Rules concerning Director Salary and Director fee

All directors and employees working at Labuan Company are required to submit a personal income tax return to the Internal Revenue Service (IRB) for salary income earned in the previous calendar year.

Kindly note that the deadline for declarations is until April 30th.

* If you do not submit your personal income tax return by due date, it will affect your future work visa renewal.
* If the personal income tax return is delayed, a penalty will be imposed by the Inland Revenue Board.

The definition of Tax Residents and Non Tax Residents in Malaysia

Definition of Tax Resident and Non Tax Resident in Malaysia

The definition of tax resident / nonresident in Malaysia is as follows:-

Tax Resident	the number of days in Malaysia is more than 182 days
Non Tax Resident	the number of days in Malaysia is less than 182 days

In Malaysia’s income tax law, regardless of citizenship or nationality, if the number of days in Malaysia is 182 days or more in the previous calendar year will be “tax resident”, if the number of days in Malaysia is less than 182 days in the previous calendar year will be “non tax resident”.

[Additional requirements for applying for Labuan Work Permit]

As a result of the guideline revision in February 2015, a new requirement regarding the obtaining of Labuan work permit was added. As a result, “the salary of directors shall be regulated to 10,000 RM or more per month”.

	Income type	Tax incentives
Director’s personal income	Director Salary	~~Tax exemption on 50%~~ (Abolished in 2020)
Director’s personal income	Director Fee	Tax exemption

* The 50% tax incentive for salary income was abolished in 2020.

Real salary received for salary income of RM10,000 per month

・ The salary of working permit holders should be set to RM8,951,45 (or more) by reducing the payment equivalent to PCB out of the salary of RM10,000 per month.

・ Calculation formula: 10,000 – 1,048.55 = RM8,951,45

* This guideline is applied from the salary income of the calendar year 2020, tax payment will be required from the final tax return in April 2021.

Taxation method for Tax Residents / Non Tax Residents

The taxation method for Tax Residents / Non Tax Residents is as follows.

1. Labuan work permit holder and Malaysian Tax Resident → submit Form BE
More than 182 days in Malaysia (Ref: “Inland Revenue Board Of Malaysia“)	Progressive taxation on annual salary income

2. Labuan work permit holder and Malaysian Non Tax Resident → submit Form M
Less than 182 days in Malaysia (Ref: “Non-Resident Tax rate“)	Uniform 30%

3. No Labuan work permit holder and Malaysian Tax Resident → N/A
More than 182 days in Malaysia (Ref: “Inland Revenue Board Of Malaysia“)	No Applicable [*1]

4. No Labuan work permit holder and Malaysian Non Tax Resident → N/A
Less than 182 days in Malaysia (Ref: “Non-Resident Tax rate“)	Uniform 30% (Tax deduction application is required based on the system of the country of tax residence)

* 1 Those who fall under the condition of 3 are considered “Malaysian citizens“. For foreigners who fall under this condition, those who hold MM2H visa, dependent visas, student visas, etc. are applicable, but because these are not working visas, these are not allowed to work in Malaysia [ *2]. As it is not possible to receive salary income (domestic source income) unless it is permitted to work, there is no possibility of submitting a tax report form (*3), of course it is obviously not necessary to submit a tax report form.

*2 Since Labuan’s work permit is a special visa to “work with Labuan company” in “Labuan Island”, work in Malaysia is “prohibited in principle”.

* 3 It is possible to receive shareholder dividends or Director Fee, but kindly check with tax experts in your tax country regarding tax payment.

[Personal income tax declaration method]

Personal income tax can be paid through online banking. You can log in to “ezHASiL” of the Malaysian Revenue Service and submit a personal income tax return.

It is recommended to save the report completion screen after submission.

For details, kindly refer to “Payment Method for Personal Income Tax” and follow the tax payment procedure.

* If you are a tax resident of Malaysia, tax relief will be applied and you will receive a basic deduction from the above tax payment.

Kindly refer to “Tax Relief for Resident Individual” for Tax Relief for Resident Individual.

Should you have any queries, please do not hesitate to contact us.

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