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 NONRESIDENT(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 more Section 7(1)(b) - <182 days, link to/by 182days Section 7(1)(c) - 90days or more in 3 out of 4 YA Section 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
JAN 1 FEB 1 YA 2006

182 days

SEPT 1

DEC 31

Multiple period
YA 2006

JAN 1

FEB 1 MAY 1 89 days

JUL 1 92 days

SEPT 1 DEC 1 DEC 31 30 days

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT)

Section 7(1)(b)
YA 2006 YA 2007

DEC 1

DEC 31/ JAN 1

DEC 31 SEPT 1

Shorter period (31 days)

linked to

Longer period (182 days)

DETERMINATION OF RESIDENTIAL STATUS- INDIVIDUAL (CONT)

Section 7(1)(c) Kelvins periods of stay in Malaysia
Y/A 2003 2004 2005 2006 2007 Period of Stay 01.01.03 - 31.07.03 01.12.04 31.12.04 01.01.05 03.07.06 01.01.06 31.03.06 01.04.07 30.06.07 # of days 212 31 185 90 91 Resident Status R, S7(1)(a) R, S7(1)(b) R, S7(1)(a) NR 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 2004 2005 2006 2007 2008 # of days 220 183 190 300 Resident Status R, S7(1)(a) R, S7(1)(a) R, S7(1)(a) R, S7(1)(d) 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 RATE
R- Scaled rate (0% - 26%) NR- Flat rate (26%)

PERSONAL RELIEF
R- entitled to claim NR- not entitled

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS (CONT)

EMPLOYMENT INCOME MALAYSIA IN 60 DAYS REBATE FOR RM35,000 DERIVED FROM
R- Taxable NR- Exempted (Para 21,22 of sch 6)

CHARGEABLE

INCOME

R- Entitled to claim NR- Not entitled

DIVIDEND FROM APPROVED UNIT TRUST

R- Exempted PU(A) 532/851 NR- Not exempted

IMPORTANCE OF RESIDENCE STATUS OF INDIVIDUALS (CONT)

INTEREST INCOME (NON-EXEMPT) FROM FINANCIAL INSTITUTIONS
R- taxable NR- exempted

ROYALTIES FROM LITERARY OR ARTISTIC WORK

R- Exempted (Para 32, 32A, 32B of sch 6) NR- Not exempted

INCOME FROM MUSIC COMPOSITION

R- 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 applicable NR- Applicable

END OF CHAPTER 2