.avif)
Malaysia’s economy is as dynamic as its culture. From manufacturing and services to tech and sustainability, the Southeast Asian nation attracts talent and investment from around the globe.
If you’re working in Malaysia or hiring employees there, understanding how Malaysia’s income tax works isn’t optional—it’s essential. The country’s progressive tax system and territorial approach to taxable income can be challenging to unpack, especially for global employers and international workers navigating unfamiliar rules.
In this guide, we’ll explain what you need to know about Malaysian income tax in 2025. We’ll cover what the Malaysian government considers taxable, who qualifies as a taxpayer, and how to stay compliant in one of Asia’s most business-friendly economies.
Malaysia's income tax system
Malaysia’s income tax system operates on a territorial basis. In other words, only money earned in Malaysia is subject to Malaysian tax. For residents, a progressive tax rate applies, ranging from 0% to 30%, depending on income. Nonresidents pay a flat rate of 30% on taxable income, with no eligibility for personal relief.
The Inland Revenue Board of Malaysia (IRBM), or Lembaga Hasil Dalam Negeri (LHDN) in Malay, administers and enforces these tax laws.
Taxable income in Malaysia
Tax residency plays a major role in how Malaysia taxes income. As mentioned, in Malaysia, only sourced income derived from the country is considered taxable income. If you spend at least 182 days in Malaysia during a calendar year (they don’t have to be consecutive), you qualify as a tax resident. Residency status determines which income tax rates apply and your eligibility for tax deductions, reliefs, and rebates.
For residents, the following types of income are taxable:
- Employment income: Salaries, bonuses, commissions, and benefits-in-kind from work performed in Malaysia
- Business income: Profits generated by sole proprietorships, partnerships, or freelance activities in Malaysia
- Rental income: Earnings from leasing residential or commercial property in Malaysia
- Investment income: Dividends (mostly exempt under the single-tier system), along with taxable interest income and rental-based investments
Several income types are not taxable, including Malaysian government pensions, foreign-sourced income remitted by individuals (exempt until Dec. 31, 2036, under a transitional measure), and specific dividends from tax-exempt funds like Amanah Saham Bumiputera (ASB).
Malaysia tax brackets
Malaysia’s individual income tax system is progressive, which means the more you earn, the higher your tax rate. This tax rate structure applies only to resident taxpayers. Nonresidents pay a flat rate of 30% on all taxable income.
Here’s a breakdown of 2025 Malaysian income tax rates for residents:
Malaysia’s progressive tax rates contribute to the system’s equity and efficiency. Whether you’re assessing tax payable as a founder, a remote team member, or an independent contractor, it’s important to factor these brackets into your financial planning.
Malaysia offers special low-tax zones for highly skilled talent. Here are two that matter in 2025:
Eligible knowledge workers in the Iskandar Malaysia region can benefit from a 15% flat tax fee on chargeable employment income for up to 10 years. To qualify, individuals must have a degree or higher qualification, substantial work experience, no prior employment income in Malaysia for 24 months, and a monthly salary of at least MYR 20,000.
The Johor-Singapore Special Economic Zone (JS-SEZ) is a collaborative initiative between Malaysia and Singapore. Launched in 2025, it boosts cross-border economic integration. Knowledge workers are eligible for a 15% flat tax rate on employment income for 10 years within this zone.
Companies investing in qualifying manufacturing and services activities also qualify for a special corporate tax rate of 5% for up to 15 years. JS-SEZ applications are open from Jan. 1, 2025, through Dec. 31, 2034.
How to calculate income tax in Malaysia: 3 steps
To calculate your Malaysia income tax liability, follow these three steps:
- Add up your total income: This includes all taxable income sourced from Malaysia, including business income, employment income, rental income, and taxable investment returns.
- Subtract eligible deductions and reliefs: These reduce your taxable income and include personal relief (MYR 9,000 for individuals), contributions to the Employees Provident Fund (EPF) and the Social Security Organisation (SOCSO), and certain medical and education-related deductions.
- Apply the progressive tax bracket: Use the current tax rates to calculate your tax payable.
Malaysia uses a progressive tax system, so different portions of your income are taxed at different rates. For a quick estimate of tax in Malaysia, use this formula—but for an exact calculation, apply each bracket’s rate separately:
Tax payable ≈ (Total sourced income – Tax reliefs and reductions) × Applicable tax rate
How to declare income tax in Malaysia
When you declare your income tax in Malaysia, you typically file and pay at the same time. Whether you’re an individual taxpayer or a business, the LHDN offers several flexible payment options.
