RESIDENCE STATUS OF INDIVIDUALS AND COMPANIES

• Introduction• Determination of residential status of an individual [Section 7 (1)(a)-(d)• Importance of residential status of individual

INTRODUCTION• WHY WE NEED TO DETERMINE WHETHER A

PERSON IS A RESIDENT(R) OR NON-RESIDENT(NR)?– Because resident is given an overall

preferential tax treatment as compared to non-resident individual

– Eg: Tax rate: R- scaled rate (0%-26%), NR- flat rate (26%)Personal relief: R- entitled, NR- not entitled

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL

• Use quantitative test based on number of days an individual physically present in Malaysia during particular calendar year.

• Part of a day consider as a full day.• 4 circumstances prescribed by section 7(1).

Section 7(1)(a) - 182days or moreSection 7(1)(b) - <182 days, link to/by 182daysSection 7(1)(c) - 90days or more in 3 out of 4 YASection 7(1)(d) – Not in Malaysia for Y/A, but (R) 3

preceding years and (R) following year

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT…)

• Section 7(1)(a) Single period

Multiple period

JAN 1 FEB 1 SEPT 1 DEC 31

YA 2006

≥ 182 days

JAN 1 FEB 1 SEPT 1 DEC 31

YA 2006

89 daysMAY 1 JUL 1

92 daysDEC 1

30 days

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT…)

• Section 7(1)(b)

DEC 1DEC 31/

JAN 1SEPT 1

DEC 31

YA 2006

Shorter period (31 days)

YA 2007

Longer period (≥182 days)linked to

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT…)

• Section 7(1)(c)• Kelvin’s periods of stay in Malaysia

Y/A Period of Stay # of days

Resident Status

2003 01.01.03 - 31.07.03 212 R, S7(1)(a)2004 01.12.04 – 31.12.04 31 R, S7(1)(b)2005 01.01.05 – 03.07.06 185 R, S7(1)(a)

2006 01.01.06 – 31.03.06 90 NR2007 01.04.07 – 30.06.07 91 R, S7(1)(c)

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT…)

• Kelvin qualifies to be tax resident for Y/A 2007 by virtue of S7(1)(c) as he stayed more than 90 days in Malaysia for that year and he has been in Malaysia for more than 90 days for 3 out of 4 preceding years of assessment.

OR• He qualifies to be tax resident in Y/A 2007 by

virtue S7(1)(c) as he stayed more than 90 days for that Y/A and a tax resident for 3 out of 4 preceding years of assessment.

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT…)

Y/A # of days Resident Status2004 220 R, S7(1)(a)2005 183 R, S7(1)(a)2006 190 R, S7(1)(a)2007 - R, S7(1)(d)2008 300 R, S7(1)(a)

John is a tax resident in Y/A 2007 even though he is totally away from Malaysia. This is because he is a tax resident in 3 preceding years and the following year. Therefore, he qualifies to be a tax resident by virtue of S7(1)(d).

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS

• SCOPE OF CHARGE Income accrued/derived in Malaysia

R- Taxable (including income received from outside Malaysia: w.e.f 2004 not taxable)

NR – Taxable

• TAX RATER- Scaled rate (0% - 26%)NR- Flat rate (26%)

• PERSONAL RELIEFR- entitled to claimNR- not entitled

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS (CONT…)

• EMPLOYMENT INCOME DERIVED FROM MALAYSIA IN ≤ 60 DAYS

R- TaxableNR- Exempted (Para 21,22 of sch 6)

• REBATE FOR CHARGEABLE INCOME ≤ RM35,000

R- Entitled to claimNR- Not entitled

• DIVIDEND FROM APPROVED UNIT TRUSTR- Exempted PU(A) 532/851NR- Not exempted

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS (CONT…)

• INTEREST INCOME (NON-EXEMPT) FROM FINANCIAL INSTITUTIONS

R- taxableNR- exempted

• ROYALTIES FROM LITERARY OR ARTISTIC WORKR- Exempted (Para 32, 32A, 32B of sch 6)NR- Not exempted

• INCOME FROM MUSIC COMPOSITIONR- Exempted (Para 32D)NR- Not exempted

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS (CONT…)

• INCOME FROM CULTURAL PERFORMANCE APPROVED BY MINISTER

R- Exempted (para 32C)NR- Not exempted

• WITHOLDING TAX ON CONTRACT PAYMENT, INTEREST, ROYALTY, TECHNICAL FEES AND OTHER SECTION 4A PAYMENT

R- Not applicableNR- Applicable

END OF CHAPTER 2