Guide On Personal Tax Filing For Expatriate Employed by Labuan Company
Expatriates receiving income (Director’s fee, salaries, allowances) from a Labuan Company is required to lodge their annual tax return with Malaysia Inland Revenue Board. Malaysia personal tax calendar is based on the period of 12 months from 1st Jan to 31st December each year. The due date for personal tax filing is 30th April annually. You may do filing online through Inland Revenue Board (IRB) website www.hasil.gov.my . For each calendar year, starting from 1st of March, the filing deadline can be extended to 15th May, subject to IRB’s discretion. IRB has the right access to your tax records and under the Income Tax’s law, all personal tax records are to be kept for a period of 7 years.
To simplify your year Personal Tax filing, kindly register the E-Filing Account with IRB, please click here!
The information required to register E-Filing is your passport and personal tax file number.
3 easy steps for your Personal Tax Filing
Step 1– to determine your status whether you are a Resident or Non-Resident.
a. Resident Status
An individual is regarded as a tax resident if he meets any of the following conditions, i.e. if he is:-
- Present in Malaysia for at least 182 days in the calendar year.
- Present < 182 days in the calendar year, but linked to a period of >182 consecutive days in the following/preceding calendar year, including brief temporary absences during that period.
- Present in Malaysia > 90 days in a year, and resident or present > 90 days in any three of the four immediately preceding years
- Resident in Malaysia in the following calendar year and 3 immediate preceding years.
If you meet the above conditions, you are entitled to claim personal tax reliefs and your taxable income (net of tax relief) be taxed at progressive tax rates (from 0 to 28%).
b. Non-Resident Status is not entitled to claim any tax reliefs and their Malaysian sourced income is taxed at a flat rate of 26%.if you stay in Malaysia less than 182 days during the year
Step 2 – for a resident status taxpayer, you need to determine your eligible rebates for the year based on the Personal Tax Relief Chart below. The chart is not applicable to the taxpayer of non-resident status.
Step 3 – to file your tax return online via www.hasil.gov.my. For the first time, please set up your account and if you are not sure how to do it, please visit nearest Inland Revenue Department for assistance.
We highlight a few expatriates’ profiles as an example for your better understanding of how the personal tax computation works. Below are the various example of tax computation for Labuan Company’s expatriates who stayed in Malaysia more than 182 days in a calendar year. He/she will be taxed under resident status as follows:
Under Labuan company, all Directors’ fee is non-taxable while expatriates employment is entitled to 50% tax rebate. The chart above clearly show the tax payable varies based on your profile in Labuan Company. For expatriates who stayed in Malaysia less than 182 days, you may want to opt your profile as Director for full tax exemption or pay a flat tax rate of 30%. Expatriates can apply for their Personal Tax Certificate from Inland Revenue Malaysia as a proof of their tax residence in Malaysia.
Different Tax Treatment between Income from Director’s Fee and Salary in Labuan
The differences between the Director’s fee and employment salary are as follows:
- Director is an appointed person who holds the directorship of the company who can opt to draw director fee and/or salary
- Salary usually refer to employees of the company
- Payment of Director fee is usually once or twice a year while salary payment is monthly.
All payments made for salaries or Director’s fees have to be reflected in the right category in the company’s financial accounts. All Labuan expatriates including directors holding work visas applied under their Labuan company will be assessed as salary payments. Minimum salary eligible for 2 years’ renewable work visa is RM10,000. Labuan directors can also declare Director’s fee which is not subjected to any income tax.
5 Steps to make the monthly payment for tax contribution for salary is as follows:
- Register Labuan Company for Employer File, “E” number with the Inland Revenue Board (IRB)
- Determine if the employee (foreign director/ expatriates/ locals) has the monthly income more than RM2,850 threshold for tax deduction eligibility
- Check tax rate deduction for your total income (salary, commission, allowances etc) as per PCB Contribution Tax Deduction Table
- Fill in the PCB 38 form
- Make payment to at any IRB branch/ designated bank before 15th of each month.
For a complete guide how to make the monthly tax payment, please refer to Guide to PCB Contribution. One practical advise for all expatriates is to engage the tax services of a local licensed tax agent, because most of the submission to IRB is conducted in local Malaysian language. Having a tax agent to do the work is hassle-free for you.
The above Guide On Personal Tax Filing For Expatriate Employed by Labuan Company will help you make a better decision. We encourage all our clients to either e-file their personal tax directly to inland revenue board, or to engage a local qualified licensed tax agent to do their tax filing. Please be informed that it is very important to submit your personal tax on time to avoid any penalty and fines. The deadline for submission is 30th April each year. Please keep in a file all payment receipts from IRB for 7 years. The payment records will be extremely useful as reference especially when you renew your Labuan work visa.
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