mwka online talk - am i a tax resident in malaysia?
TRANSCRIPT
Am I a Tax Resident in Malaysia?MWKA ONLINE TALKS
SpeakerCHRISTINE TOHPartner
Moderator CAROLYN NGPupil in Chambers
Wed 1 Sept 20213:00pm (GMT +8)
mwka.com/talks
Am I a Tax Resident in Malaysia?MWKA ONLINE TALKS
SpeakerCHRISTINE TOHPartner
Moderator CAROLYN NGPupil in Chambers
Wed 1 Sept 20213:00pm (GMT +8)
mwka.com/talks
About Us
● Welcome to MahWengKwai & Associates!
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● Established in 1985 by Dato’ Mah Weng Kwai, now a consultant with the firm.
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● Partner in Dispute Resolution department in MahWengKwai & Associates.
● A member of the Association of Chartered Certified Accountants, certified Adjudicator and empanelled with the Asian International Arbitration Centre.
● Areas in practice include construction, adjudication, arbitration & litigation, taxation, family law and contractual disputes.
Christine Toh
● Overview of the Income Tax Act 1967
● Understanding tax residency in Malaysia
● Income tax rates for residents vs non-residents
Talk Points
Overview of the Income Tax Act 1967
● The Income Tax Act is the main source governing the income tax system in Malaysia
● Introduced during the British colonization period to legitimize collection of taxes from individuals and corporations
● Based on a self-assessment system since 2001
○ Taxpayers are answerable to the tax authorities in case of a tax audit.
● All income accrued in, derived from, or remitted to Malaysia is liable to tax.
History of the Income Tax Act 1967
● Individual
○ Personal Income Tax
● Company
○ Corporate Tax
○ Withholding Tax
● Others
○ Sales and Service Tax
○ RPGT
Types of Tax
Understanding tax residency in Malaysia
Am I a Tax Resident?
Photo by The New York Public Library on Unsplash
● Basic test is contained in Section 7 of the Insolvency Act 1967
● Based on physical presence in Malaysia, not by nationality or citizenship:
○ Longer than 182 days in a tax year;
○ Less than 182 days and resident in the country for 182 consecutive days linked, immediately preceding or following the tax year;
○ 90 days or more in the current tax year and 90 days in 3 of the past 4 years; or
○ Will be a resident in Malaysia in the year following and has been a resident in Malaysia in the 3 years preceding the one being taxed.
Individual Tax Residency
Mary is from the UK. The details of her journeys between UK and Malaysia are as follows:
1.2.2021 to 12.4.2021 (70 days) … Malaysia
13.4.2021 to 2.7.2021 (80 days) … UK
3.7.2021 to 24.10.2021 (113 days) … Malaysia
25.10.2021 to 31.12.2021 (67 days) … UK
Is Mary a tax resident in Malaysia for YA 2021?
Example of Tax Residency - s7(1)(a)
182 days can be continuous or a collective period:
182 continuous days
365 days
70 days 100 days 12 days
365 days
Answer: Mary is a tax resident in Malaysia for YA 2021
Example of Tax Residency
● “Temporary absence” - relaxation on the rule of 182 days
● Allowed where:
○ Absence which is connected with the individuals service in Malaysia - examples: conferences, seminars or study abroad
○ Absence owing to ill-health involving the individual or a member of his immediate family
○ Absence in respect of social visits not exceeding 14 days in the aggregate - including vacations to the individual’s home country
S7(1)(b) ITA
Mary is from the UK. The details of her journeys between UK and Malaysia are as follows:
1.12.2021 to 22.12.2021 (Short Period) … Malaysia
23.12.2021 to 7.1.2022 (Temporary absence) … UK
8.1.2022 to 8.9.22 (Long Period) … Malaysia
Is Mary a tax resident in Malaysia for YA 2021?
Example of Tax Residency - s7(1)(b)
● The number of days in 2021 is linked to 2022● Provided that the temporary absence falls within the
ambit of proviso in s7(1)(b)● there is at least 182 days consecutive days in 2022 (long
period in 2022)● Mary was in Malaysia immediately after prior and after the
temporary absence
Answer: Mary is a tax resident in Malaysia for YA 2021
Example of Tax Residency - s7(1)(b)
Mary is from the UK. The details of her time in Malaysia is as follows:
2017 … 234 days
2018 … 151 days
2019 … 31 days
2020 … 153 days
2021 … 120 days
Is Mary a tax resident in Malaysia for the year 2021?
Example of Tax Residency - s7(1)(c)
● There is a minimum period of 90 days in year 2021; and ● Three out of four of the immediate preceding years
satisfied either○ Resident in Malaysia (basis year 2017 and 2018); or ○ Has a minimum period of 90 days (basis year 2020)
Answer: Mary is a tax resident in Malaysia for YA 2021
Example of Tax Residency - s7(1)(c)
Mary is from the UK. The details of her journeys between UK and Malaysia are as follows:
2017 … Malaysia
2018 … Malaysia
2019 … Malaysia
2020 ?
2021 … Malaysia
Is Mary a tax resident in Malaysia for YA 2020?
