Malaysia is ranked first in CEOWORLD Magazine’s “World’s Best Countries to Invest in or Do Business for 2019” and The Global Competitiveness Report 2019-2020 released by the World Economic Forum ranked Malaysia 25th out of 140 countries. With its advantageous geographical location near major Asia Pacific economies and the young, multi-lingual and educated workforce, Malaysia serves as a cost-effective gateway for businesses to enter the Asia markets.
There are quite a number of things to look out for when doing business in Malaysia and taxation is among one of the most determining factors when deciding to start a new operation. Therefore, it is of fundamental importance for an employer to understand the tax obligations and taxation system where the business is.
As a leading recruitment and HR Outsourcing services provider in Asia, we understand it can get overwhelming getting to know the local business practice, laws and regulations. To help employers and HR leaders grasp the basics of taxation in Malaysia, Links has put together some essentials of what you need to know about Malaysia’s tax rates for corporate and individual income as well as basic obligations such as contributing to EPF in Malaysia.
Tax Obligations as An Employer in Malaysia
As an employer in Malaysia, one must follow and comply with a number of tax-related procedures and processes. Tax obligations of employers in Malaysia include:
- Tax File Registration
- Paying EPF contributions
- Deduct monthly tax deduction (MTD) from employee remuneration
Tax File Registration
New companies are required to obtain a tax reference number by registering their tax files with LHDN (Inland Revenue Board of Malaysia). The application can be submitted via e-Daftar.
Deduct MTD from Employee Remuneration
Employers are required to withhold the monthly tax deductions (MTD) from the employee’s monthly remuneration and submit the payment and tax return to the Inland Revenue Board of Malaysia no later than the 15th of each calendar month.
Employees Provident Fund (EPF)
Employers are responsible for paying EPF contributions for their employees. The monthly contribution to EPF in Malaysia consists of two shares: the employer’s share and the employee’s share. The employer must ensure the employee’s share is deducted accurately from the said employee’s monthly salary and remitted to EPF, along with the employer’s share, on or before the 15th of the contribution month.
According to the EPF Act 1991, every employee and every employer of a person who is an employee within the meaning of this Act shall be liable to pay monthly contributions on the amount of wages at the rate respectively set out in The Third Schedule. The Third Schedule states the latest contribution rate employees and employers are liable for and employers should calculate the contribution amounts in accordance with the schedule. The below tables only show the approximate rates of mandatory contribution rates. In the case where an employee’s monthly salary exceeds RM20,000, employers should calculate the contribution amount based on the exact percentages stated below instead of the Third Schedule.
Both the employer and employee can choose to voluntarily increase the contribution rate.
Need help with payroll processes or learn more on EPF in Malaysia? Get in touch with one of our representatives today for a one-on-one consultation. Links’ HR Outsourcing takes care of your payroll, PEO/EOR and HR needs so you can focus on strategic business activities that nurture business growth!
Mandatory EPF Contribution Rates (Below 60 years old)
|Malaysians, Permanent Residents or Non-Malaysians (registered as members before 1 Aug 1998) with a monthly salary of RM5,000 or below
|Malaysians, Permanent Residents or Non-Malaysians (registered as members before 1 Aug 1998) with a monthly salary of over RM5,000
|Non-Malaysians (registered as members from 1 August 1998)
Mandatory EPF Contribution Rates (Age 60 or above)
|Permanent Residents or Non-Malaysians )registered as members before 1 Aug 1998) with a monthly salary of RM5,000 or below
|Permanent Residents or Non-Malaysians (registered as members before 1 Aug 1998) with a monthly salary of over RM5,000
|Non-Malaysians (registered as members from 1 August 1998)
Malaysia Corporate Tax Rates
As of 2019, the standard corporate tax rate in Malaysia is 24% on taxable income. Resident companies with a paid-up capital not exceeding RM2.5million can enjoy a lower rate at 17% for the first RM500,000 and the subsequent balance at 24%. Non-resident companies, regardless of their paid-up capital, are charged at the standard rate.
A company is considered a tax resident in Malaysia if its control and management of its operation are carried out in Malaysia. Resident and non-resident companies are taxed in the same manner on income accrued in or derived from Malaysia except companies engaged in certain industries or business operations such as:
- Resident companies in banking, insurance, shipping and air transport are taxed on their worldwide income.
- Businesses engaged in petroleum upstream operations are subject to Petroleum Income Tax imposed at a rate of 38%.
Employees’ Individual Income Tax
As an employer, it is important, and a responsibility, to understand and facilitate your employee’s tax obligations in addition to your own.
Any individual earning an annual income of RM34,000 or more after the deduction of EPF has to register a tax file. Individual income tax is levied at a progressive scale for resident taxpayers that ranges from 0% to 28% on taxable income, while non-residents are taxed at a flat rate of 28%. An individual is considered a non-resident under the Malaysian law if he/she has a domicile or resided in Malaysia less than 182 days per year.
Got a new business in Malaysia? Links International is an award-winning recruitment and HR Outsourcing partner in Asia that offers professional in-country support for a diverse client base. Our teams of specialists provide support for your HR functions as well as recruitment services including employer branding and recruiter on demand.