Malaysia’s individual income tax system is structured to be progressive, ensuring that tax obligations align with taxpayers’ financial capacities. Recent reforms, particularly those introduced in the 2025 Budget, aim to enhance equity and broaden the tax base.
1. Tax Rates and Residency Status
In Malaysia, tax rates for resident individuals range from 0% to 30%, applied progressively based on income levels. Non-resident individuals are subject to a flat tax rate of 30% on income earned within Malaysia. Residency status is determined by the duration of physical presence in the country; individuals present for 182 days or more in a tax year are considered residents.
2. Tax Reliefs and Deductions
To alleviate tax burdens and encourage beneficial expenditures, Malaysia offers various tax reliefs:
- Individual and Dependent Relatives: A standard relief of RM9,000 is available.
- Medical Expenses for Parents: Taxpayers can claim up to RM8,000 for medical treatments, special needs, and caregiver expenses for their parents, provided these are certified by medical practitioners.
- Education Fees (Self): A relief of up to RM7,000 is granted for fees related to acquiring qualifications at recognized institutions.
- Lifestyle Relief: Up to RM7,000 can be claimed for expenses on books, personal computers, sports equipment, and internet subscriptions.
- Insurance Premiums: Premiums paid for education and medical insurance for self, spouse, and children are eligible for relief up to RM4,000.
3. Dividend Income Tax
Starting from the Year of Assessment 2025, a 2% tax will be imposed on local dividend income exceeding RM100,000 received by individual shareholders, both resident and non-resident. This measure aims to create a more progressive tax structure and expand the tax base.
4. Filing Requirements
Individual taxpayers are required to file their income tax returns annually, typically by April 30th of the following year. The Inland Revenue Board of Malaysia (LHDN) provides an e-Filing system to facilitate this process.
Staying informed about current tax regulations and reliefs is crucial for effective tax planning and compliance. Consulting with tax professionals or referring to official resources can provide personalized guidance tailored to individual circumstances.
