Tax Compliance for Individual

1. Individual – Difference between non-business (wholly employment) vs business scope (Sole proprietor , partnership)

Non-Business (Wholly Employment) Individuals

If you have a job and earn a salary as your main income, you fall into the non-business or employment category. The advantage of this category is that you don’t need to register a business or pay taxes specifically on your employment income, as required by tax regulations in Malaysia. However, remember that you still have to pay taxes on any other sources of income, like rentals or investments, according to the tax regulations. Understanding the tax implications of these additional income sources is important to meet your tax obligations and comply with the relevant regulations in Malaysia.

Business Scope Individuals (Sole Proprietorship, Partnership)

For individuals considering starting their own business in Malaysia, they would fall under the business scope category. This includes sole proprietors and partnerships. Operating a business legally requires registering your business with the relevant authorities, obtaining necessary licenses and permits, and fulfilling your tax obligations on the income generated from your business activities, as mandated by the tax regulations and laws in Malaysia, such as the Income Tax Act 1967 and the Companies Act 2016.

Sole Proprietorship

As a sole proprietor, you have complete control over your business. You make all the decisions and are personally liable for all debts and obligations. While this structure offers flexibility and independence, it’s crucial to understand your tax obligations and ensure timely compliance, in accordance with the tax regulations and laws in Malaysia. Keeping accurate records of your business income and expenses is essential for efficient tax reporting.

Partnership

In a partnership, individuals come together to share profits and losses. Each partner actively contributes to the business and shares the responsibility of tax compliance, as required by the tax regulations and laws in Malaysia. It is important to establish clear agreements and understand the tax implications of your partnership structure. This includes deciding how profits and losses will be divided among partners and ensuring accurate reporting of partnership income, in compliance with the applicable regulations and laws in Malaysia.

2. What income need to be tax?

Employment Income

If you are an employee and earn a salary, wages, bonuses, or any form of compensation from your employer, this income is generally considered taxable. It is important to report your employment income accurately and include it in your tax return.

Business Income

For individuals who are self-employed or operate their own business, any income generated from business activities is subject to tax. This includes income from sole proprietorship, partnership, or any other form of business entity. It is essential to keep proper records of your business income and expenses to ensure accurate reporting and compliance with tax regulations.

Rental Income

Income received from renting out properties, such as residential or commercial units, is also taxable in Malaysia. Whether you are a property owner or a real estate investor, you are required to report and pay taxes on the rental income you receive.

Investment Income

Income derived from investments, such as dividends, interest, or capital gains, is generally taxable in Malaysia. This includes income from stocks, bonds, fixed deposits, unit trusts, and other investment instruments. It is important to keep track of your investment income and report it accordingly to the tax authorities.

Other Income Sources

In addition to the above, there are other sources of income that may be subject to taxation in Malaysia. This includes royalties, commissions, director’s fees, annuities, pensions, and any other form of income that you may receive. It is crucial to consult with a tax professional or refer to the relevant tax laws to determine the taxability of these income sources.

3. Types of Form (Form BE, M, B,)

In Malaysia, the tax system is progressive, meaning the tax rate increases as income rises. The tax year runs from 1 January to 31 December, and tax returns must be submitted by 30 April of the following year. The main tax forms in Malaysia are Form BE, Form M, and Form B. These forms, governed by the Income Tax Act 1967, require individuals to report their income, deductions, and tax reliefs.

Form BE

Form BE is the most common tax form in Malaysia and is used by individuals who earn income from employment, business, or other sources. This form is also known as the Income Tax Return Form for Individuals. If you are a resident of Malaysia and earn more than RM34,000 per year, you are required to file Form BE. The form requires you to provide details of your income, deductions, and tax reliefs.

Form M

Non-resident individuals who earn income from employment in Malaysia are required to file Form M, also known as the Income Tax Return Form for Non-Resident Individuals. This form needs to be filed by individuals who are not residents of Malaysia but earn income from employment in the country. Similar to Form BE, Form M requires you to provide details of your income, deductions, and tax reliefs.

Form B

Form B: Residents of Malaysia who earn income from business or other sources are required to file Form B, also known as the Income Tax Return Form for Companies, Partnerships, and Other Persons. This form is applicable to individuals who earn income from business or other sources in Malaysia. Just like the other forms, Form B requires you to provide details of your income, deductions, and tax reliefs.

