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4 Tax Treatments to Know in Malaysia if You are ‘Transferred’ to a New Location

Is your company paying or has been paying for your accommodation? How do you have to declare? We receive this question a lot, let's look at some very common scenarios for employees in Malaysia.
declare-ta-in-malaysia

Question:

I am Michelle from Kuala Lumpur. Presently, I am working for Techpro Sdn Bhd as its project manager. I am earning a decent salary of RM 10,000 a month. My company was awarded a large contract with a leading technology firm in Penang. As such, I was transferred and have stayed in Penang since last March.

Initially, for the entire month of March, I stayed in a 4-star hotel in Georgetown as my company was searching for a suitable accommodation for me. Soon after, I moved into a nice fully-furnished condominium unit situated around 5-minutes drive away from the technology firm and have lived there ever since. Presently, I am expected to remain in Penang for another 2 years.

My company had agreed and paid for my stay in Georgetown Hotel and the full rental expenses for the condominium unit in Penang.

Recently, I received an email from Rachel, my company’s HR manager. It comes with attachments of receipts from both Georgetown Hotel and the landlord for the condominium. Rachel advised that they are ‘helpful’ to my upcoming filings of income tax. The detailed provided are as follows:

1. Georgetown Hotel

    • Period of Stay: 1/3/2018 – 31/3/2018.
    • Room Rates: RM 250 per day.

 

2. Condominium Unit

  • Period of Stay: 1/4/2018 – 31/12/2018 (9 months).
  • Total Rental Expense: RM 2,500 per month.
  • Inclusive of Full-Furnishing of RM 700 per month

 

 

I am confused as I thought I don’t need to worry about my accommodations as I work in Penang. Question: How does these receipts ‘helpful’ for the filing of my income tax?’ After all, they are not related to my income, right?

Answer:

Very wrong, Michelle. You are liable to declare and to pay income tax for your stay in both Georgetown Hotel and the condominium unit which you are living presently as the hotel room rates and rental expenses paid by your company is treated as income derived from exercising your employment to your company.

Here, I’ll share 4 tax treatments that Michelle needs to be aware of:

1. Employment Income

I believe, Michelle is aware of declaring her salary to the IRB which falls under Section 13(1)(a) of Income Tax Act (ITA) 1967. For year 2018, she would declare RM 120,000 in employment income as she is making RM 10,000 in monthly salary.

Income Declared Under Section 13(1)(a) = RM 120,000

2. ‘Free’ Hotel Accommodation

Michelle is liable under Section 13(1)(c) of ITA 1967, which requires her to pay taxes for hotel accommodation provided by her current employer. The amount of employment income declarable is calculated as follows:
Employment Income to be Declared:

= 3% of Income Declared under Section 13(1)(a) with apportionment of her duration of stay in the hotel.

= 3% x RM 120,000 x (1 month / 12 months)

= RM 300

Phew…

Michelle breathes a sigh of relief after realising the amount declarable is RM 300 only and not the sum of her hotel room rates of RM 7,750 (RM 250 x 31 days).


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3 ‘Free’ Condominium Stay in Penang

Also, under Section 13(1)(c) of ITA 1967, Michelle is also liable to make income tax payments for her ‘free’ stay in the condominium unit as her rental expenses were paid by her employer. However, the final amount declarable involves a 2-step calculation as illustrated below:

Step 1: Calculation of the Value of Benefit –

Under Section 32(2)(a) of ITA 1967, the value of Michelle’s ‘free’ stay in the condominium unit is the lower of:

(i) ‘Define Value’ of the ‘Unfurnished’ Accommodation.

From above, Michelle’s rental expense is RM 2,500 per month, inclusive of RM 700 per month in furnishing. Hence, if the unit is unfurnished, the rental expense would be RM 1,800 per month or RM 21,600 per year.

(ii) 30% of Income Declared under Section 13(1)(a)

From Point 1, Michelle’s income declared under Section 13(1)(a) works out to be RM 120,000. Thus, 30% of it is RM 36,000.

Hence, the lower amount is RM 21,600.

Step 2: Time Basis Apportionment

Michelle have stayed in her condominium unit since 1/4/2018. Hence, her length of stay is 9 months and thus, her amount declarable would be apportioned accordingly as follows:

Apportionment:
= The Lower Amount x Time Basis Apportionment
= RM 21,600 x (9 months / 12 months)
= RM 16,200

Thus, Michelle would declare gross employment income of RM 16,200 in respect to her ‘free’ stay in the condominium unit.

Now, the Furnishing …

Michelle is liable to make income tax payments as she is provided with full furnishing for her rented condominium unit under Section 13(1)(b) of ITA 1967. According to the IRB, the amount to be declared is a fixed amount of RM 3,360 per annum with time basis apportionment. Thus,

Income to be Declared under Section 13(1)(b)
= Fixed Amount for Full-Furnishing x Time Basis Apportionment
= RM 3,360 x (9 months / 12 months)
= RM 2,520

It is not the full amount of RM 6,300 where it is derived by multiplying RM 700 with 9 months.

The Final Amount Declarable:

Thus, Michelle would declare gross employment income of RM 139,020 and its calculation is summarized as follows:

No. Types of Employment Income Duration (RM) ITA 1967 Final Amount(RM)
1 Salary 1 Jan – 31 Dec Section 13(1)(a) RM 120,000
2 Full Furnishing 1 Apr – 31 Dec Section 13(1)(b) RM 2,520
3 Hotel (Mar 2018) 1 Mar – 31 Mar Section 13(1)(c) RM 300
4 Condominium 1 Mar – 31 Mar Section 13(1)(c) RM 16,200
Gross Employment Income Declarable RM 139,020