UNDERSTANDING MALAYSIA TAX RATES

I. RESIDENT

A resident individual is an individual resident in Malaysia for a year of assessment, as stipulated under section 7 and subsection 7(1B) of the ITA 1967.

Criteria

An individual is regarded as a tax resident if he/she meets any of the following conditions:

• Had been in Malaysia for at least 182 days in a calendar year
• Had been in Malaysia for less than 182 days during the year (shorter period), but is linked to a period of a physical presence of 182 or more consecutive days, in the preceding or following year (longer period)
• Had been in Malaysia for 90 days or more during the year, and was or had resided in Malaysia for at least 90 days in any three (3) of the four (4) years immediately preceding
• A resident for the year immediately following that year and for each of the three (3) years immediately preceding

Note: Temporary absences from Malaysia due to the following reasons are counted as part of the consecutive days (mentioned under condition ‘b’), provided that the individual is in Malaysia before and after each temporary absence:

• business trips
• health/illness treatment
• social visits that do not exceed a period of 14 days

Tax Rates

Based on one's chargeable income, tax rates, ranging from 0% to 30%, are applied. The following tax rates are applicable to resident individuals for YA 2020.

Chargeable Income	Calculations (RM)	Rate %	Tax (RM)
0 - 5,000	On the first 5,000	0	0
5,001 - 20,000	On the first 5,000 Next 15,000	1	0 150
20,001 - 35,000	On the first 20,000 Next 15,000	3	150 450
35,001 - 50,000	On the first 35,000 Next 15,000	8	600 1,200
50,001 - 70,000	On the first 50,000 Next 20,000	14	1,800 2,800
70,001 - 100,000	On the first 70,000 Next 30,000	21	4,600 6,300
100,001 - 250,000	On the first 100,000 Next 150,000	24	10,900 36,000
250,001 - 400,000	On the first 250,000 Next 150,000	24.5	46,900 36,750
400,001 - 600,000	On the first 400,000 Next 200,000	25	83,650 50,000
600,001 - 1,000,000	On the first 600,000 Next 400,000	26	133,650 104,000
1,000,001 - 2,000,000	On the first 1,000,000 Next 1,000,000	28	237,650 280,000
>2,000,000	On the first 2,000,000 Next ringgit	30	517,650 TBD

Table 1: Tax Rates for Resident Individuals for YA 2020

Calculations

For example, your annual taxable income is RM 48,000.

Detailed calculation:

Annual taxable income = RM 48,000

First 35,000                  = RM 600 (Predetermined rate, refer to Table 1)

Next 15,000                  = 8% x Remaining income

     = 8% x (RM 48,000 - RM 35,000)

     = 8% x RM 13,000

     = RM 1,040

           Total income tax           = RM 600 + RM 1,040

                                                = RM 1,640

Based on your annual taxable income, you would have to pay RM 1,640 (at a rate of 8%) to the government.

However, if supposedly you had claimed RM 15,000 in tax deductions and tax reliefs, your chargeable income would be reduced to RM 33,000. This allows you to drop down a tax bracket, subsequently significantly lowering your tax rate from 8% to 3%.

Thus, it is crucial to understand what a chargeable income is. 

In simple terms, a chargeable income is your taxable income upon the subtraction of any tax deductions and tax relief.

P.