Expatriate and Non-Resident Tax: the Flat 30% and the Escapes

The most expensive month in an expatriate assignment is usually the month of arrival, and it costs nothing at the time. Land on 15 July and you are 12 days short of the 182 needed for residence. Land on 15 June and you clear it. Same package, same employer, and a difference of roughly a third of the year’s tax bill — because a non-resident individual pays a flat 30% on the first ringgit with no reliefs at all.

The flat rate

Schedule 1 Part I paragraph 1A charges income tax on the chargeable income of a person other than a company not resident for the basis year at 30% on every ringgit. There is no zero band, no progression, and no way into the s.46 relief list or the s.6A rebates — both are drafted for an individual resident for the basis year.

Other non-resident charges sit alongside it:

Income of a non-resident individual	Rate	Authority
Chargeable income generally, including employment	30%	Sch 1 Part I para 1A
Interest derived from Malaysia	15% of gross	Sch 1 Part II item 1
Royalty derived from Malaysia	10% of gross	Sch 1 Part II item 2
Public entertainer’s remuneration for services in Malaysia	15% of gross	Sch 1 Part II item 3
Section 4(f) gains or profits derived from Malaysia	10% of gross	Sch 1 Part XIII

The 60-day exemption

Schedule 6 paragraph 21 exempts the income of an individual from an employment exercised by him in Malaysia:

• for a period or periods together not exceeding sixty days in the basis year; or
• for a continuous period not exceeding sixty days that overlaps the basis years for two successive years of assessment; or
• for such a continuous overlapping period plus other periods which together do not exceed sixty days,

provided he is not resident for that basis year, or for each of those basis years.

Two features are routinely misread.

It is a cliff, not a threshold. Paragraph 22(a) disapplies the exemption altogether where the individual has employment income derived from Malaysia for periods amounting in all to more than sixty days in the relevant period. Day 61 does not tax one day — it taxes all 61, at 30%.

Public entertainers are carved out. Paragraph 22(b) excludes employment income of a public entertainer unless it is paid out of the public funds of a foreign government. A visiting performer is taxed under Schedule 1 Part II at 15% of gross from the first day.

The exemption also requires non-residence. An individual who becomes resident — including retrospectively, through the s.7(1)(b) link — loses it.

How Employment Pass timing decides residence

Residence is a day count under s.7(1), reassessed for every basis year. The Employment Pass grants the right to work; it grants nothing under the Income Tax Act.

Arrival date, continuous stay to 31 December	Days present	Position
On or before 2 July	182 or more	Resident under s.7(1)(a)
After 2 July	fewer than 182	Depends on s.7(1)(b)

For a mid-year arrival everything turns on the second test. Section 7(1)(b) makes the short arrival year resident if that period is linked by or to a period of 182 or more consecutive days throughout which the individual is in Malaysia in the basis year for the immediately following year of assessment.

So a November arrival on a two-year posting is usually resident for the arrival year — but only once the following year has actually delivered 182 consecutive days. The requirement is consecutive, unlike the aggregate count in test one, and a home-leave trip can break it. The proviso to s.7(1)(b) rescues absences connected with service in Malaysia, absences for ill-health of the individual or an immediate family member, and social visits not exceeding fourteen days in the aggregate, so long as the individual is in Malaysia immediately before and after.

The mirror image catches departures. An assignment ending in March leaves a short final year that can borrow residence backwards from the previous year’s 182 consecutive days — Public Ruling 11/2017 Example 5 does exactly this. Example 6 refuses it where the individual left in December and never returned, because the absence was not temporary.

Two further routes matter for long assignments. Section 7(1)(c) gives residence on 90 days or more in the year where the individual was resident or present for 90 days or more in three of the four preceding years — the pattern of a regional executive based elsewhere but in Malaysia every quarter. Section 7(1)(d) makes a year resident with no presence at all where the individual is resident for the following year and was resident for each of the three preceding years.

The 15% rates

Regime	Rate	Authority
Knowledge worker residing in a specified region, employed by a person carrying on a qualified activity there	15%	Sch 1 Part XIV
Approved individual under the Returning Expert Programme, employed by a person in Malaysia	15%	Sch 1 Part XV
Resident non-citizen exercising employment in a company carrying on a qualifying activity under an approved incentive scheme	not more than 20%	Sch 1 Part XVIII

Parts XIV and XV both leave the definitions — who is a knowledge worker, what is a qualified activity, which region is specified, which years of assessment are covered — to rules made by the Minister. The rate is statutory; eligibility is not, and it must be checked against the operative rules for the year rather than against a summary.

Part XVIII is a ceiling, not a rate. It caps the charge on a resident non-citizen in an approved-scheme role at 20%, with the actual rate prescribed scheme by scheme.

Where Part XIV or XV applies, note the proviso to s.6A(2): the RM35,000 chargeable-income ceiling for the RM400 rebate is tested against the individual’s chargeable income from all sources, not just the concessionary employment.

Which form

Situation	Form	Deadline
Non-resident individual	M	30 April, or 30 June with business income
Non-resident knowledge worker	MT	30 April, or 30 June with business income
Resident knowledge worker, expert, or non-citizen in a key position	BT	30 April, or 30 June with business income
Resident expatriate, ordinary case, no business income	BE	30 April

All of these carry a 15-day e-Filing extension. Before departure the employer must lodge CP21 at least 30 days before the employee leaves Malaysia, and tax clearance governs the release of final monies.

Common mistakes

• Reading 30% as a foreigner rate. It is a non-residence rate. A resident expatriate is taxed identically to a Malaysian, reliefs included.
• Treating 60 days as a free allowance. Paragraph 22 removes the exemption retrospectively and entirely once the count passes 60.
• Counting the linking-year days as aggregate. Section 7(1)(b) needs 182 consecutive days in the adjacent year. Test one’s aggregate count does not carry across.
• Fifteen days of home leave. The social-visit allowance is fourteen days in total for the year. The fifteenth breaks the consecutive block and with it the linking claim.
• Locking PCB at 30% for the whole arrival year. Where the s.7(1)(b) link will be satisfied, the employee is resident for that year and the over-deduction is recoverable — but only by filing a return.
• Assuming the 15% knowledge-worker rate follows the job title. It follows the Ministerial rules on region, activity and approval. Nothing about a senior technical role qualifies on its own.

What’s next

Settle the residence question first, then confirm the form and deadline for the year you are filing, and check the relief list if you turn out to be resident after all.