Example of Tax Residency - s7(1)(d)
● s7(1)(d) - need not be physically present in Malaysia in 2020
● As long as the 2 conditions under s7(1)(d) has been satisfied
Answer: Mary is a tax resident in Malaysia for YA 2020
Example of Tax Residency - s7(1)(d)
● Section 8 of ITA
○ a Hindu joint family resident for a year of assessment and manager or karta is resident for the basis year
○ A company or a body of persons carrying on a business for the basis of a year of assessment if at any time during the basis year the management and control of the business is exercised in Malaysia
○ A company or a body of persons in Malaysia for the basis year if at any time during the basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority
Residence Status of Company
● PR9/2019 dated 6.12.2019
● “Management and control” is the main factor considered:
○ Controlling authority which determines the policies to be followed by the company
○ Considered to be exercised where the directors meet to conduct business affairs, regardless of location of incorporation
Residence Status of Company
Examples
Examples
Residence vs Non-Residence (Individual)
● Imposed on income earned in Malaysia or received in Malaysia on a scale rate
● Imposed on both tax residents and non-residents in certain circumstances
Personal Income Tax
Source: Inland Revenue Board (http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=1&bt_posi=2&bt_unit=5000&bt_sequ=11)
Personal Income Tax - Tax Rates
● Tax Rates
○ Tax Resident = scale of 0-28% (Flat rate of 30% if chargeable income exceed RM2m)
○ Non Resident (Business/trade/profession)
■ YA 2016 to YA 2019 - Flat rate of 28%
■ YA 2020 to YA 2021 - Flat rate of 30%
● Tax Residents are entitled to personal reliefs such as wife reliefs, child reliefs etc
● Tax Residents are entitled to a rebate of RM350 if their chargeable income does not exceed RM35,000
Advantages of Tax Residency
● Tax Residents are exempted from tax payment on royalties from literary or artistic works, income from cultural performance approved by the Minister of Culture Arts and Tourism
Advantages of Tax Residency
Source: Inland Revenue Board (http://www.hasil.gov.my/bt_goindex.php?bt_kump=5&bt_skum=1&bt_posi=2&bt_unit=1&bt_sequ=1&bt_lgv=2)
Tax Rates for Non Residents
(
● Apply for Certificate of Residence in Malaysia
● Application can be made through:
○ Online portal, e-Residence; or
○ At any Inland Revenue Board of Malaysia branch
● Important records: certified true copy of passport, list of entries/exits, copy of departure flight tickets, confirmation by employer on the period of employment and other supporting documents
Application for Tax Residency
Exemptions for Non-Residents
Photo by Kelly Sikkema on Unsplash
● Income of a non-resident individual is tax exempt if derived from an employment exercised by him in Malaysia for:
○ A period which does not exceed 60 days in a year of assessment;
○ A continuous period (not exceeding 60 days) which overlaps 2 successive years of assessment;
○ A continuous period (not exceeding 60 days) which overlaps 2 successive years of assessment and for a period or periods which together with that continuous period do not exceed 60 days.
Exemptions
Philip is from the Philippines. The details of his journeys between the Philippines and Malaysia are as follows:
1.2.2020 to 12.4.2020 (11 days) … Malaysia
13.4.2020 to 2.7.2021 … Philippines
3.7.2021 to 24.10.2021 (40 days) … Malaysia
25.10.2021 to 31.12.2021 … Philippines
Does Philip need to pay tax at the non-resident rate in Malaysia?
Example of Tax Exemption
Answer:
Philip’s employment income for Y/A 2021 is tax exempt as he is not physically present in Malaysia for a period:
● exceeding 60 days in a year of assessment; OR ● exceeding 60 days which overlaps the basis years of 2
successive years of assessment
Example of Tax Exemption
● Non-Residents are not taxable if:
○ Employed in Malaysia for less than 60 days;
○ Employed on board a Malaysian ship;
○ Age 55 years old and receiving pension from Malaysian employment;
○ Receiving interest from banks; or
○ Receiving tax exempt dividends
Exemptions for Non-Residents
Residence vs Non-Residence (Individual)
● Corporate Tax rates for Resident Companies:
○ Flat rate of 24%
● Corporate Tax rates for Resident Companies (SME-Paid up capital less than RM2.5m):
○ First RM600,000 - 17%
○ Amount in excess of RM600,000 - 24%
● Corporate Tax rates for Non-Resident Companies:
○ Flat rate of 24%
Corporate Tax
Distinction between resident and non-resident company
Residence Status of Company
Resident Company Non-Resident Company
Income accrued/derived in Malaysia Income accrued/derived in Malaysia
Business Income is taxable if it’s deemed to be derived in Malaysia
Business Income is taxable if through a PE/Business presence in Malaysia
Incentives available (example: tax exemptions, allowances to enhanced tax deduction)
No incentives available
Tax rate: 24% Tax rate: 24%
● Section 107A ITA 1967:
○ The payer is required to withhold tax on payments for services rendered/technical advice/rental or other payments made to non-resident payees.
○ “Payer” - Body carrying on business in Malaysia;
○ “Payee” - Non-Resident Individual/Body who receives payment by the Payer
Withholding Tax
Responsibility of a Taxpayer
● Declare, calculate their own tax, submit the Return Form and pay tax
● Foreign nationals working in Malaysia are liable to tax under Malaysian domestic laws in respect to employment income derived in Malaysia.
Responsibilities of a Taxpayer
● Registration of company’s tax file by the individual who manages and operates the company
● Registration can be done online, through e-Daftar or physically at any IRB Branch
Responsibilities of a Company
Local Company - Private Limited - Limited Company
1. Notice of Registration of company 2. Certificate of Incorporation of
Company
Foreign Company 1. Notice of Registration of foreign company
2. Particulars of Change or Alteration relating to foreign companies
Types of Offences
● Important to self-educate on the necessary requirements of a taxpayer, whether as a corporate organisation or individual
Conclusion
Questions?
Date Topic Speakers
15 Sept 2021 (Wednesday)
The Do’s and Don’ts of Retrenchment Jasmine Wong & Naveen Joshua
22 Sept 2021 (Wednesday)
Resolving Disputes in Administration of Estates
Prisilla Chong & Fung Kar Men
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Thank you!
Notice: This presentation does not constitute legal advice and its contents should not
be relied upon as such. The facts and circumstances of each and every case will differ
and therefore will require specific legal advice. Feel free to contact us for
complimentary legal consultation.
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