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Malaysian Tax Residence for Individuals
The tax residence of individuals in Malaysia is defined by the
quantitative tests under Section 7 of the Income Tax Act 1967. It is determined
by reference to the number of days an individual is present in Malaysia during
a particular calendar year. Whilst the type of visa a foreigner holds in
Malaysia will not affect the question of Malaysian residence for Malaysian
domestic purposes as the test is quantitative, holding a 5 year work visa is
likely to evidence an intention to reside out of the foreigner’s home country
for an extended period, which may be relevant to the foreigner not being
treated as a resident of his home country, where the test is likely to be
qualitative.
(a) In Malaysia for 182 days in a
basis year
An individual is
in Malaysia in that basis year for a period of 182 days or more. Part of a day
counts as a full day. The 182 days can be made up of one period or multiple
periods during the year.
Example 1:
An individual
first arrives in Malaysia on 2.2.2003 and leaves on 30.6.2003.
YA 2003 = NON-RESIDENT,
the period of his stay covers 181 days only.
Example 2:
An individual
first arrives in Malaysia on 14.5.2003 and leaves on 26.11.2003
YA 2003 = RESIDENT sec 7(1)(a) since
the period of his stay covers 197 days.
Example 3:
An individual first arrives and his stays in
Malaysia are as below:
|
|
|
Days |
|
1.3.2003
– 31.5.2003 |
I |
92 |
|
4.7.2003
– 15.7.2003 |
II |
12 |
|
1.9.2003
– 31.12.2003 |
III |
122 |
|
|
|
226 |
YA 2003 = RESIDENT
sec 7(1)(a) since the period of his stay covers 226 days.
(b) In Malaysia for less than 182
days in a basis year
(i) Linked
to
a period of 182 or more consecutive days to the immediately preceding calendar
year
Example 4:
|
An
individual in Malaysia |
Residence
status: |
|
Year
2002 including 31 Dec for > 182 days |
RESIDENT (sec.7 (1)(a)) |
|
Year
2003 including 1 Jan for < 182 days * |
RESIDENT (sec.7 (1)(b)) |
* The individual must be physically present in Malaysia on the
2 days i.e. 31 December 2002 and 1 January 2003 in order to establish the
‘link’. 1 January 2003 must be linked by a period in Malaysia of at least 182
days in 2002.
(ii) Linked by a period of 182
or more consecutive days to the immediately succeeding calendar year
Example 5:
|
An individual in Malaysia |
Residence status: |
|
Year 2004 including 31 Dec for < 182 days# |
RESIDENT
(sec.7 (1)(b)) |
|
Year 2005 including 1 Jan for > 182 days |
RESIDENT
(sec.7 (1)(a)) |
# In
order to establish the ‘link’ between 2004 and 2005, the individual must be
physically present in Malaysia on the 2 days i.e. 31 December 2004 and 1
January 2005. 31 December 2004 must be linked to a period in Malaysia of at
least 182 days immediately succeeding (2005).
Temporary
absences from Malaysia are to be treated as forming part of the qualifying
period provided the individual is in Malaysia immediately prior to and after
that temporary absence. These include:
Ø connected
with his service in Malaysia or attending conferences or seminars or study abroad
Ø owing
to ill-health involving himself or members of his immediate family
Ø social
visit
not exceeding 14 days.
Example
6:
An individual provides the following
details for 2001 and 2002:
|
|
|
Days |
|
31.12.2001 |
in Malaysia |
|
|
1.1.2002 – 4.3.2002 |
in Malaysia |
63 |
|
(5.3.2002 – 31.3.2002) |
social visit outside Malaysia |
(27) |
|
1.4.2002 – 18.7.2002 |
in Malaysia |
109 |
|
(20.6.2002 – 22.7.2002) |
social visit outside Malaysia |
(33) |
In order
to qualify under sec. 7(1)(b), an individual can include 14 days social visit
in the computation of 182 consecutive days. Part of the 60 days can be taken to
form the 14 days social visit.
Number of days in Malaysia in 2002 = 63
+ 14 + 109 = 186 days
Year 2001 = RESIDENT sec.7(1)(b) since 31 December 2001 linked by
a period of 186 days (include 14 days
social visit)
Year 2002 = NON-RESIDENT, his
physical presence in Malaysia only 172 days
Malaysian case law
Ketua Pengarah Hasil Dalam Negeri v Richard Allen Sonnet
& Anor (1998) MSTC 3,714, (HC)
The High Court stated that:
- The 14 days
temporary absence from Malaysia for “social visit” need not be consecutive, nor
at the beginning, middle or at the end of the 182-day or more consecutive
period.
- A “summer
vacation” cannot be equated with “social visit”.
Example 7:
An individual is in Malaysia:
|
|
|
Days |
|
15.4.2003 – 4.6.2003 |
in Malaysia |
50 |
|
5.6.2003 – 1.9.2003 |
summer vacation |
89 |
|
2.9.2003 – 31.12.2003 |
in Malaysia |
121 |
|
1.1.2004 – 28.2.2004 |
in Malaysia |
59 |
Year 2003 – NON-RESIDENT since
his physical presence in Malaysia only 171 days. (50 days + 121 days)
Year 2004 – NON-RESIDENT
Although year 2004 is linked to a period
of 182 days or more consecutive days (171 days physical presence + 14 days
social visits), but according to the above case, the High Court held that a
‘summer vacation’ is not synonymous with “social visits”.
