Retiring in Malaysia - Tax?
ฝัง
- เผยแพร่เมื่อ 24 ก.ค. 2024
- Book a call: calendly.com/worldtaxandy
International Tax - Fundamentals for Beginners: www.udemy.com/course/internat...
Malaysia continues to become more attractive for retirees - in this video I outline why it's such a favourable location from a tax perspective.
0:00 Introduction
0:31 Malaysia's treatment of retirement income
2:21 US citizens
3:48 UK citizens
5:13 UK citizens - are you still UK tax resident?
6:27 Conclusion
For those thinking of leaving the UK, see the UK's statutory residency test overview which I've prepared docs.google.com/document/d/1e...
A BIT ABOUT ME
I've been advising on international tax since 2014, and qualified as a Chartered Accountant in 2018. I worked for consulting firms PricewaterhouseCoopers and BDO, before I started a remote international tax consultancy firm, Degen Tax Advisers, in 2020.
I work with online entrepreneurs to help them navigate the complex world of international tax. I work with e-commerce businesses, digital nomads, content creators, tech startups, crypto investors and many more in the digital space. Like my clients I'm pretty nomadic. I've lived in the UK, US, Japan, South Korea, China, Malaysia, Thailand, Vietnam and Singapore. Currently I'm spending most of my time around Southeast Asia.
DISCLAIMER
My videos are for general guidance, education and providing you an introduction to the concepts of international tax. They in no way constitute specific advice to your specific circumstances. I accept no liability for any reliance placed upon the content of these videos or references, therein.
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A minor technical note just to give further context when I talk about UK Pensions.
For UK income, UK pensions are INITIALLY viewed as UK sourced by HMRC - however, the UK / Malaysia Double Tax Treaty gives Malaysia the taxing rights over pension income if the individual is a Malaysia resident. Thus, in effect, the UK doesn't treat that income as UK sourced in the end - the Double Tax Treaty overrides the UK's local tax law. Malaysia has the right to tax, but in the end doesn't tax the income, so the net effect is you pay 0% income tax as a British pension recipient that's tax resident in Malaysia.
Hence why I mention rental property income being taxable as UK sourced income - the Malaysia/UK Double Tax Treaty says that the country in which the property is located is the country which has taxing rights over the rental income. So UK rental property is taxable in the UK, but pension income is not.
I want to be clear on this because this won't be the case for every country. Whilst you get this benefit in Malaysia, if you move to a different country, you will have to check the Double Tax Treaty between the UK and whichever other country you reside in to understand who has the taxing rights. In some cases, the UK's ability to tax your income will remain, and you could be taxed on UK pension living abroad - it all depends on the place you are tax resident and the double tax treaty they have in place with the UK. In some cases, there's no double tax treaty (e.g Paraguay), which would mean you would still pay UK income tax on your pension.
It's very clear. Thank you for being so thorough
I am really impressed by your channel. It's so clear and the content addresses most of the questions people wonder. Before, I had to watch many videos to get the info I wanted. Your content is well thought and straight to the point well done. I am happy to learn that if you are a non UK resident, you can take your pension tax free. It's the first good news in ages.
Excellent, I’m delighted I found your channel.
Thanks so much.
Nice video 👏
Hugely appreciated, thank you!
Hi Andy I have watched all your video's to date on Malaysia and love the clarity that you bring to the different subjects. I live in the US and am considering a future retirement move to Malaysia for part of each year for 3 months or just short of 6 months max. I hope you can do some more video's on all the different MM2H Visa retirement programs. I count 4 of these in my research and find them very confusing. Not sure why these are even necessary and what their purpose is.
Hi Peter, thanks a lot for the great comment. Yes, Malaysia seems to make changes to the different visa programs quite regularly so it can be tough to follow.
In terms of the tax side of things, ultimately it shouldn't change regardless of your visa situation. So it's really all about whether you spent more than 6 months per year in Malaysia, and if so, you'll have to think about registering for Malaysian taxes.
