Income tax in Malaysia is imposed on income accruing in or derived from Malaysia except for income of a resident company carrying on a business of air / sea transport, banking or insurance, which is assessable on a world income scope. Income that is attributable to a place of business (as defined) in Malaysia is also deemed derived from Malaysia. With effect from (W.e.f.) 1 January 2022, income derived from outside Malaysia and received in Malaysia by tax residents will be subject to tax.
Income attributable to a Labuan business activity of a Labuan entity including the branch or subsidiary of a Malaysian bank in Labuan is subject to tax under the Labuan Business Activity Tax Act 1990 (LBATA). A preferential tax rate of 3% will apply to the Labuan entity on its net profits from Labuan business activities if it meets the substantial activity requirements, otherwise it will be subject to a tax rate of 24% on its net profits. A Labuan entity can make an irrevocable election to be taxed under the Income Tax Act 1967 in respect of its Labuan business activity.
Income tax is chargeable on the following classes of income:
a) gains or profits from a business;
b) gains or profits from an employment;
c) dividends, interest or discounts;
d) rents, royalties or premium;
e) pensions, annuities or other periodical payments not falling under any of the foregoing classes;
f) gains or profits not falling under any of the foregoing classes.
Income is assessed on a current year basis. The year of assessment (YA) is the year coinciding with the calendar year, for example, the YA 2021 is the year ending 31 December 2021. The basis period for a company, co-operative or trust body is normally the financial year (FY) ending in that particular YA. For example the basis period for the YA 2021 for a company which closes its accounts on 30 June 2021 is the FY ending 30 June 2021. All income of persons other than a company, limited liability partnership, co-operative or trust body, are assessed on a calendar year basis.
Malaysia adopts a self-assessment system which means that the responsibility to determine the correct tax liability lies with the taxpayer.
- Public rulings
- Private rulings or advance rulings
- Guidelines issued by the IRB
- Decided tax cases
- Other written evidence
Application for relief can be made to the Director General of Inland Revenue (DGIR) for tax returns which are incorrect due to the following reasons:
Reasons |
Time frame |
Error or mistake made by the taxpayer. |
In cases involving overpayment of tax for a YA, within 5 years from the end of that YA. In cases where there is no tax liability for a YA, within 6 months from the date the return is furnished. |
Exemption, relief, remission, allowance or deduction granted for that YA under the Income Tax Act 1967 or any other written law published in the Gazette after the YA in which the return is furnished. |
Within 5 years after the end of the year the exemption, relief, remission, allowance or deduction is published in the Gazette. |
Approval for exemption, relief, remission, allowance or deduction is granted after the YA in which the return is furnished. |
Within 5 years after the end of the year the exemption, relief, remission, allowance or deduction is approved. |
Tax deduction not claimed in respect of expenditure incurred that is subject to withholding tax which is not due to be paid on the day the return is furnished. |
Within 1 year after the end of the year the payment of withholding tax is made. |
Offences under the Income Tax Act 1967 and the penalties thereof include the following:
Offences |
Penalties |
Failure to furnish Income Tax Return |
RM200 to RM20,000 or imprisonment or both [on conviction]; or 300% of tax payable [in lieu of prosecution] |
Failure to furnish Income Tax Return for 2 YAs or more |
RM1,000 to RM20,000 or imprisonment or both, and 300% of tax liability [on conviction]; or 300% of tax payable [in lieu of prosecution] |
Make an incorrect tax return by omitting or understating any income, or providing incorrect information |
RM1,000 to RM10,000 and 200% of tax undercharged [on conviction]; or 100% of tax undercharged [in lieu of prosecution] |
Wilfully and intentionally evade tax or assist any other person to evade tax |
RM1,000 to RM20,000 or imprisonment or both and 300% of tax undercharged [upon conviction] |
Attempt to leave the country without payment of tax |
RM200 to RM20,000 or imprisonment or both [on conviction] |
Late payment of tax liability under an assessment for a YA |
10% of tax payable |
Late payment of tax instalment |
10% of outstanding tax instalment amount |
Underestimation of tax estimate for a YA by more than 30% of actual tax payable |
10% of the difference exceeding 30% of the actual tax payable |
Failure to furnish Country-by-Country Report (CbCR) |
RM20,000 to RM100,000 or imprisonment or both [on conviction] |
Incorrect return or information for Mutual Administrative Assistance Arrangement and for CbCR |
RM20,000 to RM100,000 or imprisonment or both [on conviction] |
Failure to furnish transfer pricing documentation |
RM20,000 to RM100,000 or imprisonment or both [on conviction]; or RM20,000 to RM100,000 [in lieu of prosecution] |
Failure to comply with IRB’s request for taxpayer’s bank account information for purposes of garnishee order (w.e.f 1 January 2022) | RM200 to RM20,000 or imprisonment or both [on conviction] |
a) the arrangement is materially different from the arrangement stated in the advance ruling;
b) there was material omission or misrepresentation in, or in connection with the application of the ruling;
c) the assumptions made by DGIR when issuing the advance ruling are subsequently proved to be incorrect; or
d) the taxpayer fails to satisfy any of the conditions stipulated by the DGIR.
TCC will be a prerequisite for taxpayers to tender for Government projects with effect from 1 January 2023.
It is proposed that the TIN is to be implemented effective from 1 January 2022. The TIN will be used for purposes of income tax, real property gains tax and stamp duty. The following persons will be required to have a TIN:
Persons who have been assigned a tax reference number on or before 1 January 2022 are deemed to have been assigned a TIN.
This publication is a quick reference guide outlining Malaysian tax information which is based on taxation laws and current practices. This booklet also incorporates in coloured italics the 2022 Malaysian Budget proposals based on the Budget 2022 announcement on 29 October 2021 and the Finance Bill 2021. These proposals will not become law until their enactment and may be amended in the course of their passage through Parliament.
This booklet is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax in specific circumstances. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by PricewaterhouseCoopers. Readers should not act on the basis of this publication without seeking professional advice.
Published by
PricewaterhouseCoopers Taxation Services Sdn Bhd (464731-M)
Level 10, 1 Sentral, Jalan Rakyat, Kuala Lumpur Sentral,
P.O. Box 10192, 50706 Kuala Lumpur, Malaysia
Tel: 03-21731188 Fax: 03-21731288