Resident Status Taxation

Residence Status
OBJECTIVES

Explain and the four rules of tax residence for individuals under Section 7(1)
Apply the four rules to determine the residence status of an individual for a particular basis year
Explain the significance of tax residence status for an individual
Briefly explain the tax residence rule for companies include only place of management and control,
exercised by the board of directors (case law is not required)
Explain the significance of tax residence status for a company

2.0 Residence Status for Individuals

The determination of an individuals residence status is done solely by reference to the number of days that an
individual is physically present in Malaysia during a particular calendar year

Citizenship and permanent resident (PR) status of an individual is irrelevant to qualify as a tax resident in
Malaysia

Section 7(1) For the purposes of this Act, an individual is resident in Malaysia for the basis year for a
particular year of assessment if:
9999653
s7(1) (a):
An Individual is in Malaysia in that basis year for a period or periods amounting in all to 182 days or more;

s7(1) (b):
An Induvidual is in Malaysia in that basis year for a period of less than 182 days and that period is linked by or
to another period of 182 or more consecutive days (hereinafter referred to in this paragraph as such period)
throughout which he is in Malaysia in the basis year for the year of assessment immediately preceding that
particular year of assessment or in that basis year for the year of assessment immediately following that
particular year of assessment:

Provided that any temporary absence from Malaysia is:

(i) connected with his service in Malaysia and owing to service matters or attending conferences or
seminars or study abroad;
(ii) owing to ill-health involving himself or a member of his immediate family; and
(iii) in respect or social visits not exceeding 14 days in aggregate

S 7(1) (c):
He is in Malaysia in that basis year for a period or periods amounting in all to 90 days or more, having been
with respect to each of any 3 of the basis years for the 4 years of assessments immediately preceding that
particular year of assessment either:

(i) resident in Malaysia within the meaning of this Act for the basis year in question; or
(ii) in Malaysia for a period or periods amounting in all to 90 days or more in the basis year in
question;
s7(1)(d) :
he is resident in Malaysia within the meaning of this Act for the basis year for the year of assessment showing
that particular year of assessment, having been so resident for each of the basis years for the 3 years of
assessment immediately preceding that particular year of assessment and tax resident in the following year.

For the purposes of counting the number of days in Malaysia to determine the residence status, part of a day will
be counted as one day.

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2.0.1 Section 7(1)(a)

An individual who is physically present in Malaysia from a period of periods amounting in all to 182 days or
more will be a taxresident in that particular year of assessment by virtue of s7(1)(a). The 182 days can be made
up of a single period or multiple periods in that particular calendar year.

Example 1

Mr.Kumar is an accountant who travels globally on country-specific assignments. He arrived in Malaysia o

1.1.07 and left Malaysia permanently on 29.06.08. He had the following records of stay:

YA Date Place of Stay No. of Days

2010 1.1 10.4 In Malaysia 100
11.4 30.4 Visit to Taiwan 20
1.5 31.7 In Malaysia 92
1.8 31.12 Assigned to Hong Kong 153
2011 1.1 29.6 In Malaysia 180

Mr.Kumars tax residence status for YA 2010 and 2011 are:

YA Total No. of Residence status Section

Days in
Msia
2010 192 Yes 7(1)(a)
2011 181 No -

Mr.Kumar would be tax resident by virtue of s 7(1)(a) in YA 2010 because he was physically present in
Malaysia for periods amounting in total to more than 182 days. His physical presence in 2011 is less than 182
days and thus he does not qualify as tax resident under s 7(1)(a) in YA 2011.

2.0.2 Sections 7(1)(b)

An individual will be a tax resident by virtue of 7(1)(b) if he is physically present in Malaysia in that basis year
for a period or periods of less than 182 days (short period), and that period is either linked to or linked by
another period of at least 182 or more consecutive days (long period) in Malaysia.

Permitted temporary absence shall be taken to form part of the short period or long period provided the
individual is in Malaysia immediately prior to and after that temporary absence.

However, the permitted temporary absence must only be those falling under the following categories:
(a) absence connected with his service in Malaysia and owing to service matters or attending conferences
or seminars or study abroad;

(b) absence due to ill health involving himself or a member of his immediate family (comprising spouse,
children and parents only); and

(c) absence in respect of social visits not exceeding 14 days in aggregate (the 14 days need not be
consecutive and is extended to cover the 2 basis years)

Note:
Social visits would involve visiting of friends or relatives but exclude vacation and holidays abroad.

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Example 2 (Linked by)

Chee Keong has the following records of stay in Malaysia:

YA Date No. of Days

2010 10.4 30.12 (long period) 265
2011 2.1 31.3 (short period) 90

Assuming that the absence from 31.12.2010 1.1.2011 was due to social visits in Singapore, and was in
Malaysia immediately prior to (30.12.2010) and after (02.01.2011)that temporary absence, that short period in
2011 can be linked by the ling period in 2010. Thus, he is a tax residence under s 7(1)(b) in the year 2011.

