Resident Individuals is defined as an individual resident in Malaysia for the basis year for a YA as determined under Section 7 and

subsection 7(1B) of the Act. Non-resident Individual means an individual other than a resident individual.

The resident status of an individual will determine whether such individual is liable to Malaysian income tax. The table below will illustrate the basic distinction between a resident and non-resident individual. Basic distinction in the tax treatment of a resident or non-resident individual is as follows:

NATURE OF TAX ITEM Tax rates

RESIDENT INDIVIDUAL

NON-RESIDENT INDIVIDUAL

Taxed at graduated tax rate as specified in Paragraph 1, Part 1, Schedule 1 of the Act. Eligible to claim. Entitle to claim rebate under subsection 6A(2) of the Act for chargeable income not exceeding RM35,000. tax Certain receipts may be subject to WT: (a) Distribution of income from Real Estate Investment Trust (REITs) under Section 109D of the Act i.e. final tax; and Interest from persons as stated in subsection 109C(4) of the Act. Bank or finance company licensedunder the Banking and Financial Institutions Act 1989 or the IslamicBanking Act 1983; Registered co-operative society; Bank Simpanan Nasional; Bank Pertanian Malaysia; Lembaga Urusan dan Tabung Haji; Malaysian Building Society Berhad; or Any other institution that may be approved by the Minister.

Taxed at the rate as specified in Paragraph 1A, Part 1, Schedule 1 of the Act i.e. flat 26%. Not eligible to claim. Not eligible to claim.

Personal relief Rebates

Withholding (WT)

Certain receipts may be subject to WT: (a) Interest1 (except those exempted) under Section 109 of the Act i.e. final tax; Royalties1 under Section 109 of the Act which is a final tax; Remuneration or other income in respect of services performed or rendered in Malaysia by a public entertainer under Section 109A of the Act i.e. final tax; Special classes of income1 under Section 4A of the Act (final tax pursuant to Section 109B of the Act); Service portion of contract payments under Section 107A of the Act but is not final tax; Distribution of income from Real Estate Investment Trust1 (REITs) exempted under Section 61A of the Act (WT is applicable under Section 109D of the Act i.e. final tax); Distribution of income of a family fund, family re-takaful or general fund under Section 60AA of the Act (WT is applicable under Section 109E of the Act); Other income1 falling under paragraph 4(f) of the Act which is subject to WT pursuant to Section 109F of the Act i.e. final tax.

(b)

(b)

(c)

(d)

(e)

(f)

(g)

(WT is applicable under Section 109C of the Act which is a final tax) (h)

Clubs, Associations and Societies

Taxed at scale rates which are applicable to resident individuals in accordance with paragraph 1 of part 1, Schedule 1 of the Act.

Taxed in accordance with the general provisions of the Act applicable to nonresidents and at the rate as specified in paragraph 1A of part 1, Schedule 1 of the Act.

Note:

reference may have to be made to the relevant agreements for the avoidance of double taxation for any variation in tax rates, if applicable.

Determination of Residence Status

Generally, residence status for tax purposes is determined based on the number of physical presence of that individual in Malaysia in a basis period for a YA and not by his nationality or citizenship. An individual is considered to be physically present in Malaysia for a whole day although he is present in Malaysia for part(s) of a day. For instance, Woods, a senior accountant at a holding company in Australia was sent by his employer to examine and assist in the accounts of the companys branch in Malaysia.His period of stay in Malaysia was as follows: Number of Days Physically Present in Malaysia 11

Date of Arrival 01.01.2010 (11.00 p.m.)

Date of Departure 11.01.2010 (2.00 a.m.)

Circumstances Determining Residence Status

Section 7 of the Act sets down 4 circumstances of which an individual can qualify as a tax resident in Malaysia for the basis year for a YA. The ensuing paragraph will illustrate the circumstances to determine the residence status of an individual. NO. CIRCUMSTANCES TO DETERMINE RESIDENCE STATUS EXAMPLES PROVIDED IN THE PUBLIC RULING

1.

Paragraph 7(1)(a) of the Act The individual is in Malaysia for 182 days or more in a basis year.

Augustin, a viticulturist from Australia was in Malaysia to conduct a research project. His period of stay was as follows: Period of Stay in Malaysia Number of Days 214

01.03.2010 30.09.2010

* Augustin qualified as a tax resident in Malaysia for the basis year for the YA2010 as he was physically present in Malaysia for a total of more than 182 days.

