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US Expat Taxes Explained: Filing Taxes as an American Living in Malaysia

­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­­How Working in Malaysia Impacts US Expat Taxes

You are going to be required to file US expat taxes no matter which country you live in, but how will your taxes be affected if you live in Malaysia?  With the PETRONAS Towers and Kuala Lumpur representing an economic hub of South East Asia and the beautiful beaches that cover the rest of the country, it is easy to see why Malaysia is a popular location for foreigners to live.  Nevertheless, it is important to understand how your US expat taxes are going to change with your move to Malaysia, and what taxes you will be required to pay to Malay authorities while residing there.

US Expat Taxes in Malaysia

If you are a citizen or permanent resident of the United States then you are obligated to file US taxes, in this case US expat taxes, with the IRS each year regardless of the country in which you reside.

In addition to the regular income tax return, you could also be required to file an informational return on your assets held in foreign bank accounts with Foreign Bank and Other Account Reporting (FBAR) Form 114, in addition to Form 8938 Statement of Specified Foreign Financial Assets.

While the US is one of the few governments that tax the international income of their citizens and permanent residents who reside overseas, it does have special provisions to help protect them from double taxation including:

  • The foreign earned income exclusion allows you to decrease your taxable income on US expat taxes by the first $108,700 for 2021 ($107,600 for 2020) earned as a result of your labors while a resident of a foreign country.
  • The foreign tax credit, which allows you to offset the taxes you paid in your host country with your US expat taxes dollar for dollar, and
  • The foreign housing exclusion, which allows you to exclude certain household expenses that occur as a result of living abroad.

With proper planning and quality tax preparation, you should be able to take advantage of these and other strategies to minimize or even eliminate your US expatriate taxes.  Please note that even if you do not believe you will owe any US income taxes, you will more than likely still be required to file a return for your US expat taxes.

Malaysia Income Tax Rates

The tax rates from the Malaysian Inland Revenue Board (MIRB) vary based on your residency status.  Non-residents will be taxable at a flat rate of 26% on Malaysia-sourced income (no exclusions). Residents are taxed at a progressive rate, ranging from 0% to RM 53,325 + 26%.

Earnings in Malaysian Ringgit (RM) Rate Applicable to Income Level (%)
0-2500 RM 0 + 0%
2,501 – 5,000 RM 0 + 1%
5,001 – 10,000 RM 25 + 3%
10,001 – 20,000 RM 175 + 3%
20,001 – 35,000 RM 475 + 7%
35,001 – 50,000 RM 1,525 + 12%
50,001 – 70,000 RM 3,325 + 19%
70,001 – 100,000 RM 7,125 + 24%
100,001 – 150,000 RM 14,325 + 26%
150,001 – 250,000 RM 27,325 + 26%
250,001 and above RM 53,325 + 26%

Americans in Malaysia are going face higher taxes in Malaysia than expats in other Asian countries; for this reason, they can expect owing less to the IRS when it comes time to pay their US expat taxes.

Malaysia Residency

Malaysian residency is based on how many days an individual spends in Malaysia. An individual is considered a resident if one of the following requirements is met:

  • Present in Malaysia for 182 or more days in a given year (do not need to be consecutive).
  • Present in Malaysia for less than 182 days in the given tax year but more than 182 consecutive days in the year preceding or following the tax year.   Absences in the 182 days for service matters, studying abroad, attending conferences, or social visits are included if the aggregate of these days is not more than 14 days.
  • Present in Malaysia for 90 days or more in the current tax year in addition to being a resident of Malaysia or being present in Malaysia for 90 days or more in any three tax years out of the previous four tax years preceding the assessment.
  • Resident for the tax year following the current tax year and for each of the three preceding tax years.  This is still valid even if the individual was not present in Malaysia at all in the current tax year.

Is Foreign Income Taxed Within Malaysia?

Malaysia adapts a taxation system similar to that of Hong Kong – a territorial system. An individual is only taxed on income earned from events in Malaysia or paid in Malaysia.  Any foreign sourced income is not taxable in Malaysia regardless of residency status.

Malaysia Tax Due Date

The Malaysian tax year is the same as the United States: January 1st through December 31st.  The similarities stop, however, where dates are concerned. Tax returns need to be filed with the Malaysian Inland Revenue Board before April 30th, and this date cannot be extended.  Malaysia does allow for joint filing of tax returns for married couples.

You should have monthly payroll deductions in Malaysia for tax withholding. Any additional taxes must be paid to the MIRB by April 30th through either an MIRB office or participating banks with cash, check, or online payment.

Social Security in Malaysia

There is no social security agreement between the US and Malaysia.  For that reason, expats may be taxed doubly in this area while working overseas. The policies for Americans paying into Malaysian social security change from time to time; expats should keep up with Malaysia-US social security policies.

US – Malaysia Tax Treaty

The US and Malaysia do not currently have a tax treaty in place.

Other Taxes in Malaysia

Employment income is considered to be any remuneration. This includes wages, salary, bonuses or gratuity, benefits-in-kind, accommodation/housing allowances, and compensation for loss of employment. In addition to income tax on employment income, there are other forms of income that are taxed in Malaysia.

Malaysia has a Real Property Gains Tax (RPGT) which makes taxpayers liable for taxation on gains arising from the disposal of real property. If the property is held for more than 5 years, the RPGT of 5% will be exempted on the individual, but if it was held for less than 5 years, the individual will be responsible for the tax.

Malaysia has a Goods and Services Tax of 5-10%.

Saving on US Expat Taxes

Knowing that you are required to file US expat taxes is the first step in understanding your tax situation while living abroad in Malaysia.  Combining a basic knowledge of these requirements with an understanding of your obligations to the Malaysian authorities can make your entire experience as an expat in Malaysia much more enjoyable.

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