Employment income generally covers numerous aspects of remuneration that includes benefits for individuals exercising or employed in Malaysia. Thus, the income is subjected to Malaysian tax regardless of whether it is paid in Malaysia or outside of the country. However, expatriates in Malaysia are subjected to receive compensation.
Expatriates foreign location allowance and base salary is deductible. The individuals’ employer rent contribution is also tax-free but however is limited to only lower actual rental paid out for the bare accommodation or 30 percent of gross remuneration.
Besides that, amount allocated for children’s tuition fees and reimbursement provided to the individuals for home country taxes is exempted. Individuals are also exempted from the use of company’s car and domestic helper. However, the reimbursement of moving allowances is not taxable while moving allowance for unsubstantiated expenses is taxable.
Among other compensations are that entertainment allowance is exempted for an employee but is limited to the amount of allowance. Furthermore, pension compensations paid to the employee are taxable provided it is within the time frame when the employee receives it.
The benefit funding provided by Employee Stock Option Scheme (ESOS) to an employee will be taxable when the options are exercised. According to the old tax treatment, the benefit is the same between the market value of the shares when it is granted and the option price. How do they determine the market value? The market value of the listed shares is determined by standardizing the lowest and highest shares’ market value.
Tax treatment on the share scheme has been amended during the assessment in the year 2006. The new tax treatment states that the benefit by ESOS will be taxed starting in the year the act is exercised, acquired and considered as income in the very same year. However, the government has provided options for employees who have been practicing ESOS options before 2006 whether to apply for the old tax treatment. The taxable of benefit is based on several methods that are the shares market value or option is first exercisable.
Expatriates working in Malaysia also received special consideration from the government. For example, expatriates working in Labuan under an offshore company in a managerial capacity are entitled to a 50 percent of exemption from the total income beginning from the year of assessment that is 2005 till 2010.
Effective from 2003, expatriates are also exempted from income tax payments that are supposedly deducted from their income provided it is approved by operational headquarters as well as regional office. These expatriates are only subjected to an amount of tax imposed based on the number of days in Malaysia or number of days spent out of the country for social visits purposes.
Starting from the year assessment of 2008, income tax treatment for expatriates working in International Procurement Centers (IPC) and Regional Distribution Centers (RDC) is updated for Operational Headquarters and Regional Offices. As mentioned above, expatriates only have to settle a specific amount of tax as imposed by the government based on the number of days of employment.
Furthermore, according to the new tax treatment, income received by an expatriate for his or her position as director of the offshore company is tax-free starting from the year of assessment that is, 2007 till 2010. Government has also imposed that non-resident individual cum non Malaysian citizen who has participated in Malaysian Technical Co-operation Programme (MCTP) are exempted from tax. MCTP refers to a technical co-operation programme as approved by Economic Planning Unit Prime Minister’s Department of Malaysia.
Moreover, individuals working abroad as well as receiving salary abroad do not have to settle tax unless the salary is supplementary to Malaysian employment.