Example 3 (linked to)

Daniel was seconded to Malaysia from India to oversee his companys local operations. He first arrived on
12.12.2010 and his passport showed the following travel detail:

YA Date No. of Days

2010 12.12 30.12 19 days in Malaysia
31.12 1 day social visit to Singapore
2011 1.1 7.01 7 day social visit to Bangkok
8.01 26.05 140 days in Malaysia
27.5 30.5 4 days social visit to Delhi
31.5 10.07 41 days in Malaysia

Required:

(a) State whether, Daniel was a resident in Malaysia for YA 2010 and YA 2011.
(b) Would your answer be different if his social visit in May 2010 was extended to 3 June 2011?

Answer
(a) In YA 2010, Daniel would have been a tax resident in Malaysia by virtue of 7(1)(b) because his short
period in 2010 was linked to a long period of 182 or more consecutive days in 2011. His aggregate
social visits amounts to only 12 days and as such all temporary absences in respect of his social visits
are permitted under the provision to s 7(1)(b). Temporary absences are allowed to from the linkage
between 2010 and 2011. In YA 2011, Daniel would not have qualified as a tax resident in Malaysia
under s 7(1)(a) as his physical presence in Malaysia was less tha 182 days. The concept of temporary
absences only apply to determine the residence status under s 7(1)(b) and shall not be counted as any
day of physical presence first 7(1)(a).
(b) If the social visit was extended to 3 June, the aggregate social visits would exceed 14 days. The 14 of
day social visit was on 1 June and had he been in Malaysia immediately after that period of temporary
absence (i.e. on 2 June), he would have qualified for tax residence under s7(1)(b). However, as any
social visits in excess of 14 days do not qualify as temporary absences, and he was not in Malaysia
immediately after the qualifying temporary absence, he will not be taxed resident for YA 2010 and YA
2011.

2.0.3 Section 7 (1)(c)

An individual will be a tax resident the basis year for a YA if he is physically present in Malaysia for a period or
periods if at least 90 days; and in any 3 out of 4 immediate preceding years, he was either:

(i) A tax resident; or

(ii) Was physically present Malaysia for period/periods of at least 90 days.

The physical presence of 90 days in Malaysia need not be consecutive.

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Example 4

Mah Jonghas the following periods of stay in Malaysia:

Date Date Place of Stay No. of Days

22.05.07 31.12.07 In Malaysia 224 s 7(1)(a)
1.1.08 31.3.08 In Malaysia 90 s 7(1)(b) linked by
1.4.09 30.04.09 In Malaysia 30 -
11.2.10 1.6.10 In Malaysia 111 -
1.1.11 31.3.11 In Malaysia 91 s 7(1)(c)

Mah Jongwas a tax resident for YA 2011 by virtue of s 7(1)(c) as the following conditions are fulfilled:
(a) there was a minimum period of 90 days of physical presence in 2011; and
(b) in 3 out of 4 immediate preceding years she was either a tax resident (YA 2007 and YA 2008) or ha a
minimum period of stay of 90 days (YA 2010).

2.0.4 Section 7(1)(d)

Section 7(1)(d) serves as a residual section where an individual need not to be physically present in Malaysia at
all in a particular basis year and yet can still qualify as a tax resident in that year.

To qualify as a tax resident under this section, an individual:

(i) must be tax resident in the following year; and
(ii) was a tax resident in the 3 immediate preceding years.

Example 5

Mr Khoo has the following periods of stay in Malaysia:

YA Date No. of Days in Malaysia Residence Status

2006 1.10 31.10 31 No
2007 1.11 31.12 61 Yes 7(1)(b) linked to
2008 1.01 2.07 184 Yes 7(1)(a)
2009 1.06 3.12 186 Yes 7(1)(a)
2010 - ?
2011 1.03 30.09 214 Yes 7(1)(a)

Even though Khoo was not present in Malaysia at all in 2010, he is qualified as tax resident in YA 2010 by
virtue of s 7(1)(d) as he fulfilled the following conditions:
(a) he was a tax resident in the 3 immediate preceding YAs (YA 2007 to YA 2009)
(b) he was a tax resident in the following YA (YA 2011).

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Example 6

Christina had been a Malaysian tax resident all along until the year 2007, when she was assigned to duties
outside Malaysia. Since then, she frequently resides in distant countries to solicit clients for her company
globally.

Date Place of
Stay
1.1.2008 31.10.2009 Singapore
1.11.2009 3.7.2010 Malaysia
4.7.2010 31.7.2011 Canada
1.8.2011 17.11.2011 Malaysia
18.11.2011 onwards USA

Required :
Determine residence status of Christina for YAs 2008 to 2011.

