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Tax Structure in Malaysia

All earnings of companies and individuals accumulated in, derived from or remitted to Malaysia are liable to tax. In addition to income tax, there are direct taxes like real property gains tax and indirect taxes sales tax, service tax, import duty, and excise duty.

Sources of earnings which are liable to income tax are:

  • Profits from trade, business, and profession
  • Remuneration and profits from an employment
  • Interest, dividends or discounts
  • Rents, royalties or premiums
  • Pensions, annuities or other periodic payments
  • Other profits of an income nature not stated above
Chargeable income is calculated after adjusting for expenses incurred fully and exclusively in the production of the income. Definite provisions for anticipated losses or group liabilities are not tax deductible. Unabsorbed losses may be carried forward for an indefinite period to balance against future income.
Taxes in Malaysia
Company Tax
A company, whether resident or otherwise, is measurable on income accumulated in or derived from Malaysia. Income from sources outside Malaysia and remitted by a resident company is not taxable, except in case of banking and insurance business and sea and air transport enterprises. A firm is deemed a resident of the control and management of the affairs are put into effect in Malaysia. Places of control and management are considered based on where conferences of Board of Directors are held.
Personal Income Tax
All individuals are liable to tax on income accrued in, derived from or remitted to Malaysia. The tax rate depends on the resident status of the individual determined by duration of the stay in the country.
Sales Tax
This tax is imposed at the import and manufacturing levels. Manufacturers are needed to be licensed under the Sales Tax Act 1972. Manufacturers whose annual sales turnover does not exceed RM 100,000 are exempt from licensing. These firms are taxed on the basis of their inputs. To lessen the load of small manufacturers from sales tax on their inputs, these firms can choose to be licensed under the Sales Tax Act 1972 to purchase tax-free inputs. Manufacturers will only have to pay sales tax on their finished products.
Service Tax
Service tax is imposed on certain goods and services provided in certain prescribed establishments. The goods comprise food, drink, and tobacco, while the chief services are proviso for premises for meetings, conventions, health services, consultancy services given by legal, engineering, accounting, advertising, and other firms, etc. At present hotels having more than 25 rooms and restaurants inside or outside hotels are subject to this tax. The tax foundation has been broadened to comprise services given by car rental agencies licensed under Commercial Vehicles Licensing Board Act, 1987 and having an annual sales turnover of RM 300,000 and above and employment having an annual sales turnover of RM 150,000 and above.

Last Updated on: 08-12-2009

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