Angeline, a selfemployed computer programmer from United States of America (USA) was in Malaysia to carry out contract works for a multinational company. Her period of stay was as follows: Period of Stay in Malaysia Number of Days

01.03.2010 30.06.2010 01.08.2010 30.09.2010

122 61

* Angeline was a tax resident in Malaysia for the basis year for the YA2010 as she was physically present in Malaysia for a total of more than 182 days. Anil, a businessman from Pakistan was in Malaysia to promote the sale of his products at an international trade fair in Kuala Lumpur.His period of stay was as follows: Period of Stay in Pakistan / Malaysia 01.01.2010 30.09.2010 (Pakistan) 01.10.2010 31.10.2010 (Malaysia) 01.11.2010 31.12.2010 (Pakistan) Number of Days 214

31

61

* Anil was a non-resident in Malaysia for the basis year for YA2010 as he was present in Malaysia for less than 182 days in the year 2010. 2. Paragraph 7(1)(b) of the Act The individual is in Malaysia for less than 182 days in a basis year. If an individual is in Malaysia for a period of less than 182 days but the period is linked by or to: (a) another period of 182 days or more consecutively throughout which he was in Malaysia in the basis year for the YA preceding that particular YA; or another period of 182 days or more consecutively throughout which he is in Malaysia in the basis year for the YA immediately following that particular YA Example 1 Benson, a medical doctor was in Malaysia to fulfill a contract with a private hospital. His period of stay in Malaysia and in the United Kingdom (UK) was as below. Benson left Malaysia on 01.04.2010.

Period of Stay in Malaysia

Number of Days 223 8 (social visit) 2 (social visit) 8

15.05.2009 23.12.2009 (Malaysia) 24.12.2009 31.12.2009 (UK)

(b)

that individual will qualify as a tax resident in Malaysia for the basis year for that particular YA. In calculating the period of less than 182 days or the period of 182 days or more consecutive days, relaxation is given where the period of temporary absence (i.e. period during which an individual is not is Malaysia) shall be taken to form part of that: (a) period of less than 182 days; and/or

01.01.2010 02.01.2010 (UK) 03.01.2010 31.03.2010 (Malaysia)

* Benson was a tax resident in Malaysia for the basis year for YA2009 and YA2010. Despite he was in Malaysia for only 88 days in YA2010 (that period) is linked by a period of more than 182 consecutive days in 2009 (such period), throughout which he was considered to be in Malaysia although he was absent temporarily for 10 days on a social visit (since the social visit did not exceed 14 days) and he was in Malaysia

(b)

period of 182 consecutively;

days

or

more

immediately prior to and after his temporary absence. Example 2 Takayama, a university professor from Japan commenced employment on 10.09.2009 at a local university in Malaysia. His stay in Malaysia and Japan was as follows:

provided that the individual must be in Malaysia immediately prior to and after that temporary absence. Temporary absences allowed are: (a) absence which is connected with that individuals service in Malaysia such as attending conferences or seminars or study abroad; absence owing to ill-health involving the individual or a member of his immediate family (i.e. parents, spouse and children); and absence in respect of socials visits not exceeding 14 days in the aggregate (social visits include any form of vacation outside Malaysia besides vacation to home country).

Period of Stay in Malaysia

Number of Days 96 17 (social visits) 3 (social visit) 362

(b)

10.09.2009 14.12.2009 (Malaysia) 15.12.2009 31.12.2009 (Japan) 01.01.2010 03.01.2010 (Japan) 04.01.2010 31.12.2010 (Malaysia)

(c)

* Takayama was a non-resident in Malaysia for the basis year for YA2009 but he was a tax resident in YA2010. This was because his period of stay in Malaysia was only 96 days in YA2009 and that period is not linked to another period of more than 182 days in YA2010 since his social visit has exceeded 14 days. Example 3 The facts are the same as in Example 2, except that Takayama left Malaysia on 17.12.2009 and returned to Malaysia on 01.01.2010. His stay in Malaysia and Japan was as follows:

Period of Stay in Malaysia

Number of Days 99 14 (social visits) 365

10.09.2009 17.12.2009 (Malaysia) 18.12.2009 31.12.2009 (Japan) 01.01.2010 31.12.2010 (Malaysia)

* Takayama qualified as a tax resident in Malaysia for the basis year for YA2009 as well as in YA2010. This was because his period of stay in Malaysia of 99 days in YA2009 (that period) and that period is linked to another period of more than 182 days consecutively in YA2010, throughout which Takayama was in Malaysia. The temporary absence (i.e. social visit) is considered as part of that period as the temporary absence has not exceeded 14 days and Takayama was in Malaysia before and after the temporary absence.

3.

