination expenses) (Maximum)

5,000

Disabled person : Taxpayer Spouse Supporting equipment for disabled taxpayer, spouse, children or parent (Maximum)

6,000 3,500

5,000

Fee for acquiring technical, vocational, industrial, scientific or technological , law, accounting skills or qualifications (Maximum)

5,000

Purchase of books, journals, magazines and other similar publications for the use of taxpayer, spouse or children (RM 1,000 effective from Year of Assessment 2007).

700

6

APPENDIX 2

INCOME TAX REBATES FOR INDIVIDUALS

RM REBATES GIVEN TO TAXPAYER

Individual

- chargeable income not exceeding RM 35,000

350

Additional rebate for wife

- if she does not elect for separate assessment or has no income or elects for combined assessment with husband

350

Additional rebate for husband

- if he has no income or elects for combined assessment with wife

350

Rebate given to wife if she elects for separate assessment or does not elect for combined assessment

350

ZAKAT, FITRAH OR ANY OTHER ISLAMIC RELIGIOUS DUES

Full rebate in respect of zakat, fitrah or any other Islamic religious dues paid

PURCHASE OF A PERSONAL COMPUTER

Rebate of RM 500 given to an individual or spouse for a year of assessment in respect of the purchase, evidenced by a receipt, of a personal computer for non-business purposes. Rebate is given once in every five years. (Effective from Year of assessment 2007, in the form of relief ofRM 3,000)

ANY FEE PAID TO GOVERNMENT FOR THE ISSUE OF AN EMPLOYMENT PASS, VISIT PASS OR WORK PASS Full rebate of fee paid.

7

APPENDIX 3

INCOME TAX RATES-RESIDENT INDIVIDUALS

Chargeable Income Rate Tax

RM

%

RM On the first 2,500 0 0 On the next 2,500 1 25On the first 5,000 25 On the next 15,000 3 450On the first 20,000 475 On the next 15,000 7 1,050On the first 35,000 1,525 On the next 15,000 13 1,950On the first 50,000 3,475 On the next 20,000 19 3,800On the first 70,000 7,275 On the next 30,000 24 7,200On the first 100,000 14,475 On the next 150,000 27 40,500On the first 250,000 54,975 ======= ====== In excess of 250,000 28

8

APPENDIX 4 (1 of 3)

TAX RESIDENCE

For Malaysian income tax purpose, an individual is treated as a resident if he satisfies one of the following conditions:-

a. He is Malaysia in that calendar year for a period or periods amounting in all to 182 days

or more; b. He is in Malaysia in the calendar year for a period of less than 182 days; this period is

linked by or to another 182 or more consecutive days (throughout which he is in Malaysia) as follows:-

i. in the calendar year immediately preceding that particular year; or ii. in the calendar year immediately following that particular year;

A temporary absence from Malaysia shall be taken to form part of the 182 days or that period, as the case may be, if he is in Malaysia immediately prior to or after that temporary absence and the temporary absence is for the following purposes:-

1. connected with his service in Malaysia and owing to service matters or attending

conferences or seminars or study abroad; 2. owing to ill-health involving himself or a member of his immediate family; and

3. in respect of social visits not exceeding fourteen days in the aggregate;

EXAMPLE 1

Date of arrival in Malaysia : 1st June, 2005

Left Malaysia on : 22nd December 2005 Returned to Malaysia on : 2nd January 2006 Date of Departure from Malaysia : 30th April 2006

Year of Assessment

Basis year

Number of days

In Malaysia

Residence

status

2005 1.6.2005 to 22.12.2005

205 Resident

2006 2.1.2006 to 30.4.2006

90 Resident

Temporary absence from 23.12.2005 to 1.1.2006 10 days

9

APPENDIX 4 (2 of 3) EXAMPLE 2

Date of arrival in Malaysia : 1st August, 2005

Left Malaysia on : 28th December 2005 Returned to Malaysia on : 4th January 2006 Date of Departure from Malaysia : 31st July, 2006

Year of

Assessment

Basis year

Number of days

In Malaysia

Residence

Status

2005 1.8.2005 to 28.12.2005

150 Resident

2006 4.1.2006 to 31.7.2006

209 Resident

Temporary absence from 29.12.2005 to 3.1.2006 5 days c. He is in Malaysia in that calendar year for a period amounting in all to 90 days or more

having been with respect of each of any 3 of the calendar years for the 4 Year of assessment immediately preceding that particular year of assessment either:-

i. a resident in Malaysia; or ii. in Malaysia for a period or periods amounting in all to 90 days or more in the

calendar year in question; or

EXAMPLE

Year of

Assessment

Number of days

In Malaysia

Residence

Status

2002 208 Resident

2003 197 Resident

2004 360 Resident

2005 95 Resident

2006 100 Resident

10

APPENDIX 4 (3 of 3) d. He is resident in Malaysia for the calendar year following the particular year in question,

having been so resident for each of the 3 calendar years immediately preceding that particular year.

EXAMPLE

Year of

Assessment

Number of days

In Malaysia

Residence

Status

2002 208 Resident

2003 197 Resident

2004 360 Resident

2005 - Resident

2006 200 Resident

Ri RbcdoachU ARa A

W

A

M

T

M SM

The foregoing text reflects changes as at 30th September 2006 and does not incorporate subsequent changes

The material contained in this publication is in the nature of general comment and information only and neither purports, nor is intended, to be advice on any particular matter. Readers should not act or rely upon any matter or information contained in or implied by this publication without taking any appropriated professional advice.

11

SM Robert Teo, Kuan & Co., RSM Tax Consultants Sdn. Bhd. and RKT Tax Consultants Sdn. Bhd. are ndependent member firms of RSM International.

SM International is a worldwide organisation of independent accounting and consulting firms driven y a common vision of providing excellent professional services. RSM International professionals ommit their high skills, world-wide standards, and a common work ethic of innovative thinking to evelop results for their clients. Operating in more than 70 countries and bringing together the talents f over 23,000 individuals in over 600 offices, RSM International is the 6th largest consulting and ccounting organization in the world and provides a full range of business advisory services to ompanies in their own markets and internationally. Our mission of providing quality service through igh level thought, outstanding work and sound opinion, has resulted in annual billings approaching S$2.5 billion across the organisation.

ny partner/ director in the offices of RSM Robert Teo, Kuan & Co., RSM Tax Consultants Sdn. Bhd. and KT Tax Consultants Sdn. Bhd. would be glad to meet those visiting Malaysia and to provide help and dvice where required.

ddress: Penthouse, Wisma RKT 2 Jalan Raja Abdullah Off Jalan Sultan Ismail 50300 Kuala Lumpur MALAYSIA

Telephone Facsimile Email

:: :

603-26972888 603-26917733, 603-2691886 [email protected] (RSM Robert Teo, Kuan & Co) [email protected] (RKT Tax Consultants Sdn. Bhd.)

ebsite : www.rsmi.com

Contact persons

International contact partner

Mr. Robert Teo

udit & Accounting Corporate Recovery and Restructuring

s Mei Ling, Kuan/ Ms. Yen Fen, Tan Ms Mei Ling, Kuan

ax Corporate Services

s Yok Chin, Wong/Mr. AB Ng Ms Bee Hong, Eng/ Ms Doris Woo

trategic Business Advisors Profit Improvement Programme r. Girish Ramachandran / Mr. Jason Saw Mr. Stephen Seah / Mr. Michael Lim