Residence Status of Individual

Background

Under Budget 2022 announcement, the foreign-sourced income received in Malaysia by Malaysian tax residents will be taxed, with effect from January 1, 2022

All Malaysian tax resident having foreign-sourced income remitted to Malaysia, regardless of whether the income is an active income or a passive income, including employment income, interest, dividends, rent, pension income, etc., will be affected.

However, based on a recent announcement made by MOF, the government has agreed to provide tax exemption on all types of foreign-sourced income received in Malaysia by a resident individual. The exemption would be effective Jan 1, 2022 until Dec 31, 2026. Non-resident individuals will remain eligible for income tax exemption on foreign-sourced income received in Malaysia.

In spite of the above exemption, it is crucial to understand the concept of tax residence as it is one of the main factors to consider when determining the taxability of foreign-sourced income received in Malaysia in the future.


Definition

“Resident individual”  is an individual resides in Malaysia in the basis year for a year of assessment (YA) as determined under Section 7 of the Income Tax Act 1967.

“Non-resident individual”  refers to individual other than a resident individual.


Determination of Residence Status

  • Generally, residence status of an individual for tax purposes is determined based on the number of physical presence (182 days or more) of that individual in Malaysia in a basis period for a year of assessment) and not by his nationality or citizenship. 
  • If an individual resides in Malaysia permanently, the question of determining his residence status would not arise. However, citizens of Malaysia are not automatically tax residents. The rules governing the determination of residence status will still apply. 
  • 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.

Tax treatment of resident and non-resident individuals


Circumstances Determining Residence Status 

There are 4 sets of circumstances in which an individual is qualified as a tax resident in Malaysia for the basis year for a YA. If the individual does not fall within any of these 4 sets of categories, most likely he is a non-resident for that basis year. 

1. In Malaysia for 182 days or more in a basis year [Paragraph 7(1)(a) of the ITA]

2. In Malaysia for less than 182 days in a basis year but is linked to/by another period [Paragraph 7(1)(b) of the ITA] 

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 shall be taken to form part of the period of 182 or more consecutive days.

Temporary Absence allowed are: 

  1. absence which is connected with the individual’s service in Malaysia such as attending conferences or seminars or study abroad; 
  2. absence owing to ill-health involving the individual or a member of his immediate family (immediate family means parent, spouse and children); and
  3. absence in respect of socials visits not exceeding 14 days in the aggregate (social visits include any form of vacation outside Malaysia including vacation to home country).

3. In Malaysia for 90 days or more [Paragraph 7(1)(c) ITA] 

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 (the days need not be consecutive days), he is resident for that particular YA if in each of any 3 out of 4 YAs immediately preceding that particular YA he was either:

  1. resident in accordance with section 7 of the ITA; or 
  2. in Malaysia for a period or periods amounting in all to 90 days or more.

4. Not in Malaysia or in Malaysia for a period of less than 90 days in the basis year [Paragraph 7(1)(d) ITA]

An individual is considered to be resident for the basis year for a YA if he is resident for the immediately following basis year and had been resident for the 3 immediately preceding basis years. Therefore, an individual can be a resident in Malaysia pursuant to paragraph 7(1)(d) of the ITA even though he might never actually have been in Malaysia at all during that basis year.

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