Paragraph 7(1)(c) of the Act The individual is in Malaysia for 90 days or more in a basis year. If an individual is in Malaysia in the basis year for a particular YA for a period or periods amounting in all to 90 days* or more (i.e. physical presence in Malaysia is equal to or more than 90 days in that year), he/ she is tax resident for that particular YA if in each of any 3 out of 4 YA immediately preceding that particular YA he/ she was either: (a) resident in accordance with Section 7 of the Act; or in Malaysia for a period or periods amounting in all to 90 days or more.

Example 1 Jemina, an advertising director has the following periods of stay in Malaysia: Year Period of Stay in Malaysia No. of Days 207 20 274 244 51 61 =112

2006 2007 2008 2009 2010

01.05.2006 23.11.2006 01.05.2007 20.05.2007 01.01.2008 30.09.2008 01.03.2009 30.10.2009 01.01.2010 20.02.2010 01.04.2010 31.05.2010

(b)

* The 90 days need not be consecutive days.

* Jemina qualified as a tax resident in Malaysia for the basis year forthe YA2006, YA2008, YA2009 and YA2010 provided under subparagraph 7(1)(c)(i) of the Act as: (a) she was in Malaysia for periods amounting to more than 90 days in the basis year 2010 (112 days); and for 3 out of the 4 immediately preceding basis years, she was resident in accordance with Section 7(1)(a) of the Act (i.e. YA2006, 2008 and YA2009).

(b)

Example 2 Watson, a musician has the following periods of stay in Malaysia:

Year

Period of Stay in Malaysia

No. of Days 15 31 61 =92 106 92 122

2006 2007

01.10.2006 15.10.2006 01.03.2007 31.03.2007 01.05.2007 30.06.2007

2008 2009 2010

01.04.2008 15.07.2008 01.10.2009 31.12.2009 01.08.2010 30.11.2010

* Watson did not qualify as a tax resident in Malaysia for the basis year for YA2006 to YA2009, but he qualifies as tax resident in YA2010 pursuant to subparagraph 7(1)(c)(ii) of the Act as: (a) he was in Malaysia for a period amounting to more than 90 days in the basis year 2010 (122 days); and for 3 out of the 4 immediately preceding basis years, he was in Malaysia for a period or periods amounting in all to 90 days or more in the basis year in question (i.e. basis years 2007, 2008 and 2009).

(b)

Example 3 Peter, a chef has the following periods of stay in Malaysia: Year Period of Stay in Malaysia No. of Days 20 365 21 92 120

2006 2007 2008 2009 2010

01.05.2006 20.05.2006 01.01.2007 31.12.2007 01.01.2008 21.01.2008 01.06.2009 31.08.2009 01.01.2010 30.04.2010

* For YA2010, Peter qualified as a tax resident in Malaysia by virtue of Paragraph 7(1)(c) of the Act as: (a) he was in Malaysia for a period amounting to more than 90 days in the basis year 2010 (120 days); and in 3 out of the 4 immediately preceding basis years, he was a tax resident (YA2007 and YA2008 [by virtue of Paragraph 7(1)(b) of the Act]) and he was in Malaysia for more than 90 days (basis year 2009).

(b)

4.

Paragraph 7(1)(d) of the Act The individual is not in Malaysia or in Malaysia for a period of less than 90 days in the basis year. An individual will be considered as tax resident for the basis year for a YA if:

Example 1 Nicholas, a lecturer from Russia had the following periods of stay in Malaysia:

Year

Period of Stay in Malaysia

No.

(a)

he is resident for the following basis year; and

immediately

of Days 2006 2007 2008 2009 2010 11.10.2006 31.12.2006 01.01.2007 31.12.2007 01.01.2008 30.09.2008 01.04.2009 04.04.2009 01.04.2010 31.12.2010 82 365 274 4 275

(b)

had been resident for the 3 immediately preceding basis years.

Therefore, pursuant to Paragraph 7(1)(d) of the Act, an individual can be a resident in Malaysia even though he might never actually have been in Malaysia at all during that basis year.

* Nicholas was a tax resident for the YA2009 despite he was in Malaysia for only 4 days as: (a) he was resident for the basis year 2010, that is the following basis year (i.e. >182 days); and had been a resident for each of the 3 immediate preceding basis years i.e. 2006, 2007 and 2008. Please note for basis year 2006, he was tax resident by virtue of Paragraph 7(1)(b) of the Act.

