A guide to Malaysian tax for expats

Malaysia remains one of Asia’s most prominent business hubs. As of 2025, it ranks as the 35th largest economy globally and the third largest in Southeast Asia. Its competitive oil and gas sector, growing tech industry, and strategic location continue to attract foreign investment and talent.

However, expanding operations into Malaysia means understanding its income tax laws, especially for expatriates.

An expert guide to the Malaysian tax system for expatriates

Taxable income in Malaysia uses flat and progressive rates, depending on the length of the employee's employment and the type of work they'll be doing.

Expats and business owners must fully understand Malaysia's tax structure to determine which category their taxable income falls into.

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

Malaysia operates on a territorial tax system, meaning only income earned within Malaysia is taxable. Under a transitional measure, foreign-sourced income is generally exempt for individuals until December 31, 2026.

Exemptions include:

• 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

Tax residency is crucial in determining applicable tax rates:

• Residents: Individuals who stay in Malaysia for 182 days or more in a calendar year. They are taxed at progressive rates from 0% to 30% and qualify for tax reliefs and deductions .
• Non-residents: Those staying 60–182 days are taxed at a flat rate of 30% and do not qualify for deductions.

Special zones like Iskandar Malaysia and the Johor-Singapore Special Economic Zone (JS-SEZ) offer 15% flat tax rates for eligible knowledge workers 

Monthly tax deduction

The Potongan Cukai Berjadual (PCB) is a mandatory monthly tax deduction system. Employers must deduct tax based on the employee’s income and residency status.

For example, a resident earning RM45,000 annually falls into the 6% tax bracket, resulting in a monthly PCB of RM100 

Reliefs such as RM9,000 personal relief, RM4,000 EPF, and RM2,000 per child help reduce taxable 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 penalties of up to 45% of unpaid taxes.

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 Inland Revenue Board (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

When an expatriate leaves Malaysia or ends their contract, they must apply for tax clearance. This ensures all taxes are settled before departure. Airswift can assist with this process and release any remaining funds once clearance is obtained.

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 an Employer of Record (EOR) team takes that burden from you so that you can focus on other aspects of your business.