Answer

YA Period of Stay in Malaysia Status Remarks

2008 Nil Resident s 7(1)(d)
2009 1.11 31.12 Resident s 7(1)(b) linked to
2010 1.01 3.07 Resident s 7(1)(a)
2011 1.08 17.11 Resident s 7(1)(c)

YA 2008
Daphne was tax resident by virtue of 7(1)(d) as she was a tax resident for the 3 immediate preceding YAs (YA
2002 to YA 2007) and was also tax resident the following YA (YA 2009).

YA 2009
She was a tax resident by virtue of s 7(1)(b) because her short of stay (61 days) in Malaysia in 2009 was linked
to a long period of 184 or more consecutive days in the year 2010.

YA 2010
She qualified as tax resident under s 7(1)(a) as she was physically present in Malaysia for a period of at least
182 days in 2010.

YA 2011
She was physically present for a period of at least 90 days I the basis year 2011 and she was also a tax resident
in the 3 immediate preceding years (YA 2008 to YA 2010) . This enabled her to become a tax resident under
s 7(1)(c)

2.0.5 Significance of Residence Status for Individuals

Resident Non-Resident
(a) Tax Rate 0-26% Scale Rate 26% flat rate
(b) Malaysia derived income Taxable in Malaysia Taxable in Malaysia
(c) Foreign source income:
- Not remitted Not taxable in Malaysia Not taxable in Malaysia

(d) Tax relief Eligible Not eligible

(e) Tax rebates under s 6A Eligible Not eligible
(f) Employment income derived from Taxable Exempted under Para 21 Sch 6
Malaysia if conditions are satisfied
(g) Interest income from licensed bank 5% tax deducted at source Exempted under Para Sch 6
and financial institution.
(h) Withholding tax Not applicable Applicable

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2.1 Residence Status for Companies

For companies, the deciding factor for residence status is where management and control is exercised.

s 8(1) For the purposes :

(a) a Hindu joint family is resident in Malaysia for the basis year for a year of assessment if its manager or
karta is resident for that basis year;
(b) a company or a body of persons (not being a Hindu joint family) carrying on business or businesses is
resident in Malaysia for the basis year of assessment if at any time during that basis year the
management and control of its business or of any one of its businesses, as the case may be, are
exercised in Malaysia; and
(c) any other company or body of persons (not being a Hindu joint family) is resident in Malaysia for the
basis year for a year of assessment if at any time during that basis year the management and control of
its affair s are exercise din Malaysia by its directors or other controlling authority.

A company will be a tax resident in Malaysia for the basis year for a YA if:

(i) companies carrying on a business, the management and control of its businesses are exercised in
Malaysia at any time during the basis year; or
(ii) any other companies (e.g. investment holding companies), the management and control of its
affairs are exercised in Malaysia by its directors or other controlling authority.

2.1.1 Management and Control

With reference to case laws, management and control is determined by reference to:

(a) the place of directors meeting (where policy decisions are taken to direct and control the
company); or
(b) the place where the real business is carried on (where superior direction and control is exercised).

Factors irrelevant for the determination of management and control:

(i) the registered office of the company or the place of its incorporation,
(ii) Memorandum and Articles of Association
(iii) control by shareholders as opposed to control by directors. It is latter that determines control,
(iv) tax residence status of the directors.

2.1.2 Presumption of Consulting Residence Status

s 8(2) if it is shown that it has been established as between the Director General and a company or body of
persons for any tax purpose that the company or body was resident in Malaysia for the basis year for the basis
year for any year of assessment, it shall be presumed until the contrary is proved that the company or body was
resident in Malaysia for the purposes of this Act for the basis year for every subsequent years of assessment.

Thus, that once a company becomes a Malaysian tax resident for a particular basis year, the company shall be
presumed to be a tax resident for every subsequent YAs until the contrary is proved to the Malaysian tax
authority.

Example 7

SC Bank Ltd is international bank whose headquarters is based in London and is listed on both the London and
Hong Kong Stocks Exchange. 90% of its profits come from developing countries out of Europe, in the
continents of Asia, Africa and the Middle East. It has financial year end of 30 June. All Major decisions
affecting the company are made at the directors board meeting which are held in London, except for one which
was held in Kuala Lumpur on 30.9.2010.

Required:
Explain what would be tax implications of company having its directors board meeting in Kuala
Lumpur on 30.09.2010.

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Answer

The basis period for SC Bank Ltd for YA 2011 would be from 01.7.2010 30.6.2011. Since the directors board
meeting where major decisions were made was held in Malaysia during that basis period, SC Bank Ltd would be
a Malaysian tax resident for YA 2011.

