Malaysia has a well-structured tax framework in which employers must withhold monthly income tax from employees’ salaries and contribute to the Employees Provident Fund and the Social Security Organisation.
An individual is normally tax resident in Malaysia if they stay in Malaysia for 182 days or more in a calendar year. Certain continuity rules may also treat a person as a resident even if they do not reach 182 days in the current year, provided their stays are linked to periods in other years.
Personal income tax: Resident individuals pay personal income tax at progressive rates from 0% up to 30%, depending on their chargeable income. The top rate of 30% applies to chargeable income exceeding MYR 2,000,000.
Non‑resident individuals are generally taxed at a flat 30% on their Malaysian‑source income, with no personal reliefs.
Withholding and contributions: Here are the withholding rates in Malaysia:
- Dividends: 2% tax applies to dividend income exceeding MYR 100,000 per year
- Interest: 15% on interest paid to non-resident individuals
- Capital gains: Capital gains are generally not taxed in Malaysia, except for real estate and shares in real property companies (subject to Real Property Gains Tax – RPGT).
For residents, rates range from 30% (within three years) down to 0% after six years, with a one-time exemption on a residential property. Non-residents pay 30% if sold within five years, or 10% thereafter.
Tax allowances and non-taxable benefits: Malaysia does not have a single fixed “personal allowance” like some countries. Instead, residents reduce their tax through a combination of personal reliefs and rebates, which effectively create a tax‑free threshold that varies by person.
Deductions and tax reliefs: The exact amounts and caps for each personal relief are determined by the Inland Revenue Board of Malaysia (LHDN) and may change from year to year.
- Personal & family: Reliefs for individuals, spouses, children, and disabled dependants.
- Health & insurance: Medical expenses and contributions to EPF, pensions, life, and medical insurance.
- Lifestyle & education: Expenses for education, books, devices, internet, and sports.
- Housing & childcare: Reliefs for childcare, first-home loan interest, and green incentives.