(b)

Example 2 Stanley, an accountant from Hong Kong has the following periods of stay in Malaysia: Year Period of Stay in Malaysia No. of Days 304 365 21 0 223

2006 2007 2008 2009 2010

01.01.2006 31.10.2006 01.01.2007 31.12.2007 01.01.2008 21.01.2008 Was not in Malaysia 15.05.2010 23.12.2010

* Even though Stanley was not in Malaysia in the basis year 2009, he was a tax resident for that basis year by virtue of Paragraph 7(1)(d) of the Act as: (a) he was resident for the basis year 2010, that is the following basis year (i.e. >182 days); and was resident for each of the 3 immediately preceding basis years (i.e. 2006, 2007 and 2008). Please note for basis year 2008, he was tax resident by virtue of Paragraph 7(1)(b) of the

(b)

Act. Additional Example Sze Wei, an engineer from China has the following period of stay in Malaysia: Year Period of Stay in Malaysia No. of Days 304 111 119 61 184

2006 2007 2008 2009 2010

01.01.2006 31.10.2006 01.09.2007 20.12.2007 03.01.2008 30.04.2008 01.11.2009 31.12.2009 01.05.2010 03.10.2010

* Sze Wei was a tax resident in the basis year 2009 as: (a) he was resident for the basis year 2010, that is the following basis year (i.e. >182 days); and was resident for each of the 3 immediately preceding basis years i.e. he was a tax resident (YA2006) and he was in Malaysia for more than 90 days (basis years 2007 and 2008).

(b)

5.

Subsection 7(1B) of the Act Malaysian citizens employed in the public service/ statutory authority Effective YA2009, subsection 7(1B) of the Act was introduced to deem Malaysian citizens as residents in Malaysia for the basis year for a particular YA if he: (a) is employed in the public services or service of a statutory authority in Malaysia; and is not in Malaysia at any day in the basis year for that particular YA by reason of: (i) having or exercising his employment outside Malaysia; or attending any course of study in

Example 1 Ikmal, a Malaysian ambassador to the USA had the following period of stay in Malaysia/ USA:

Period of Stay in Malaysia / USA 01.01.2009 31.12.2009 (USA) 01.01.2010 15.01.2010 (Malaysia) 16.01.2010 31.12.2010 (USA)

Number of Days 365 15

(b)

350

* Ikmal is deemed a tax resident in Malaysia for the YA2009 and 2010pursuant to subsection 7(1B) of the Act as he: (a) is a citizen of Malaysia;

(ii)

any institution or professional body outside Malaysia which is fully sponsored by the employer. The objective of this subsection is to allow public servants to continue be treated as resident and assessed at scaled rate rather than the flat rate of 26%, due to abolishment of non-resident relief under Section 130 of the Act effective YA2009.

(b)

is employed in the public services in Malaysia; and is exercising his employment outside Malaysia by virtue of his employment which requires him to carry our his duties overseas.

(c)

Example 2 Farah, a Malaysian citizen married to a French national in 2003. Since her marriage, she has resided in France and only visited her family in Malaysia for periods less than two weeks in each year. When the Malaysian Tourism representative office in France needed a French translator, Farah applied for the post and was recruited on 01.03.2008. * Farah does not qualify as tax resident in respect of the basis years2008 and subsequent years despite she is a Malaysian citizen and working with a Malaysian government agency in France. This is because she was locally recruited in France and is not considered an employee in the public services or a statutory authority in Malaysia. Example 3 Taufik, an officer with the Ministry of Tourism went on study leave to pursue an MBA course in the United Kingdom (UK). He was sponsored by the Government of Malaysia. His period of stay in Malaysia and UK was as follows: Period of Stay in Malaysia / UK 01.01.2009 01.04.2009 (Malaysia) 02.04.2009 31.12.2009 (UK) 01.01.2010 31.12.2010 (USA) Number of Days 91

274 365

* Taufik is deemed to be a tax resident in Malaysia for theYA2009 and YA2010 pursuant to subsection 7(1B) of the Act as he: (a) (b) is a citizen of Malaysia; is employed in the public services in Malaysia; and is attending a course outside Malaysia which is fully-sponsored by his employer i.e. the Government of Malaysia.

(c)

Dual Residence Status and Agreements for the Avoidance of Double Taxation

(i)

Malaysia has entered into agreements with a number of countries for purposes of avoiding double taxation by allocating taxing rights over bilateral income flows between the respective treaty partners. An individual who is a resident in one of the countries for a basis year may also be a resident of that other country for purposes of a double taxation agreement (DTA). Article 4 of the DTA normally states the test for residence and the tie breaker for dual residence. The tie breaker test in the agreement provides that a dual resident be treated solely as a resident of the treaty partner country for purposes of the agreement. The terms of the relevant DTA should be referred to when determining tax liability.

(ii)

(iii)