Malaysia Tax Residency: Here is Everything You Need to Know

Malaysia tax residency is a valuable tool for expats residing in SE Asia. Indeed, the territorial based tax system in Malaysia has many benefits in addition to very low tax rates. As a result, expats residing in the country pay no tax on offshore income, but there is much more.

That is, income accrued from outside Malaysia is tax free in the eyes of the Malaysia Government. Therefore, with the proper tax planning, Malaysia can offer the same benefits as a tax haven.

This is especially true if you have already passed through one of the Caribbean second citizenship programs that we offer here. If so, Malaysia is the ideal country for you to establish long term tax residency.

Plus, benefit from lower cost of living in a country with first world infrastructure and high living standards. What have you got to lose? Malaysia tax residency is an ideal cornerstone in your future offshore tax plan.

So how can you establish long term residency in Malaysia? Learn everything you need to know about Malaysia tax benefits and how to acquire tax residency.

Benefits of Malaysia Tax Residency

Besides the benefits of offshore income being tax free in Malaysia, you can benefit from trading on the local stock market. Indeed, investing in Malaysia is also very attractive because there is no tax on dividends or interest plus there are no capital gains or withholding taxes on stock market trades. This makes tax residency ideal for retirees holding professionally managed trading accounts, in addition to those who actively manage their own investments.

Furthermore, getting government approval to reside in Malaysia is simplified with the Malaysia My Second Home Program (MM2H). Since 2002, the Malaysia government has approved over 30,000 MM2H applications allowing expats of all nationalities to reside in Malaysia.

Although the MM2H is technically a social visit pass, in practical terms it is the equivalent to long term residency. As a result, MM2H allows you to reside long term in Malaysia while avoiding the pro forma requirements of their residency visa. Nonetheless, yet you get all the essential benefits allowing you to open bank accounts, investment accounts, home ownership in addition to acquiring a Malaysian driver’s license and much more.

Further benefits that expats look for were specially considered to make the MM2H visa attractive for the long term. Therefore, the elements of price, term duration, visa renewal, tax benefits and the approval process were created to be most appealing to those who want to spend the rest of their lives in Malaysia.

Table of Contents

1. Malaysia Tax Residency Requirements
2. Malaysia Income Tax Rates
3. Income Tax Exemptions
4. Labuan Offshore Financial Center
5. Get MM2H Residency Agent

What is Malaysia Tax Residency?

In substance, the definition of tax residency is the right of a government to impose their tax laws on you or your business. This means that sometimes, but not always, you will need to pay them tax. The tax laws of Malaysia currently only require residents and non residents to pay tax on income that is sourced from within Malaysia. Therefore, income sourced abroad and brought into Malaysia is not subject to local taxes.

Note the types of local income sources subject to tax include employment, self employment and business income in addition to director’s fees.

So how do you know if you are a tax resident? According to the tax laws of Malaysia, there are four scenarios where you would be considered a tax resident.

Malaysia Tax Residency Requirements:

1. Physical Presence for 182 Days Rule – If an individual is physically present in Malaysia for at least 182 or more during the tax year, they are tax resident.
2. Less Than 182 Days Rule – You are physically present in Malaysia for less than 182 days during the year but were physically present for at least 182 days in the second half of the immediately preceding calendar year or in the first half of the immediately following calendar year. However,  periods of temporary absence are excluded from the period of consecutive physical presence if the absence was related to your service in Malaysia, personal illness, illness of a family member, or social visits not exceeding 14 days.
3. 90 Day Physical Presence Rule – If you are present during the calendar year for at least 90 days and have been resident or present in Malaysia for 90 days in any three of the preceding four years, you are a tax resident.
   
4. Tax Resident without Physical Presence – You have been resident in the preceding three calendar years and will be resident in the following calendar year. But this is the only situation where you can be considered a tax resident without being physically present in Malaysia.
   

Source: EY Worldwide Tax and Immigration Guide 2021

Malaysia Income Tax Rates for Individuals

MM2H Real Estate Investment Opportunities

Upon approval for the MM2H Visa you will be eligible to purchase real estate in Malaysia subject to a minimal purchase price which averages MYR 1,000,000. Comparatively, the price minimum fluctuates pretty widely depending on which Malaysian state you wish to invest in.

For example, as of January 7, 2016 the minimum purchase price is 2,000,000 Ringgit for Selangor zones 1 & 2. Additionally, the property type must be “strata title” meaning it is an apartment. MM2H visa holders must also buy direct from the developer, meaning you commit before the property is completed, usually several years in advance.

However, in Pulau Pinang you can buy in for the lower price of MYR 500,000. Or in Sarawak State the minimum purchase price requirement is as low as MYR 350,000. As a result, bargain shoppers looking for a long term investment can expect to find good opportunities in Malaysia.

Vehicle Purchase and Driver’s License

As of January 1, 2016 an approved MM2H applicant is eligible to purchase a new vehicle tax free. However, it must be a vehicle that is assembled in Malaysia and exempted from excise duty tax. Additionally, successful applicants are eligible to import a pre-owned vehicle that is exempted from import and excise duty tax.

Furthermore, conversion of your foreign driver’s license to a Malaysian driver’s license is permitted for MM2H visa holders.

Multicultural Lifestyle in Malaysia

As a former British colony, Malaysia has a distinctly multicultural population. The majority is comprised of the indigenous Malay, in addition there is a large Chinese minority and also a significant number of East Indians are citizens of Malaysia. As a result of the British colonial legacy in Malaysia, English is still the spoken language. Therefore, cultural integration of MM2H applicants from English speaking countries is optimized.

