Rental income earned in Malaysia is subject to tax under the Malaysian Income Tax Act 1967. The tax rate applicable to rental income depends on the tax residency status of the individual earning the rental income.
Malaysian tax residents: The rental income is included in the individual's total income and taxed at the applicable tax rate based on their tax bracket (is taxed on a progressive tax rate from 0% to 30%).
Non-resident individuals: Non-resident individuals who earn rental income in Malaysia are subject to a flat tax rate of 30% on the gross rental income earned.
Tax residents are eligible for tax relief. non-tax residents, on the other hand, do not qualify for tax relief.
Taxation of Rental Income for Malaysian Citizens Living Overseas
If a Malaysian citizen has emigrated overseas but still owns properties in Malaysia and receives rental income from those properties, or alternatively, there are properties in Malaysia that are being rented out, but the person is living abroad due to some unique factors
In that case, they may still be required to declare and pay tax on that rental income in Malaysia.
Here are the general steps they should take:
Determine his tax residency status: The first step is to determine whether he is still considered a tax resident of Malaysia or a non-resident for tax purposes. In Malaysia, an individual's tax residency status is determined by the number of days the individual is physically present in Malaysia during a tax year. The tax year in Malaysia is from 1st January to 31st December of each year.
Obtain necessary documents: He should gather all the required documents related to his rental income, including rental agreements, receipts for expenses incurred, and other relevant documents.
Calculate rental income: He should calculate his rental income for the year, which is the gross rental income received minus any allowable deductions, such as:
agent fee,
advertising expenses,
assessment,
expenses incurred on rent collection,
fire insurance,
loan interest,
property maintenance expenses;
quit rent,
upkeep or repair of the property.
Initial expenses, such as costs to obtain your first tenant, including advertising costs, legal fees, stamp duties, and real estate agent commission fees, are not allowed for deduction. These expenses are necessary to create a source of rental income and are not incurred in producing rental income.
Declare rental income: They should include the net rental income in their Malaysian tax return for the relevant tax year. They can do this online or by submitting a physical tax return form to the Malaysian tax authorities.
The deadline to submit the Tax Return Form for the Year of Assessment 2022 (non-business income): By April 30 for manual submissions and May 15 via e-Filing.
Tax Return: Form M
Pay any tax owed: If he has a tax liability, he must pay any tax owed by 30 April (May 15 via e-Filing).
The consequence for late filing
If the taxpayers fail to file their income tax within the deadline, they will be penalised.
Example 1
The due date for submission of Form BE for the Year of Assessment 2022 is 30 April 2023.
The grace period is until 15 May 2022 for the e-Filing of Form BE (Form e-BE) for the Year of Assessment 2022.
If a taxpayer furnished his Form e-BE for Year of Assessment 2022 on 16 May 2023, the receipt of his Return Form should be considered late as from 1 May 2022, and a penalty shall be imposed under subsection 112(3) of ITA 1967.
How does a Non-Tax Resident Calculate Their Net Rental Income?
Example 2
Here’s an example of how to calculate the net rental income.
Gross Rental Income For 2022: RM12,000
Deductible Expenses Assessment tax: RM100 Maintenance Fees: RM3,600
Quit rent: RM50
Net Rental Income
= 12,000 - (100 + 3,600 + 50)
= RM 8,250
How does a non-tax resident calculate their tax liability from rental income derived in Malaysia?
In Malaysia, non-tax residents are subject to a flat tax rate of 30% on their Malaysian-source income, including rental income from properties in Malaysia.
The calculation of the tax liability for non-tax residents is relatively straightforward.
The chargeable income is calculated by deducting the allowable expenses from the gross rental income. Then, the 30% tax rate is applied to the chargeable income to determine the tax liability.
It's worth noting that non-tax residents are not eligible for tax reliefs, exemptions, or rebates available to tax residents.
Therefore, the tax liability for non-tax residents is usually higher than for tax residents. Example 2 above is referred to; the total tax payable is:
= RM 8,250 * 30%
= RM 2,475
You should consult a tax professional to calculate the tax liability correctly and explore any tax planning opportunities.
Conclusion
Do I need to pay tax twice?
If you rent out your Malaysian property, you will most likely have to pay tax on that rental income both in Malaysia (even if you are not a tax resident in Malaysia) and in the country where you currently reside.
You may have heard about double taxation and double taxation agreements. You might be worried that you need to pay the same tax twice.
What is a Double Taxation Agreement (DTA)?
A double taxation agreement is an agreement between two countries with the aim of figuring out who will pay taxes in which country.
The purpose is to avoid a person needing to pay tax twice in different countries for the same income.
In the absence of a DTA, an individual or company may be required to pay tax on the same income or capital gains in both countries.
It is important to note that DTAs can be complex and vary between countries, so if you require more information, it is recommended to seek advice from a licensed tax agent who can provide guidance specific to your situation.
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