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.
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.
Classes of income
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
Basis of assessment
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 2020 is
the year ending 31 December 2020. 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 2020 for a company which closes its
accounts on 30 June 2020 is the FY ending 30 June 2020. 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.