Malaysia has one of the most globalised economies in the world. Although it has a double tax agreement with Australia, you should still get advice on your tax status before heading to Malaysia for work.
Tax resident or not?
The most important question is your tax residency status. Are you still an Australian tax resident or a Malaysian tax resident? You might assume that if you’re living and working in Malaysia, you’re no longer a resident for Australian tax purposes, but this isn’t always the case. The following factors may have a bearing on whether you retain your Australian tax residency:
- The purpose and length of any return trips to Australia while you’re on assignment
- Your family, business and employment ties in Australia
- Whether you maintain assets, such as a family home, in Australia while you’re on assignment
- If you’re living in temporary accommodation while on assignment and your other social arrangements.
In addition, for many Australian employees, you will need to satisfy the Australian Taxation Office that you have established a permanent home outside of Australia to ensure you cease being an Australian tax resident from departure. Income Tax Ruling IT 2650 assists taxpayers in deciding this question. It’s definitely worth getting professional advice on this.
1. Malaysia’s tax jurisdiction
Professional year-end tax resources from CPA Australia
From the Malaysian tax perspective, any income accruing in or derived from Malaysia is subject to tax in Malaysia.
Foreign-source income remitted to Malaysia is not taxable in Malaysia..
2. Malaysian tax residency
Tax residency in Malaysia is determined based on an individual’s physical presence in Malaysia. .An individual may qualify as a Malaysian tax resident for a year of assessment (i.e. calendar year basis) if they satisfy one of four quantitative tests. For example, if the individual has been physically present in Malaysia (either continuously or intermittently) for 182 days or more of the calendar year, they are regarded as a Malaysian tax resident for that year.
3. Salary packaging
It is possible for an Australian employee on assignment in Malaysia to receive a total remuneration package that includes salary and other benefits. If the employer and employee are both non-residents for Australian tax purposes, then there is unlikely to be Australian fringe benefits tax or income tax payable when providing the non-salary benefits to the employee.
Malaysia does not have a fringe benefits tax. Generally speaking, benefits in cash or in kind received by an employee (or their relatives) are treated as assessable income. However, the following benefits are sometimes exempt from tax and may feature in an employee’s remuneration:
- Airfare provided to an expatriate and their immediate family members for one overseas trip per year, subject to a RM3,000 per year limit for airfare.
- Certain medical and dental treatments.
- Petrol, travelling allowances or tolls for official duties up to RM6,000 per year.
- Parking fees and parking allowances (at a reasonable rate).
- Meal allowances received by an employee on a regular basis where such allowances are provided to all employees at the same rate.
- Childcare allowances for children up to 12 years of age (subject to a RM2,400 annual limit).
- Mobile phones and fixed-line phones provided to an employee.
- Monthly bills paid by the employer for mobile phone, fixed-line phone, or broadband subscription fees, in the employee’s name.
- Benefits used by an employee solely in the course of their employment.
4. Retirement issues
The fact a person has worked in Malaysia for a period will not affect his or her superannuation accumulated in Australia. But Australian superannuation guarantee contributions are not required to be made for Australian non-resident employees who are paid for work done in Malaysia.
However, if you’re not considered an Australian tax resident while working in Malaysia, your Australian self-managed super fund may be taxed at 47 per cent on its taxable income. Employees with SMSFs should seek tax advice before departing Australia.
When you permanently cease working in Malaysia, you may withdraw the contributions accumulated in Malaysia’s Employees Provident Fund on departure. You may then transfer such superannuation amounts back to an Australian fund, under certain tax rules, when you become an Australian resident on your return to Australia.
If the Employees Provident Fund does not meet the definition of a “foreign superannuation fund” in the Income Tax Assessment Act 1997, there may be a concern that the accumulated income earned in the fund may be assessable in Australia if the employee withdraws it when they return home.
The Malaysian tax regime at a glance
Australian tax considerations for individuals continuing to be Australian residents
An Australian in Malaysia
Here is an example of how much tax an Australian tax resident might pay
- Australian employee sent on a work assignment to Malaysia for two-plus years.
- Single employee (no partner or children).
- The Malaysian employer pays the employee a salary of A$250,000.
- The employee has annual deductible expenses / reliefs of A$10,000.
- The exchange rate is A$1.00 = RM2.84
- The Australian tax rates used are for the income year ended 30 June 2015.
- The Malaysian tax rates used are for the income year ended 31 December 2015.
This information was compiled and produced exclusively for intheblack.com by Tom O’Sullivan, tax lead at Wolters Kluwer CCH.
The above information is not exhaustive and you should always speak to a CPA-registered tax agent about your specific circumstances.