Nonetheless, Malaysia offers a multicultural residency experience which the locals refer to as the cultural triangle. This is because each demographic segment in Malaysia stays true to their own cultural roots. Living in Malaysia will indeed offer a eye opening multicultural experience to expats. Life in Malaysia is full of local festivals and delights you can find in no other country but Malaysia.  

Labuan Offshore Financial Center

Further benefits of Malaysia tax residency include easy access to one of Asia’s most secluded and well situated offshore tax havens. Let me introduce you to the micro-sized Federal Territory of Labuan. This offshore gem is located on the coast of the Malaysian State of Sabah. However, its small geographical size belies their large offshore banking sector and also low tax trading and zero tax non-trading activities.

Trading activities – Include banking, shipping, insurance, management, licensing or any activity that is not included as a “non-trading activity”. As a result, these trading activities benefit from a low fixed tax rate of 3% of net profits. In addition, Labuan tax residency benefits include tax exemption on payments to non residents and also fees paid to non-citizen directors.

Non Trading Activities – Is defined as the holding of stocks, loans, investments, deposits, securities or any other properties located in Labuan. If so, Labuan non-trading activities are totally tax exempt.

Because of their close proximity to Labuan, MM2H applicants will find that offshore banking and offshore incorporation services are indeed easy to find in this well established tax haven. Therefore, as an MM2H visa holder residing in Malaysia, Labuan incorporation may be a good low tax alternative for your company registration.

MM2H Tax Residency Agents  

There are a lot of MM2H agents in Malaysia eager to process your application. However, before selecting your MM2H agent, think for the future. Indeed, relocation to any foreign country, including Malaysia is not a seamless experience. As a result, your relationship with the best MM2H agent will bring benefits for many years to come. Therefore, your agent will become your close friend.

Although the Malaysian government does allow applicants the option of directly submitting their MM2H application, this can be a confusing process. Not to mention, issues may arise during the application process or in the future that need local expertise. So proper planning is essential when acquiring Malaysia tax residency.

Potential problems that may arise include government impatience with improperly submitted documents. Additionally, you could make a mistake and select options that would negate benefits you would have otherwise received. Selecting the best MM2H agent is an important decision that will lay the foundation of your new life in Malaysia. Choose wisely. 

Malaysia My Second Home Agent Facts:

1. MM2H agents are relatively inexpensive compared to other long term visa programs.
   
2. Government institutions worldwide are notoriously fickle and they do not respond well to incomplete, incorrect or insufficient applications and supplements.
   
3. Qualified agents facilitate significant savings in efficiency and cost to meet the requirements of MM2H e.g. medical exam, health insurance, fixed deposit and pension requirements.
4. After MM2H approval, your agent will be a very valuable friend to rely on for seemingly opaque local matters such as acquiring a Malaysia driver’s license, property purchase, legalities, relocation, estate planning and local heath care.
   

MM2H Application and Supporting Documents:

1. Cover letter for MM2H Application.
2. Completed resume for main applicant including the main applicant’s academic background, work history and acquired expertise.
3. MM2H Application completed in full for the main applicant and each co-applicant.
   
4. 3 copies of the IMM.12 (social visit pass) completed by the main applicant and each co-applicant individually. Include one original copy and 2 photostat copies.
5. 4 colored passport size photographs.
6. Copy of all pages of passport/travel documents with certification on appropriate pages for personal particulars. Additionally, if the passport has been renewed within the previous 12 months then copies of all pages of the previous passport are required.
7. Letter of Good Conduct (LGC) from your country’s relevant agency. Their relevant agency can be the police, federal agency, or the LGC can also be prepared by your country’s embassy based in Malaysia.
   
8. Self declaration of health conditions of all applicants using the appropriate form.
9. Proof of health insurance.
10. Certified copy of marriage certificate if a spouse is included on the application.
11. Certified copy of 3 months bank statements or financial statements to indicate financial wherewithal to qualify for the MM2H program.
12. Most recent 3 months certified copies of pension slip/pay slip/income statement if self employed
13. Authorization letter from the applicants to the MM2H ministry authorizing them to independently verify the submitted application documents.

MM2H Residency Application with Children

If accompanied by children, a certified copy of birth certificates is needed in addition to all accompanying legal documents e.g if the child is adopted or is a step child or a child from previous marriage then acceptable authorization is required from both biological/legal parents.

Furthermore, the main applicant must make a statutory declaration that they are financially accountable for all their dependents in Malaysia. Plus, for children (under 21 years of age) with disabilities a letter of confirmation will be required from a medical specialist.

Easy MM2H Residency Renewal

The renewal process for the MM2H visa is streamlined and it is only necessary once every 5 years. Additionally, initial requirements such as asset source verification and minimum net worth are not verified again during the renewal process. It is indeed very useful to have a good MM2H agent to rely on for speedy renewal.

Required documentation for visa renewal includes:

1. Letter of Intent by the Principle
2. Cover letter by licensed MM2H agent
3. Applicant’s passport both original and copy
4. Original Form IMM.55 + 1 copy
5. The original form IMM.38 + 1 copy (if applicable)
6. Original and copy of fixed deposit statement
7. If retired, proof of 3 months minimum 40,000 ringgit pension or retirement income
8. Original and copy of confirmation letter from bank
9. Original and copy of conditional approval letter
10. The original and copy of health insurance policy
11. Original medical report on RB II form

The MM2H Financial Requirements

To obtain Malaysia tax residency via the MM2H program, applicants must make a significant contribution into the Malaysian economy in addition to the passing health exams and background checks. As a result, you and your family will obtain a lifetime of tax benefits and gain access to significant investment opportunities. Not to mention, interest earned on the required fixed bank deposit is tax free.