Here’s how to pay income tax in Malaysia:
1. Pay online via Financial Process Exchange (FPX) services
Use Malaysia’s official ByrHASiL portal or your participating bank’s FPX online service to make a secure payment. You’ll need:
- An online banking account with a participating FPX bank
- Your tax file number and taxpayer identification
2. Pay with a credit card
You can also pay online using a credit card issued by a Malaysian bank. Accepted cards include Mastercard, Visa, and American Express. To do so, log in to the ByrHASiL portal on the LHDN website.
3. Pay over the counter at banks
If you’d prefer to pay in person, visit a branch of an authorized LHDN agent bank, including:
- Maybank
- Public Bank
- CIMB Bank
- Bank Rakyat
- Bank Simpanan Nasional
This method requires your tax number and an official government-issued identification document, such as a passport.
4. Use an ATM or telebanking services
You can also make payments for income tax and Real Property Gains Tax (RPGT) via:
- ATMs: These are available at Maybank, CIMB, and Public Bank for taxable income and Real Property Gains Tax (RPGT).
- Telebanking: These are available through Maybank’s Kawanku Phone Banking service.
You'll also need your tax number for these transactions.
Installment payment options
If a business or individual taxpayer in Malaysia can’t pay their taxes in full by the due date, they can submit a written appeal to the IRBM Collection Unit to request an installment payment plan. If approved, late penalties may still apply. Appeals must be submitted before the payment deadline.
If you earn business income, rental income, or other non-salary taxable income in Malaysia, the LHDN may issue a CP500 form, allowing you to pay Malaysian income tax in six bimonthly installments. This eases your cash flow and avoids a large lump-sum payment at the end of the year.
Tax incentives, reliefs, and rebates
When you pay tax in Malaysia, you can take advantage of various tax incentives, reliefs, and rebates designed to support financial planning and ease the tax burden. Here are some key deductions available for the 2025 assessment year:
Education and medical expenses
Individuals can claim up to MYR 3,000 for premiums paid toward education and medical insurance policies for themselves, their spouses, or their children. This promotes investing in health and education security.
Contributions to social security and retirement funds
Mandatory contributions to the EPF and the SOCSO are deductible:
- EPF: Up to MYR 4,000
- SOCSO: Up to MYR 350
These deductions support long-term financial stability and social welfare.
Parental and childcare expenses
Taxpayers in Malaysia can claim the following:
- Up to MYR 8,000 for medical treatment, special needs, and carer expenses for parents or grandparents, provided the services happen in Malaysia and a registered medical practitioner certifies them.
- Up to MYR 3,000 for fees paid to registered childcare centers or kindergartens for children ages six and below. This relief has been extended through the 2027 tax year.
Stay compliant while expanding to Malaysia
Hiring in Malaysia offers excellent opportunities, but it comes with responsibility. Whether managing remote teams or earning business income from Malaysian sources, understanding how Malaysian income tax works is a must for staying compliant. A clear global compliance strategy helps you reduce your administrative workload and minimize risks while navigating withholding tax, taxable income, payroll taxes, and more in Malaysia.
Oyster’s bulletproof global compliance makes it easy to meet Malaysia’s tax requirements so you can focus on what matters most: growing your team, scaling your impact, and building a business without borders. With our built-in compliance, local expertise, and in-house legal team, you’ll have everything you need to expand confidently.
FAQs
Is allowance taxable in Malaysia?
Some allowances are considered part of taxable income in Malaysia. This includes travel allowances unless they're strictly for official duties, in which case up to MYR 6,000 may be exempt per year. Meal and parking allowances are typically fully exempt.
What is imputed income in Malaysia?
Imputed income refers to the value of noncash benefits an employer provides, which is considered taxable income in Malaysia. Examples include the personal use of a company car or employer-provided housing. These benefits are assessed for tax purposes even though they are not received as cash.
Is Malaysia a tax haven?
While Malaysia isn’t officially classified as a tax haven, its territorial tax system is advantageous. Under this system, only income earned within the country is subject to Malaysian income tax, and foreign-sourced income is generally not taxed unless remitted to Malaysia. This structure makes the country an attractive option for digital nomads and international workers.
About Oyster
Oyster is a global employment platform designed to enable visionary HR leaders to find, engage, pay, manage, develop, and take care of a thriving distributed workforce. Oyster lets growing companies give valued international team members the experience they deserve, without the usual headaches and expense.
Oyster enables hiring anywhere in the world—with reliable, compliant payroll, and great local benefits and perks.