4. Registering of TIN no.

How to Register for a Tax Identification Number (TIN) in Malaysia?

If you are an individual in Malaysia and have tax obligations, one of the important steps is to register for a Tax Identification Number (TIN). A TIN is a unique identification number used by the tax authorities to identify taxpayers and track their tax payments. Here’s a step-by-step guide on how to register for a TIN in Malaysia:

Step 1: Determine your eligibility

Before proceeding with the registration process, it’s important to determine if you are eligible for a TIN. In Malaysia, individuals who earn income from employment, business, or other sources may be required to register for a TIN. Assess your individual circumstances and income sources to determine if you fall under the category of taxpayers who need to register for a TIN.

Step 2: Gather the required documents

To register for a TIN, you will need to gather the necessary documents. The exact documents required may vary depending on your individual circumstances, but generally, you will need the following:

• Identification documents: Prepare a copy of your identification document, such as your MyKad for Malaysians or passport for non-Malaysians.
• Proof of address: Provide a copy of a utility bill or any other document that verifies your residential address.
• Supporting documents: Depending on your income sources, you may need to provide additional supporting documents, such as employment contracts, business registration documents, or investment statements.

Step 3: Visit the nearest Inland Revenue Board of Malaysia (IRB) branch

Once you have gathered all the necessary documents, visit the nearest Inland Revenue Board of Malaysia (IRB) branch. Locate the branch closest to you and check their operating hours to ensure a smooth registration process.

Step 4: Complete the registration form

Upon arrival at the IRB branch, request the tax registration form. Fill out the form accurately and provide all the required information. Double-check the information for accuracy before submitting the form.

Step 5: Submit the registration form and supporting documents

Submit the completed registration form along with the supporting documents to the IRB officer at the branch. The officer will review your application and verify the documents. Ensure that you provide all the necessary documents to avoid any delays in the registration process.

Step 6: Receive your Tax Identification Number (TIN)

After the completion of the registration process, you will be issued a Tax Identification Number (TIN). This process typically takes 1-2 weeks. This unique number will be used for all your tax-related transactions and communications with the tax authorities in Malaysia.

5. Where to submit the form?

You can submit your income tax return form online via the MyTax portal. Here are the steps to activate your MyTax account:

1. Visit the MyTax portal at mytax.hasil.gov.my.
2. Click on the First Time Login button.
3. Choose “Identification Number” and enter your identification number.
4. Click “Send” to receive a verification code via SMS.
5. Enter the verification code and set your password.
6. Log in to your account and complete the submission process.

If you prefer to submit your income tax return form manually, you can visit the nearest Inland Revenue Board of Malaysia (IRBM) office. You will need to fill out the form to register a tax file and submit it along with a copy of your identification (MyKad or other IDs) and your salary details (EA/EC).

6. Deadline for submission

The deadline for filing income tax returns in Malaysia depends on the type of form being filed. For the BE form (for resident individuals who do not carry on business), the deadline for manual filing is on or before 30 April, and for e-Filing, it is on or before 15 May.

For the B form (for resident individuals who carry on business), the deadline for manual filing is on or before 30 June, and for e-Filing, it is on or before 15 July.

7. Penalty for non-compliance

The penalties for non-compliance with income tax regulations in Malaysia can vary depending on the type of offense committed. According to the Inland Revenue Board of Malaysia, some of the common offenses and their corresponding penalties are:

• Failing to furnish income tax return: RM200 to RM20,000 or a term not exceeding 6 months and/or imprisonment, stated under Section 112(1) of Income Tax Act 1967.
• Make an incorrect tax return by omitting or understating any income: RM1,000 to RM10,000 and 200% of tax undercharged, stated under Section 113(1)(a) of Income Tax Act 1967.
• Willfully evading tax or helping someone else do it: RM1,000 to RM20,000 and/or imprisonment for a term not exceeding 3 years and 300% of undercharged tax, stated under Section 114(1) of Income Tax Act 1967.
• Trying to leave the country without paying tax: RM200 to RM20,000 and/or imprisonment for a term not exceeding 6 months stated under Section 114(1) of Income Tax Act 1967.

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