Understanding the tax system in Malaysia is crucial for businesses looking to establish operations or manage a workforce in the country. Whether utilizing EOR (Employer of Record) or PEO (Professional Employer Organization) services, familiarity with Malaysia’s tax structure ensures smooth operations and compliance with local regulations. This guide offers an overview of key taxes that employers and employees must understand when operating in Malaysia.
Key Taxes in Malaysia for Employers and Employees
1. Corporate Income Tax (CIT)
Corporate Income Tax (CIT) applies to both domestic and foreign companies conducting business in Malaysia. The rate is generally flat, though reduced rates are available for SMEs.
Tax Rate | Applicable To |
|---|---|
24% | General corporate income tax rate for resident and non-resident companies |
17% | Applicable to SMEs with annual income not exceeding MYR 600,000 |
Outcome: Companies must ensure compliance with Malaysia’s CIT regulations, while SMEs should explore the preferential rate.
2. Individual Income Tax (Personal Income Tax – PIT)
Malaysia operates a progressive personal income tax system for residents. Non-residents, however, are taxed at a flat rate of 30% on income earned within Malaysia.
Income Bracket (MYR/year) | Tax Rate |
|---|---|
0 – 5,000 | 0% |
5,001 – 20,000 | 1% |
20,001 – 35,000 | 3% |
35,001 – 50,000 | 8% |
50,001 – 70,000 | 13% |
70,001 – 100,000 | 21% |
100,001 – 250,000 | 24% |
250,001 – 400,000 | 25% |
400,001 – 600,000 | 26% |
600,001 – 1,000,000 | 28% |
Above 1,000,000 | 30% |
Outcome: Employers are responsible for withholding the correct amount of tax based on the employee’s income bracket.
3. Sales and Service Tax (SST)
Malaysia reintroduced the Sales and Service Tax (SST) in 2018 to replace the Goods and Services Tax (GST). SST comprises two parts: a sales tax and a service tax.
Tax Type | Rate | Applicable To |
|---|---|---|
Sales Tax | 5%-10% | Applied to the sale of goods by manufacturers |
Service Tax | 6% | Applied to specific services (e.g., hotels, restaurants, and telecommunications) |
As of 2024, the service tax was raised to 8% for certain industries such as logistics services, but exempted others like food and beverage
Outcome: Businesses providing goods or services subject to SST must ensure they register, file, and pay SST in accordance with Malaysian tax laws.
4. Social Security Contributions (SOCSO and EPF)
Employers are required to contribute to the Social Security Organization (SOCSO) and the Employees Provident Fund (EPF) on behalf of their employees.
Contribution Type | Employer Rate | Employee Rate |
|---|---|---|
SOCSO (Social Security) | 1.75% | 0.5% |
EPF (Retirement Savings) | 12-13% | 11% |
SOCSO covers medical care, work-related injuries, and disability benefits.
EPF is a compulsory savings plan aimed at ensuring financial security post-retirement.
Outcome: Employers must manage both SOCSO and EPF contributions to remain compliant and ensure employees are covered.
5. Value-Added Tax (VAT) / Goods and Services Tax (GST)
Although Malaysia no longer imposes GST, discussions surrounding its potential reintroduction have been ongoing. The current system relies on SST, but there could be changes in the near future.
6. Withholding Tax
Non-residents are subject to withholding tax on certain types of income, such as royalties, interest, and dividends.
Tax Type | Rate |
|---|---|
Dividends | Exempt (No withholding tax on dividends) |
Royalties | 10% |
Interest | 15% |
Outcome: Companies making cross-border payments must withhold the correct amount of tax and take advantage of tax treaties to minimize withholding rates.
Tax Filing and Compliance Obligations in Malaysia
Companies and employees in Malaysia must comply with strict tax filing and payment deadlines. Some of the key filing requirements include:
Tax Type | Filing Requirement |
|---|---|
Corporate Income Tax (CIT) | Annual filing, usually by April 30 for companies |
Individual Income Tax (PIT) | Filed by April 30 each year |
SST | Filed bi-monthly |
SOCSO and EPF | Filed monthly |
Outcome: Ensuring timely and accurate tax filings is crucial for avoiding penalties and maintaining good standing with the tax authorities.
Tax Residency in Malaysia
Corporate Residency: Companies are considered tax residents if their management and control are exercised in Malaysia.
Individual Residency: Individuals are tax residents if they spend 183 days or more in a calendar year in Malaysia.
Outcome: Correctly determining residency status is vital for businesses to avoid double taxation and ensure compliance with local tax laws.
Tax Incentives for Employers in Malaysia
Malaysia offers several tax incentives to attract foreign investment and promote growth in key sectors.
Incentive Type | Description |
|---|---|
Pioneer Status | Income tax exemption for up to 10 years for companies in promoted industries (e.g., manufacturing, tourism) |
Investment Tax Allowance (ITA) | Available for certain capital investments in designated areas |
Reinvestment Allowance | For companies expanding or modernizing existing operations, with up to 60% tax exemption on reinvested profits |
Outcome: Businesses should explore these incentives to optimize their tax liabilities and drive growth.
Managing Malaysian Taxes with EOR/PEO Services
EOR and PEO services, such as GlobainePEO, streamline tax compliance for foreign companies operating in Malaysia. They handle payroll taxes, social security contributions, and ensure adherence to Malaysia’s complex tax regulations, reducing the administrative burden.
GlobainePEO – Your Partner in Malaysian Tax Compliance
At GlobainePEO, we specialize in helping businesses navigate Malaysia’s tax system, ensuring compliance with corporate income tax, payroll, VAT, and more. Our experts handle the complexities of Malaysia’s tax regulations so that you can focus on growing your business in this dynamic market.