This is a promising thread that got narrowed down to taxation of interest on deposits, rather than the wider question of income tax liability of
MM2H members, posed in the first post, which may well deserve a place under Living in Malaysia on the Home page. (A search for "tax" gives numerous scattered posts addressing tax issues, with a lot of useful information.)
In any event, now that the hour approaches I spent a day looking at the tax consequences of the MM2H status, and am posting my take-aways (mainly to remind myself, but also for correction, where necessary, by more informed members).
1. Foreign income is not liable to tax in MalaysiaAt the end of the day, probably the only fact worth knowing is that under the Income Tax Act, 1967, the scope of income tax in Malaysia is restricted to income "
[1] accruing in or derived from Malaysia or [2] received in Malaysia from outside Malaysia". Moreover for some years the scope has been narrowed to only the first of these two items; the latest position results from the 2004 Budget, in which the exemption given until then to
income remitted into Malaysia by tax non-residents was widened to exempt
all foreign source income remitted to Malaysia (other than by a banking, insurance, or sea and air transport, company).
Consequently, today, MM2H members are liable to tax only on income
"accruing in or derived from" Malaysia. The consequent exclusion of foreign income and remittances should take care of most of our tax concerns; what remains (rest of this post) is relevant only to those who envisage non-negligible Malaysian source income (i.e. income that either arises in Malaysia, or is paid in Malaysia, or both).
2. The rates at which Malaysian source income is taxed depends on residence statusIn general, non-residents are taxed at (higher) flat rates and are not allowed any personal "deductions, relief, or rebate" while tax residents are taxed at (lower) graduated rates on taxable income after deductions.
Resident or non-resident status
for tax purposes has nothing to do with citizenship, or immigration status (or visa), but is determined solely with reference to the history of physical presence in Malaysia (according to rules that seem more complicated than consequential, due to exemptions, but I may be wrong). Residence (of individuals) is defined under
Section 7 of the Income Tax Act, 1967. The text of the Act is definitive, but not entirely clear; nor are several summaries available at official and unofficial websites (see links below). As I read it, it seems that after you get your MM2H visa, you remain a tax non-resident as long as you stay in Malaysia for less than 90 days every calendar year. However, you become a tax resident (for a specific year) if you are in any 1 of the following 4 situations:
1. The first time you stay in Malaysia for 182 days or more during a calendar year, you become a tax resident for that year. [Section 7(1)(a).]
2. Once a tax resident for 3 years, you will be tax resident for the 4th year (even if you aren't in Malaysia even for 1 day in that year), if you become tax resident in the 5th year. [Section 7(1)(d).]
3. Also,
if in any 3 of 4 years in a row you were
either a tax resident,
or were in Malaysia for 90 days or more,
then you are a tax resident in the 5th year. [Section 7(1)(c).]
4. Finally, for the most complicated criterion, you are a tax resident even if you are in Malaysia for only 1 day ("less than 182 days") in a year, but this 1 day can be "linked by or to" a period of 182 or more
consecutive days of stay in Malaysia in the preceding or following year, respectively. In this, temporary absence from Malaysia -- related to service or professional activities, to illness of the taxpayer or his immediate family member, or social visits of less than 14 days -- shall be counted as part of the 182 or more consecutive days. [Section 7(1)(b).]
CAUTION:
The language of the Act is definitive; my interpretations and paraphrases that seek to simplify could well be wrong. For other paraphrases, see:
Tax Booklet 2009/2010 [pdf] [Page 2];
Taxation of Foreign Nationals: Basic Principles;
MyMM2h Tax Page; among others.
3. The following income, among others, is exempt from tax:3.1 Interest Income1. Interest income accruing to
any person in respect of:
- any savings certificate issued by the government.
- Islamic securities originating from Malaysia, other than convertible loan stock issued in any currency other than Ringgit and approved by Securities Commission, or effective from Assessment Year 2010, by the Labuan Offshore FSA.
2. Interest (or discount) accruing to
any individual from:
- bonds or securities issued or guaranteed by the government.
- debentures or Islamic Securities, other than convertible loan stock, approved by the Securities Commission.
- Bon Simpanan Malaysia issued by the Central Bank of Malaysia.
3.
Interest (or bonus) accruing to a resident individual from:-
deposits in all institutions approved to take deposits.- Merdeka bonds issued by the Central Bank of Malaysia.
4. Interest income derived by
non-resident persons:
- from a bank or finance company licensed under the Banking and Financial Institutions Act, BAFIA, or the Islamic Banking Act of 1983, or any other institution approved by the Minister.
Note: Earlier, the interest exemptions on deposits were linked to value (under RM100,000), term (over 12 months), etc.; this no longer seems to be the case. Since banks withhold the tax, as pointed out by Megalink, the position should be readily verifiable by them.
3.2 Dividends1. Income of an approved unit trust where not less than 90% of its investment is in Government securities and the remainder is in commercial papers.
2. Dividends received by
resident individuals from an approved unit trust where not less than 90% of its investment is in Government securities and the remainder is in commercial papers.
3. Dividends paid, credited or distributed by Cooperative Societies to their members.
There are numerous other exemptions but this already long post does not aim to be comprehensive, by a long shot.4. Any individual who earns a Malaysian source income of RM 25,501 or more in any calendar year must register with the income tax authorities.The
Incentives/Tax page at the official MM2H website, links to a document,
Informing Inland Revenue Board (IRB) on Income Earned in Malaysia [pdf] that provides a good summary of the tax liability of MM2H participants, and states that:
If you are in receipt of income [derived from Malaysia], you must notify your chargeability to tax to the nearest tax office and request for the tax return form.
This probably needs to be qualified by the information on the
taxation of Individuals page at the official
Inland Revenue Board site:
An individual who earns an annual income of RM25,501 (after Employees Provident Fund, EPF, deduction) has to register (at the nearest IRBM branch, or via e-Daftar) and get an Income Tax reference number.
5. Obviously, there is much more that could be added to this topic--capital gains on sale of shares, real estate, double taxation, etc.--but this is as far as I got as a first shot!I am posting this mostly as an aid to memory but hope that others may find it useful, especially to correct any errors, to comment, and to add to this topic.
ONLINE RESOURCESThe
Incentives/Tax page at the official MM2H website
Penang State Tourism Official Website (12 March 2009)
PWC eTax Library | Download their
2009/2010 Malaysian Tax and Business Booklet [pdf] [My main source for this post]
Inland Revenue Board of Malaysia [IRBM]IRBM Public Rulings
Topic: Income tax for MM2H residents (Read 1806 times)
August 29, 2009, 09:41:10 PM