(c) In Malaysia for 90 days or more
An individual,
in a particular basis year, is in Malaysia for 90 days or more and in three of
the four immediately preceding basis years, he was either Malaysian tax
resident or in Malaysia for 90 days or more, he will be deemed to be resident
for that basis year (sec. 7(1)(c)).
Example 8:
|
A
taxpayer in Malaysia: |
Residence
status: |
Reasons: |
|
|
5.1.2002
– 31.12.2002 |
RESIDENT
|
(sec. 7(1)(a)) |
³
182 days |
|
1.1.2003
– 9.2.2003 |
RESIDENT |
(sec.
7(1)(b)) |
linked
to a period of > 182 consecutive days (31.12.2002 & 1.1.2003 is
linked) |
|
1.1.2004
– 5.4.2004 |
NON-RESIDENT |
|
|
|
1.2.2005
– 2.6.2005 |
RESIDENT |
(sec.
7(1)(c)) |
his
stay is > 90days & in ¾ immediately preceding year he was resident
under sec.7(1)(a) & sec.7(1)(b) & was in Malaysia for >90 days in
the basis year 2004 |
Example 9:
|
An
individual in Malaysia: |
Residence
status: |
||
|
2002 |
90 days – 181 days
|
NON-RESIDENT |
|
|
2003 |
90
days – 181 days |
NON-RESIDENT |
|
|
2004 |
90
days – 181 days |
NON-RESIDENT |
|
|
2005 |
³
90 days |
RESIDENT (sec.7(1)(c)) |
he
was in Malaysia for > 90 days and in three out of four preceding
years he was in Malaysia for > 90 days |
(d) Not in Malaysia
To qualify for
resident status under sec. 7(1)(d)
i.
he
must be resident for the immediately following year; and
ii. he was resident
for the three immediately preceding year.
Example 10:
An individual is
resident in Malaysia for the basis year 2002, 2003, 2004 and 2006. But during
2005, he was not even a single day in Malaysia.
Year 2005 = RESIDENT
(sec. 7(1)(d)) since he has fulfilled the above condition.
Example 11:
|
Year |
|
Residence
status |
|
2001 |
<
90 days |
NON-RESIDENT |
|
2002 |
> 183 days |
RESIDENT (Sec.7(1)(a)) |
|
2003 |
> 183 days |
RESIDENT (Sec.7(1)(a)) |
|
1 January 2004 |
<
90 days |
RESIDENT (Sec.7(1)(b)) |
|
2005 |
>
90 days |
RESIDENT (Sec.7(1)(c)) |
|
2006 |
Not
in Malaysia |
RESIDENT (Sec.7(1)(d)) |
|
2007 |
>
90 days |
RESIDENT (Sec.7(1)(c)) |
DOUBLE
TAX AGREEMENT TIE BREAKER
If an individual is
resident in Malaysia for a period and resident in another country which has a
double tax agreement with Malaysia, there is a “tie breaker” rule.
The Government of Malaysia
has have signed the Double Tax Agreements with the following countries:
|
Albania |
France |
Mongolia |
Sudan |
|
Argentina
(limited treaty) |
Germany |
Myanmar |
Sweden |
|
Australia |
Hungary |
Namibia |
Switzerland |
|
Austria |
India |
Netherlands |
Thailand
|
|
Bahrain |
Indonesia |
New
Zealand |
Turkey |
|
Bangladesh |
Ireland |
Norway |
United
Arab Emirates |
|
Belgium |
Italy |
Pakistan |
United
Kingdom |
|
Canada |
Japan |
Papua
New Guinea |
United
States of America |
|
China |
Jordan |
Philippines |
|
|
Czech
Republic |
Korea
(South) |
Poland |
Uzbekistan |
|
Denmark |
Kuwait |
Romania |
Vietnam |
|
Egypt |
Kyrgyz
Republic |
Russia |
Yugoslavia |
|
Fiji |
Malta |
Singapore |
Zimbabwe |
|
Finland |
Mauritius |
Sri
Lanka |
|
Article 4 of
Malaysian Double Tax Agreements state that:
(1) Test of residence
For the purposes
of this Agreement, a person is a resident of one of the Contracting
States
(a) in the case of [e.g.
Australia], if the person is a resident of [Australia] for the purposes of
[Australian] tax; and
(b) in the case of Malaysia, if
the person is a resident in Malaysia for the purposes of Malaysian tax.
(2) Dual residence
Where by reason of the preceding provisions an
individual is a resident of both Contracting States, then his status shall be
determined in accordance with the following rules
(a) he shall be deemed to be a
resident solely of the Contracting State in which he has a permanent home
available to him;
(b) if he has permanent home
available to him in both Contracting State, or if he does not have a permanent
home available to him in either of them, he shall be deemed to be a resident
solely of the Contracting State in which he has an habitual abode.
(c) If he has a
habitual abode in both Contracting State, or if he does not have an habitual
abode in either of them, he shall be deemed to be a resident solely of the
Contracting State with which his personal and economic relations are the
closer.
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