Contractor’s guide to contracting in Malaysia

Malaysia is an increasingly attractive destination for international contractors, as economic growth creates demand for skills and pay rates become more competitive, writes Shiv Marwah of Access Financial.

Malaysia's economy is the fifth largest in Southeast Asia and 35th largest in the world. And it’s now on its way to becoming the fifth so-called ‘tiger,’ or newly industrialised economy, of East Asia, along with Taiwan, Korea, Hong Kong, and Singapore.

It might be lesser-known to some UK contractors than those four, but Malaysia has averaged a real 9.6% growth in GDP over the past eight years. The economy is supported by highly productive oil and natural gas reserves which provides career opportunities for expatriate workers. Job and contract opportunities in Malaysia are increasing rapidly in a range of technology and services sectors, including IT, sales and marketing, banking and finance, e-commerce, and supply chain. 

A rich cultural diversity makes Malaysia an even more attractive location to work, providing easy access to Southeast Asia and forming a gateway between Australasia and the Middle East.

And there’s more to come. The government of Malaysia has set itself a target reach the standard of living of industrialised countries by the year 2020. This plan, called Vision 2020, is accelerating Malaysia's shift to high-technology industries. This growth is expected to continue for the foreseeable future. Manufacturing operations also continue to grow, and skilled workers are in high demand to staff global firms expanding their operations in Malaysia.

Why move to Malaysia if you’re a UK contractor?

Making the move to a foreign country might seem daunting, but the Malaysian lifestyle can be very attractive for expats. Just a few of the top reasons to move to Malaysia include:

1. Malaysia is a great place to do business, and its growing economy is creating a diverse range of opportunities for skilled workers.

2. Living costs like food and accommodation are generally very low.

3. Malaysia is full of modern conveniences like top medical care, schools, and infrastructure as well as the availability of foreign luxury products.

4. Malaysia is very safe. The people are generally very friendly, and crime rates are extremely low comparatively.

5. Malaysia is a transportation hub for Southeast Asia, which makes travel to other countries in the region inexpensive and convenient.

6. English is widely spoken and used in business.

7. Malaysia is a place of natural beauty with jungles and tropical islands full of wildlife.

8. Expats generally enjoy the local cuisine, and there is a wide array of international restaurants!

What does compliant contracting in Malaysia look like to UK contractors?

Immigration regulation for short-term skilled workers is being streamlined, so that applications have to be filed online. The immigration authorities typically give a decision within seven days of filing the application, assuming all the correct information is provided.

Contractors seeking temporary employment opportunities will likely need to engage umbrella services in Malaysia. Operating via a limited company is not an option for foreign nationals in Malaysia.

A competent accountancy partner can also assist in arranging medical insurance; visas for dependent family members, opening of bank accounts, payroll processing and tax clearance at the time of exit.

The tax year in Malaysia is the calendar year. Malaysia adopts a current year basis of assessment. This means that income for the calendar year 2018 is taxable in year 2018.

Tax rates applicable on Malaysian income may vary according to the residential status of an employee as follows:

Tax rates for residents

A person is resident in Malaysia for a particular year if they meet the following criteria:

  • If a person is in Malaysia for a total period of at least 182 days during the year;
  • If a person is in Malaysia for a period of less than 182 days during the year, and that period is linked by or to another period of at least 182 consecutive days (including temporary absences) in Malaysia, either in the immediately preceding or following year. Temporary absences for certain specified reasons are counted as part of these consecutive days; 
  • If a person is in Malaysia for a total period of at least 90 days during the year, and has been, with respect to three out of the four immediately preceding years, either in Malaysia for at least 90 days or was a resident in Malaysia; 
  • If a person is resident in Malaysia in the following year and was a resident for each of the three immediately preceding years.

Tax rates are as follow (2018)

N.B. One Malaysian Rinngit (RM) is worth 0.18 pounds (at the time of writing).
 

Taxable Income (MYR)

Tax on lower amount

 Rate on excess (%)

0 – 5,000

0

0%

5,001 – 20,000

0

1%

20,001 – 35,000

150

3%

35,001 – 50,000

600

8%

50,001 – 70,000

1,800

14%

70,001 – 100,000

4,600

21%

100,001 – 250,000

10,900

24%

250,001 – 400,000

46,900

24.50%

400,001 – 600,000

83,650

25%

600,001 – 1,000,000

133,650

26%

1,000,001 -  Above

237,650

28%

Resident individuals are subject to tax on income accruing in or derived from Malaysia. Income received in Malaysia from outside Malaysia is exempt from tax.

Scheduler Tax Deductions (STD) rules (Withholding taxes)

It is mandatory for an employer to deduct tax from the monthly remuneration of each of the employees under the Scheduler Tax Deduction (STD) scheme for remittance to the Malaysian Inland Revenue Board (MIRB). An employee will reach the STD threshold when his/her monthly remuneration is above RM 3,141.

Personal relief

Malaysian resident individuals are entitled to a personal relief of RM 9,000/year. This relief further varies depending on the individual’s marital status and number of children. These are deductible from assessable income to arrive at taxable income.

Tax rates for non-residents

An individual is non- resident in Malaysia if he/she does not meet any of the condition listed above for residents. Income earned in Malaysia is taxed from day one. Non-residents are taxed at a flat rate of 28%. After the individual non-resident completes more than 182 days, then becomes a resident and tax will be applicable as per the above resident tax table. Excess tax paid will be adjusted at the time of filling the annual tax return.

Employee Provident Fund scheme (EPF)

Malaysia has a compulsory Employee Provident Fund scheme which provides retirement benefits for members through the management of their savings in an efficient and reliable manner.

Employees whose country of domicile is outside Malaysia (i.e. foreign citizens) are exempted from contributing but despite this, they can make an election to contribute along with their employer as follows:

Employee

11% of remuneration

Employer

12% of remuneration

Total

23% of remuneration

Malaysia can be a fun and fulfilling place for British contractors looking to work in its territory on a temporary, professional basis. You can increase your chances of taming this new tiger economy for the good of your contracting career with specialist advice.

Editor's Note: The author Shiv Marwah, and Roger Mathews -- also an expert on contracting in Malaysia at Access Financial, can be contacted for contracting in Malaysia enquiries on 00 60 392122593.

Thursday 26th Apr 2018