SC Bank Ltd shall be presumed to be Malaysian tax resident for every subsequent YA unless the contrary is
proved to the Malaysian tax authority.

2.1.3 Significance of Residence Status for Companies

Resident Non- resident

(a) Malaysian derived income
(b) Foreign source income :
- not remitted back
(c) Foreign source income :
- received in Malaysia
(d) Dividends distribution
(e) Application of s 108 account
(f) Incentives available under
ITA 1967 and Promotion of
Investments Act 1986
(g) Withholding Tax
Taxable in Malaysia Taxable in Malaysia
Not taxable in Malaysia Not taxable in Malaysia
EXCEPT for business income of
companies involved in banking,
insurance, shipping and air
transport which is taxable in
Malaysia wherever derived in the
world.
Exempted under Para 28 Sch 6 Exempted under Para 28 Sch 6
EXCEPT for foreign business
income of companies involved in
banking, insurance, shipping and
air transport which will not
qualify for this exemption
Deemed to be derived from Not a Malaysian derived dividend
Malaysia
Applicable up to YA 2011 Not applicable
Yes No
Not applicable Applicable

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Tutorial

Question 1

(a) Ali returned to Malaysia on 1.2.2000 after a 4-year absence when he was studying in United States. He
works as an auditor with Ai See Ai Sdn Bhd, a job which requires frequent overseas travel. The following are
the particulars of his whereabouts in the period 1.2.2000 to 31.7.2003:
1.2.2000 10.4.2000 In Malaysia
11.4.2000 13.7.2000 Outside Malaysia
14.7.2000 31.8.2000 In Malaysia
1.9.2000 29.12.2000 Outside Malaysia
30.12.2000 31.12.2000 In Malaysia
1.1.2001 31.3.2001 In Malaysia
1.4.2001 12.4.2001 Attending conference in Bali, Indonesia
13.4.2001 1.8.2001 In Malaysia
2.8.2001 31.8.2001 Short course in Belgium
1.9.2001 31.12.2001 In Malaysia
1.1.2002 28.2.2002 In Malaysia
1.3.2002 31.3.2003 Outside Malaysia
1.4.2003 31.7.2003 In Malaysia

Required:

(a) Explain to Ali the advantages and disadvantage of being a tax resident in Malaysia;

(b) State, with reasons, whether or not Ali is resident in Malaysia in each of the four years of
assessment 2000, 2001, 2002, and 2003.

Question 2

Mr Globetrotter arrived in Kuala Lumpur for the first time on 29 June 2002 and remained in Malaysia until his
departure for the UK on 5 February 2003.

Thereafter, he returned to Malaysia on several occasions as follows:

2 February 2004 to 31 may 2004;

8 July 2004 to 30 August 2004; and
20 December 2004 to 15 April 2005.

Required:

(a) State, with reasons the residence status of Mr Globetrotter in Malaysia for each of the years of
assessment 2002 to 2005.
(b) Briefly explain two differences between the tax treatment of a resident individual and a non-resident
individual.

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Question 3

On 8 December 2001, Mr Ekspat arrived in Malaysia to take up employment with PlentyMoney Sdn. Bhd. Prior
to this, he had visited Malaysia as a tourist in 2000 and stayed for 100 days during the period February to June
2000.

Information as to his movements is as follows:

Dates
8 December 2001
15 December 2001
24 27 December 2001
1 March 8 March 2002
6 July 2003
12 February 2004
20 May 2004
Whereabouts
Arrived at Kuala Lumpur International Airport.
Reported for work at Plenty Moneys premises in Kuala
Lumpur.
Spent Christmas with his family in a resort in Langkawi.
Travelled to Singapore on business on 1 March 2002.
Returned to Kuala Lumpur on 8 March 2002.
Seconded to Plenty Moneys head office in Sydney for seven
months.
Returned to Kuala Lumpur from Australia to resume his duties
in Malaysia.
Departed from Kuala Lumpur for his next posting in Manila.

Required:

State, giving reasons, whether Mr. Ekspat will be a Malaysian tax resident in each of the five years of
assessment, 2000 to 2004 inclusive.

Question 4

Mr Gurmi, an expatriate, arrived in Kuala Lumpur for the first time on 1 September 2003 to take up
employment with a Malaysian company.

On 22 December 2003, Mr Gurmi flew out of Kuala Lumpur to spend Christmas in Hong Kong. He returned to
Kuala Lumpur on the afternoon of 6 January 2004.

After this, Mr Gurmi remained in Malaysia until 15 July 2004, when he left Malaysia for his home country,
having completed his employment contract.

Required:

State, with reasons, the residence status for Malaysian tax purposes of Mr Gurmi, for the years of assessment
2003 and 2004.

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