Non-Residency Tax Rates for Expatriates and Returning Malaysians

According to Section 7 of the Income Tax Act 1967, tax residents must have a minimum of 182 days of physical presence in Malaysia within a tax year to be deemed a tax resident.

30% flat rate for the first 182 days

Malaysia applies a 30% flat rate taxation to all non-resident individuals. This includes returning Malaysians who have been tax residents abroad. The term "tax resident" is not dependent on citizenship, and with remote working becoming a global trend, it may not also refer to where people are now residing. Rather, it depends on where you're pay rolled and paying taxes.

During this non-resident tax period, or the first 182 days, non-resident tax payers do not qualify for personal reliefs or deductions. Therefore, the 30% applies to the total taxable income earned in Malaysia.

Can a person travel out of Malaysia during the 182 days period?

Temporary absences from Malaysia for work-related travel (for conferences, seminars or short courses abroad), health reasons (either for themselves or for immediate family members) or short social visits (<14 days) do not break the continuity of the 182 day period.

After 182 days, what happens?

After 182 days of paying taxes in Malaysia, the tax resident status is earned. And the tax rate shifts from the flat 30% non-resident rate to progressive tax rates according to the table below.

Category	Chargeable Income	Calculations (RM)	Rate %	Tax (RM)
A	0 - 5,000	On the First 5,000	0	0
B	5,001 - 20,000	On the First 5,000Next 15,000	1	0150
C	20,001 - 35,000	On the First 20,000Next 15,000	3	150450
D	35,001 - 50,000	On the First 35,000Next 15,000	6	600900
E	50,001 - 70,000	On the First 50,000Next 20,000	11	1,5002,200
F	70,001 - 100,000	On the First 70,000Next 30,000	19	3,7005,700
G	100,001 - 400,000	On the First 100,000Next 300,000	25	9,40075,000
H	400,001 - 600,000	On the First 400,000Next 200,000	26	84,40052,000
I	600,001 - 2,000,000	On the First 600,000Next 1,400,000	28	136,400392,000
J	Exceeding 2,000,000	On the First 2,000,000 Next ringgit	30	528,400

Source: From LHDN official website (hasil.gov.my)

After obtaining tax residency status, the tax resident will also qualify for personal reliefs, deductions, and rebates, reducing overall taxable income.

Are there other ways to qualify for tax residency in Malaysia?

There are. In fact, staying more than 182 days consecutively in Malaysia is only one of the four ways of establishing tax residency under Section 7 of the Income Tax Act.

The other lesser known qualifying tax residency status include:

• Provision (b) - The Combined 182-Day Rule - if the person stays in Malaysia for less than 182 days in a tax year, they can still qualify for tax residency if their stay is linked to another period of 182 or more consecutive days in a previous tax year or a following tax year.

• Provision (c) - The 90-Day Rule - if the person stays in Malaysia for at least 90 days in the current tax year, they can qualify as a tax resident if in any three of the past four years, they had stayed in Malaysia for at least 90 days in each of those years.

• Provision (d) - The 3-Year Residency Rule - If the person has been living in Malaysia for more than 3 consecutive years, the person can also gain tax residency status.

Avoid common HR pitfalls due to tax non-compliance

Expatriates and returning Malaysians, including HR teams hiring expatriates or returning Malaysians should be aware of the non-resident tax status in the first 182 days or eligibility for tax residency depending on one's immigration history in Malaysia. Anyone earning above RM37,333 (estimated RM3100 monthly) annually immediately becomes subject to our local tax residency rules. In West Malaysia, any expatriate employee hired on the Employment Pass 1, 2 or 3 will likely be subject to these tax residency rules. A common pitfall for HR teams is when the incoming applicant is not made to know about the flat 30% tax rate for non-tax residency status applicants. This significantly affects the expectation of incoming expatriates or returning Malaysians pertaining to their take home income in the first 182 days (or 6 months) until they gain tax residency status - which can make or break a prolonged employment negotiation, efforts to obtain immigration visas and relocation packages expensed for such entry.

Misinformation or omitting important information about applicable tax rates can lead to grounds for dispute for breach of contract and form grounds for termination. Each case will depend on the situation at hand, but generally, HR teams locally will have the duty of disclosure since they are most likely to know about these requirements.

Our website and its contents are provided for general information purposes only and nothing on this website or in its contents is intended to provide professional advice. Please contact us at info@migratesafe.org or +6082-295175 for more information.