A guide to Malaysian tax for expats

Malaysia is one of Asia's most prominent business hubs. It ranks 35th largest globally and the third largest Southeast Asian economy. Malaysia's oil and gas industry is one of the world's most competitive, and with that in mind, it's no surprise that so many businesses are expanding their operations there.

But to mobilise staff to the country, there are essential Malaysian income tax laws to get to grips with.

An expert guide to the Malaysian tax system for expatriates

Taxable income in Malaysia uses flat and progressive rates, depending on how long the employee will work there and the type of work they'll be doing.

To know which category their taxable income falls into, expatriates and business owners must fully understand Malaysia's tax structure.

In this guide, we'll explain everything hiring managers and expatriates need to know about Malaysia's tax principles and how to determine whether or not they should be paying taxes when working there.

Malaysia’s taxation principle

Taxation in Malaysia works on a territorial basis; i.e. only incomes from Malaysian resident companies are taxable, regardless of where the expatriate is paid.

Foreign-sourced income is not subject to personal income tax rates in Malaysia, but there are three main exceptions:

• Double Taxation Agreements - if an expat is a tax resident of two different countries, they may have to pay taxes on the same income, meaning they'll be taxed twice in the same year. However, the Malaysian government has signed Double Tax Treaties with more than 70 countries to avoid taxing people twice.
• The worldwide basis for taxation applies to income from specific industries, such as banking and air transport, where Malaysia does not use a territorial tax system.
• Tax regime exemptions - expatriates may benefit from tax exemptions if they are not defined as tax residents in Malaysia or if the period of employment is shorter than 60 days.

Determining tax residency status

An expatriate living in Malaysia for 182 days or more in an assessment year will be considered taxable. Expatriates deemed residents for tax purposes pay progressive rates (individual income tax rates range between 0 and 30%, depending on their income). Malaysian tax residents are also eligible for tax deductions.

Expatriates who worked in Malaysia between 60-182 days are considered "non-residents" for tax purposes. Non-resident individuals are subject to a 30% flat rate and do not qualify for tax deductions.

Monthly tax deduction

The Monthly Tax Deduction (PCB) is compulsory, and strict laws are in place to ensure that all employers and employees comply. This seems daunting, which is why we're here to help.

Airswift will deduct a portion of the expatriate's statutory income each month. Tax payment is made to the Taxation Department of the Inland Revenue Board of Malaysia (IRB), so you can rest assured your business abides by the law. The amount of tax deducted depends on the employee's tax residence status and income.

Tax returns in Malaysia

The tax year in Malaysia runs from January 1st to December 31st. All resident individuals subject to taxation must file an annual income tax return before April 30th of the following year to qualify for tax relief.

Failure to do so by the filing deadline can result in a 10% increment of the payable tax or a disciplinary fee.

To complete a tax return, expats must fill out a Yearly Remuneration Statement (EA form) issued by the end of February every year. In this form, they must detail the total amount paid during the calendar year.

Tax return forms can be filed either online or manually. If incorrect information is submitted, the expatriate may be fined 100% of the undercharged tax.

Tax file number

To file an income tax return, expatriates must have a tax number. Generally, employers obtain income tax reference numbers from the IRB on behalf of their expat employees. However, it is also possible for individuals to get their tax file numbers from the IRB within two months of their arrival date.

Tax clearance

If an expat comes to the end of their contract, resigns or leaves Malaysia for longer than three months, they will need to apply for tax clearance. This determines whether or not they owe tax.


We can help with the tax clearance process; once the employee has received their letter, Airswift will release the balance of any money owed after outstanding taxes have been settled.

Malaysia's Capital Gains Tax (CGT) overview

The introduction of Capital Gains Tax (CGT) in Malaysia will affect companies, limited liability partnerships, co-operative societies, and trust bodies, regardless of whether they are incorporated within or outside Malaysia. CGT will apply to capital assets located both within Malaysia and abroad, although specific exemptions are provided or suggested.

Entities subject to CGT

Who will the new CGT regulations in Malaysia apply to?

• Companies
• Limited Liability Partnerships (LLPs)
• Trust bodies (e.g., unit trusts)
• Co-operative societies

These entities are subject to CGT as outlined under the Income Tax Act 1967 (ITA).Disposals for CGT.

What disposals will be impacted by the CGT?

• Disposals of capital assets situated in Malaysia or deemed so.
  • Shares of Malaysian-incorporated companies not listed on the stock exchange.
  • Shares of foreign-controlled companies connected to Malaysian real property.

• Disposals of capital assets located outside Malaysia, subject to CGT when gains are received in Malaysia.
  • Includes all capital assets, not limited to shares
  • Gains from the disposal of a capital asset situated outside Malaysia will only be subject to tax when the gains are received in Malaysia.

Specific Cases

• • Shares of Malaysian-incorporated companies not listed on the stock exchange.
  • Shares of foreign-controlled companies connected to Malaysian real property.

 Effective date and transitional provisions

• Start date: CGT takes effect from January 1, 2024.
  
  
• Exemption period: From January 1 to February 29, 2024, specific exemptions apply to disposals of unlisted shares in Malaysian companies, effectively postponing CGT liability for these until March 1, 2024.
  
  
• Foreign assets: For gains received in Malaysia from the disposal of foreign assets, the January 1, 2024 effective date aligns with European Union requirements and matches initiatives by Singapore and Hong Kong.

Exemptions and reporting

• Initial exemptions: The exemption order highlights a tax break for certain disposals during the initial two months of 2024 but does not cover disposals related to foreign real estate ties or exempt from filing requirements.
  
  
• Future adjustments: Anticipation exists for updated or supplementary orders to clarify exemptions for disposals linked to foreign real estate and filing obligations.

How can Airswift help?

Arranging taxes for expats moving to a Malaysian company for work can be difficult, as there is much to consider.

Working with a global employment and mobility team takes that burden from you so that you can focus on other aspects of your business.