Malaysian Tax

The cost of living in Malaysia is exceptionally low and Malaysia has a tax regime that is most welcoming to foreigners. Everyone should be tax resident somewhere and where better than a tax friendly country? Possessions imported for personal use when retiring to Malaysia are exempt from tax and foreigners cantake advantage of many Malaysian tax benefits.

Once a retiree moving to Malaysia has been out of the UK for the prescribed period, then offshore investments become free of UK tax and are not taxed by the Malaysian tax authorities either. Several retirees have calculated that their living expenses within Malaysia are far less then their tax savings making it, in effect, cost free to live there. Put simply, for a foreigner no tax is charged on any income derived outside of Malaysia. Interest on any number of fixed deposits of RM100,000 (£14,300) or less, held in a Malaysian registered bank is also tax free. The current rate for a fixed deposit of 12 months is 3.7 per cent, and in certain banks the interest can be paid monthly. There is no inheritance tax and no capital gains tax on assets even on Malaysian property. Capital gains tax on the sale of property in Malaysia, owned for less than five years used to be charged at up to 30 per cent, but Real Property Gains Tax on Malaysian property was abolished in 2007.

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There is no VAT, but there is a Government Sales Tax (GST) of five per cent on hotel and restaurant bills and on professional bills such as lawyers’ bills. One could, for example, become a Malaysian tax payer if income is obtained from rental earnings in Malaysia or from royalties on published works in Malaysia. However, there are many allowances which greatly reduce such tax liability.

Income Tax in Malaysia

Income tax is imposed on income earned from investments in local companies and the local share market. Apart from this, gains from the sale of landed property are also subjected to real property gains tax - but after 5 years tenure this drops to only 5%.

Interest earned by an individual from fixed deposit accounts is exempted from tax in the following situations:-

i) Period exceeding twelve months or more – any amount of interest.
ii) Period not exceeding twelve months – interest on fixed deposit account of up to a maximum of RM100,000.

Before the 2004 tax year income remitted from abroad to Malaysia (apart from pensions) was subject to tax. However from the 2004 tax year all income remitted from abroad is not subject to Malaysian tax.Income earned in Malaysia is only taxable after taking into account the personal tax allowances which - like the UK are announced by the Inland Revenue every year. If you live in a country which has a `double taxation agreement’ with Malaysia and under the rules in your country your pension or other income will not be taxed if (for example) you are outside the country for (say) at least 184 days, your income can effectively be tax free because pension money remitted to Malaysia is specifically exempted from tax.

Import Duty and Car Tax in Malaysia

Used personal and household effects brought to Malaysia from your country of domicile is not subject to tax. However you must declare the items at the point of entry into the country.

The Malaysia My Second Home (MM2H) participant may import one motorcar which belongs to him/her from his/her country of citizenship or where he/she last domiciled. He/she will be exempted from paying import duty, excise duty and sales tax on the imported motorcar.

Or:

The MM2H participant may purchase one new motorcar made or assembled in Malaysia. He/she will be exempted from paying excise duty and sales tax on the new motorcar.

2007 Tax Rates

Corporation Tax is 20% for the first 500,000 RM so it is possible to use a personal services company to keep the top rate of tax in Malaysia to 20% effectively - this is also a good strategy as business expenses are deductible.

Employee Provident Fund payments (EPF) of 12% are not obligatory for expatriates.