Who Should File Income Taxes in Malaysia? Your Top 12 Questions Answered
Congratulations! You've just landed your first job. As a new employee, it's essential to understand the obligations of earning an income, including paying your income tax. You may have questions about your tax obligations, such as who should file income tax and how to do so. Here's a list of frequently asked questions about filing income tax in Malaysia.
FAQ #1: What is income tax?
Income tax is a system of taxation imposed on the money you earn from your job, business, or other sources of income. It works progressively; in other words, the more you make, the higher percentage of your income you’ll pay in taxes. The tax system in Malaysia is territorial, meaning it only applies to income earned within Malaysia and is collected by the Inland Revenue Board of Malaysia, Lembaga Hasil Dalam Negeri (LHDN).
FAQ #2: Why should you file income tax?
Filing your income taxes is not the most exciting, but it's crucial. Firstly, it's a legal requirement, and failing to comply will result in hefty fines that can damage your finances. Secondly, you need your income tax to access financial services like applying for loans or mortgages. It acts as proof of income, which is necessary for assessing your creditworthiness. Lastly, filing your taxes is a responsible act of citizenship. Taxes collected from your income tax contribute to national development projects such as healthcare, education, and infrastructure. You contribute to the country's growth and development by filing your taxes.
FAQ #3: Who should file for income tax in Malaysia?
You'll need to pay taxes if you work in Malaysia and earn a yearly income of at least RM34,000 after your EPF deductions. EPF is a savings and retirement plan for employees in Malaysia.
As a non-resident individual, you'll need to pay a flat rate of 30% in taxes on your total taxable income. If you earn at least RM25,000 and are in a higher position, you'll pay only 15% in taxes for five years. However, under the PENJANA initiative, up to five non-resident employees per qualified company are limited.
If you do not fulfill the criteria of monthly tax deductions as final tax, you will still need to file your taxes if you meet the following:
- You've worked with more than one employer or changed employers during the year;
- You’ve worked less than twelve months;
- You have non-employment income; or,
- You want to claim a refund or deduction/rebate.
FAQ #4: How do you file income tax in Malaysia?
Filing your taxes in Malaysia is straightforward, and you can easily do it online. All you need to do is follow these steps:
- Sign up and make an account on the e-Daftar, also available on the MyTax website, to receive a tax reference number.
- Gather the necessary documents to verify your identity. You'll need to prepare your passport if you're a non-resident and your business registration certificate if you're a business owner.
- You can visit the LHDN office or their official website to obtain your PIN.
- Use your login details to access the myTax website and complete all the required sections before submitting your tax return online.
- Double-check all information is accurate before submitting.
You can also file your taxes manually. You'll need to go to any LHDN branches near you and bring the necessary documents for filing.
FAQ #5: When should you file for your income tax?
In Malaysia, tax season typically starts on March 1 each year. You need to submit your tax returns by April 30 (for manual submission) or May 15 (for e-Filing). Early filing is advisable to allow sufficient time for review and adjustments. Late payment may result in a penalty, and LHDN may take legal action if your taxes are left unpaid. You can visit the LHDN website for more information on the tax filing timeline for YA2022 (for 2023) in English and Malay.
FAQ #6: How do you pay for your monthly tax deductions to the LHDN?
Your employer will automatically deduct your monthly tax payments from your salary through the Monthly Tax Deduction (MTD) system. It’s important to ensure that the correct amount is deducted, which you can check through your monthly payslips or the MyTax website.
If you're self-employed or have other income sources, you may need to make quarterly tax payments directly to LHDN through online banking, ATMs, or LHDN branches. To check your taxable amount, you can refer to the tax deduction table or use an income tax calculator, such as JobStreet's Salary Calculator.
FAQ #7: What are the repercussions if your monthly tax deduction is miscalculated?
Incorrect tax deductions from your salary can have significant financial consequences. If your employer under-deducts, you may have to pay more tax when filing your income tax return, while over-deductions can lead to a smaller paycheck each month, affecting your cash flow. Not rectifying these issues may result in penalties and fines from the LHDN. Therefore, monitoring your monthly tax deductions and ensuring they're accurate to avoid any financial surprises is crucial.
FAQ #8: Can you avoid paying your taxes?
It's not possible to avoid paying taxes if you meet the minimum income threshold set by the Malaysian government. Doing so can lead to penalties and legal consequences. However, you can reduce your tax liabilities by using tax deductions and credits. It's recommended to consult with a tax professional or the LHDN to ensure compliance with tax laws.
FAQ #9: What happens if you get penalised by the LHDN even though your tax filings are based on the advice of tax consultants?
The LHDN can take legal action against you or your tax consultant if you are suspected of avoiding taxes. The Income Tax Act allows for tax consultants who aid in understating tax liability to be charged with an offence and penalised. Taxpayers cannot claim tax consultant errors as a defence against penalties. It's important to be cautious and ensure all taxes are paid to avoid legal consequences.
FAQ #10: Will you be restricted from travelling if you don't pay taxes?
Yes, if you owe and don't pay taxes in Malaysia, you may be restricted from travelling. The Malaysian government can put a travel restriction or "travel blacklist" on individuals with outstanding tax debts. You can leave the country once you settle your tax debts or make payment arrangements with the tax authorities.
FAQ # 11: What do you need to do if you’re going to work abroad?
If you leave Malaysia to work abroad, your employer must inform the LHDN by submitting Form CP21 to the LHDNM branch handling your income tax file at least 30 days before your last work day. You need to write a letter with supporting documents about your income, stating that you will no longer work there. Your employer must withhold any payment until you receive a tax clearance letter.
FAQ #12: What can you claim on your taxes?
You can claim various items on your taxes to reduce taxable income, such as income tax exemptions, reliefs, and rebates. Exemptions are for specific sources of income, reliefs reduce your tax burden, and rebates can be claimed on the tax you owe. These include education and medical expenses, charitable donations, or significant purchases like a new car. However, the items available to claim may differ based on individual circumstances.
It's important to know how much of your money goes into your taxes each year and where it's going. Understanding your income tax and how your income tax is calculated can help you become more informed about your rights and benefits.
With the knowledge you have gained about filing income taxes, you are now one step closer to #SEEKbetter opportunities. Keep your profile updated on JobStreet and discover a career path that aligns with your passions and goals. Check out the Career Resources Hub for additional expert tips and guidance on your employee rights and benefits.
