Employment Income

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Source of Employment Income The basis of taxation on employment income is that income from exercising an employment in Malaysia is regarded as Malaysian derived income. All income attributable to the employment exercised in Malaysia is subject to Malaysian tax irrespective of where the remuneration is paid. Where an employee is required to perform his duties outside Malaysia, the entire remuneration is still chargeable to Malaysian tax if the services rendered outside Malaysia are regarded as incidental to the Malaysian employment.

Remuneration from Employment The definition of employment income under Section 13(1) of the Income Tax Act, 1967 (the Act) includes:a) b) c) d) e) Wages, salary, remuneration, leave pay, fee commission, bonus, gratuity, perquisite allowance Benefit or amenity (BIK/perks) Living accommodation (housing benefit) Contributions/income earned from unapproved provident fund scheme Compensation for loss of employment (certain exemptions available – see Income Exempt from Tax)

Dual Employment Where an individual has regional responsibilities and performs services for the head office or parent company outside Malaysia under a separate employment, he is regarded as employed by the overseas company in respect of services performed outside Malaysia. On this basis, that part of the remuneration which is paid by the overseas company is not assessable to tax in Malaysia provided that: it is not charged back to the Malaysian branch or subsidiary directly or indirectly; and the employment with the overseas company is exercised exclusively outside Malaysia. This arrangement requires two separate contracts of employment which should clearly define the duties and the locations where the respective services should be performed. The allocation of the remuneration between the Malaysian branch/company and the overseas company should be reasonable, taking into account the time spent outside Malaysia and the nature of the...
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