What Is Resident Status in Malaysia? Complete Guide to Malaysian Tax Residency

When you are seeking what is resident status in Malaysia, it is important to know the answer in order to know the tax liability, tax rates, and whether you qualify to get personal reliefs. Tax residency has a direct impact in the determination of your income in Malaysia taxation under the Income Tax Act 1967 and implemented by the Inland Revenue Board of Malaysia (LHDN).

 

Being an employee, expatriate, director, or business owner, understanding your residency classification is something that will keep you on the correct path of compliance and avoid tax mistakes that can cost you dearly.

What Is Malaysian Resident Status as a tax purpose?

To address the clear question of what is resident status in Malaysia clearly, we need to refer to the income tax law.

In Malaysia, the residency status is only measured against the tax status assigned to a particular person in a given year of assessment. It is not determined by:

• Nationality
• Citizenship
• Permanent resident status
• Visa type

Rather, it is based solely on the fact that you must be in Malaysia during a calendar year.

Every year, a person is categorized as either:

• Tax Resident, or
• Non-Resident

This classification defines:

• The income tax rate applied
• Personal tax reliefs eligibility.
• Deduction entitlements
• Payroll treatment
• Submission of filing obligations to LHDN.

Legal Basis: Income Tax Act 1967

The determination of tax residence falls under the provision of Section 7 of the Income Tax Act 1967. The law presents four statutory tests that are applied in assessing whether one is a Malaysian tax resident or not.

These are the statutory tests which should be used with prudence to ascertain residency.

The 4 Tests to Check Resident Status in Malaysia.

These rules are important to understand in the case of assessing what is resident status in Malaysia in your situation.

1. The 182-Day Rule

 

The tax resident status is applied to determine an individual as a tax resident when a tax resident spends 182 days in Malaysia or more in a year of the calendar year.

Important technical points:

• The days do not have to be consecutive.
• Arrival and arrival days are counted as full days.
• These include weekends and public holidays.
• Proper records of travels should be kept.

It is the most widespread test that is used on employees and expatriates.

 

2. Linked 182-Day Consecutive Period Rule.

You can also be considered a resident provided:

• You are staying less than 182 days in the present year; and
• The period is associated with a successive period of over 182 days either in the same or in the next year.

This is usually applicable in case of a cross-tax year employment.

3. The 90-Day Rule having Historical Residency.

You qualify as a resident if:

• You are a minimum of 90 days in the current year in Malaysia; and
• You have lived in 3 of the 4 years before the time of survey.

This secures continuity among long time taxpayers.

4. The 3-Out-of-4-Year Continuity Rule.

 

You can also be considered as resident of the current year as follows:

• You have stayed in 3 of the 4 years prior: and
• Next year, you will be resident once again.

This ensures that temporary short stay does not deprive established taxpayers of resident benefits.

Tax Implications: Resident or Non-Resident.

The most significant difference when it comes to analyzing what is resident status in Malaysia is the issue of tax rates.

   

Status of Residence and Malaysia income tax liability.

For income tax purposes:

One of the primary factors that define the liability of an individual to the Malaysian income tax is the residence status.

The liability of taxes is calculated annually.

You may not be taxable if:

1. You work in Malaysia for 60 days.
2. You work in one of the Malaysian vessels.
3. Your age is 55 and you have been put on pension by Malaysian work.
4. Banks are paying you interest income (exempted, of course).
5. You get tax-free dividend payments.

Provided that you are a taxable taxpayer that is not a resident, you must submit the M Form to LHDN.

Temporary Absence Rules and Day Counting Rules.

Some temporary leaves can be discussed during your qualifying period in case it is connected with:

• Business travel
• Medical treatment
• Brief (less than 14 days) social visits.
• Study purposes

Residency claims need to be supported by proper documentation.

Effects to Employers and Payroll.

To ascertain the status of residence, employers need to establish the status of the employee to:

• Use appropriate Monthly Tax Deduction (PCB).
• Escape penalties of under-deduction.
• Issue accurate EA forms
• Ensure payroll compliance

Misclassification can expose the employer and the employee to audit risks.

Mistakes When Determining Resident Status.

• Calculating working days rather than calendar days.
• Arrival and arrival days not considered.
• Residency is based on the type of visa.
• Failure to take into account linked-year provisions.
• Failure to carry out good documentation when travelling.

Accuracy is essential to avoid needless exposure to taxation.

The Importance of Knowing What It means to be a resident of Malaysia.

The definition of resident status in Malaysia is not only technical in nature, but it has direct effect:

• Your tax payable
• The deductions you are eligible to receive.
• Your payroll treatment
• Your compliance risk

Since the residency is determined after a year, both individuals and employers should be closely monitored to ensure physical presence.

At HL Khoo Group, we provide tax planning services for individuals and companies, so you can focus on growing your business while we handle your tax matters.

FAQ

What is resident status in Malaysia based on? Is 182 days compulsory to become a tax resident? What tax rate applies if I am a non-resident in Malaysia? Does my visa determine my tax residency?