But I am currently working on Malaysian videos and will be sure to add more explanations on my latest understanding of the retirement visas and how this will work for Americans
Thanks so much Andy appreciate the reply and information. Looking forward to learning more. @@WorldTaxAndy
Hi Andy I've been thinking about this some more and wondering if I did want to stay there longer what would be involved in registering for Malaysian Taxes as long as I am not generating any income there. Also curious about
buying property there to live in.@@WorldTaxAndy
@@peterchirico2153 Hi Peter, it's usually a simple process to register. Once you've spent > 6 months in a calander year, you register at the nearest IRBM (Inland Revenue Board of Malaysia) or LHDN (Lembaga Hasil Dalam Negeri) branch OR register online via www.hasil.gov.my/en/individual/individual-life-cycle/registration/online-e-daftar/
If you're not generating income though, it may not be wholly necessary. On the property side of things whilst I'm no property expert I do know of people who have bought Malaysian property - I know it can be a tricky area because whilst prices are generally quite low, there's a lot of logistical issues you can run into on the ground (perhaps why its still cheap to buy in Malaysia). So on this one it would be important to get an expert property advisor to help out as and when the time comes
Thank you so much.@@WorldTaxAndy
Great information, are you able to cover Australian tax rules as well? thank you
Hi, thanks for the kind words - yes I've had a lot of interest from Australians so I'll certainly be adding Australian specific aspects to future videos :)
Also if you have any specific types of income you'd like covered (businesses, employment, capital gains, property, dividends, pensions etc) just let me know and I'll be sure to cover it
@@WorldTaxAndy setting up a company in Malaysia/ working visa for MM2H is 20hrs allowed and what restrictions occur wiht this/ operating an online business in Malaysia any or all would be interesting I think for many others than just me
Did the recent updates to Malaysia's capital gains tax, effective from January 2024, have an impact on individual foreigners living in Malaysia as a retiree in relation to taxation of foreign-sourced capital gains, such as buying and selling listed shares in your investment portfolio, or distributions from an overseas investment fund?
Hi Greg, for now individual foreigners have nothing to worry about. The Capital Gains regime for now generally only impacts companies. In addition, even for companies, the scope can be limited by an exception which exempts the tax if the gains are not received in Malaysia (e.g if the proceeds go to a non Malaysian bank account). That said the current rules are scheduled to be in place until the end of 2028, and the direction of travel seems to be harmonisation with capital gains taxes globally, so I wouldn't be surprised if they brought capital gains to individuals towards the end of the decade, so worth keeping an eye on for retirees
Thanks so much.
Hi Andy
What would be the situation for an Australian resident?
Regards Terry
Hi Terry - for an Australian that moved to Malaysia, this would be similar as with UK retirees.
Under the Aus / Malaysia double tax treaty, Malaysia has the rights to tax your pension income. So you shouldn't pay any income tax at source in Australia. Furthermore, Malaysia, despite having the right, has chosen not to tax foreign sourced income. So you should have no tax liability in either country on pension income.
@WorldTaxAndy This is great information. So you can move to Malaysia and become non uk resident and take your uk pension income tax free but also still rent out your uk property and only get taxed by HMRC on that income. Is this correct ?
Thanks for the kind words, yes that's correct - generally its just the UK sourced income that they will tax i.e rental from physically based UK property. If you're a UK citizen then you will still be entitled to the UK personal allowance of £12,570
@@WorldTaxAndy Hi Andy.As a NTR my UK state pension was added to my UK rental income ...then the personal allowance deduced to give total taxable income. So are you saying any further pension income eg SIPP drawdowns (in excess of 25% tax free) would also be tax free ? Or are any further UK pensions above the PA taxable?
On gov UK DT table of territories.. Malaysia says full relief but below that says note 4 - NO relief on state pension...??
Thanks. New sub.
@@flyinghedgehog3833 Hi, thanks for the kind words and for subscribing. Yes SIPP drawdowns and other pensions that would usually be taxed at the normal UK income tax rates if you were resident in the UK would not be subject to UK tax if you were resident in Malaysia. And on the Malaysia side, these are also not currently taxed so you would get the effective benefit of 0% taxation on these drawdowns. However, Malaysia is tightening up their tax rules at the moment and becoming less friendly than they've been, so I'm a little wary of this changing over the next decade. But for now, its still a good place to be.
Also, you are correct on the state pension part highlighted - apologies for any confusion on that side of things, this will still be subject to UK income tax if you need to submit a UK tax return (which will apply in the case that you have UK rental income). Most Qs I've had have been on private pensions so I don't think I've clearly separated the two when making the video/responding to queries on here but this is an important distinction.
Keep posting Malaysia Videos
Thanks for the comment, much more on Malaysia to come. If there's any specific areas you want me to cover just let me know!
@@WorldTaxAndy yes i am looking to potentially move there one day from canada. Like to gather as much info as possible
Uk tax advisor here, whats your view on Labuan companies as a path to semi retirement in Malaysia?
Hi Anthony, Labuan companies are still attractive in certain circumstance even though they've declined in popularity with BEPS & some local law changes.
The recent substance requirements can make it unworkable for some. Broadly the requirements need 2 full time staff in Labuan, management & control in Labuan, among others. If you meet the substance you can get the 3% corporate tax rate, but for many the expense of meeting substance is no longer worth it.
Further there's a lot of activities which no longer qualify for the reduced corporate tax rate and will effectively be dragged into the scope of Malaysia's Income Tax Act & be hit at 24% corporate tax.
But if Labuan is an equity holding vehicle then the substance requirements are reduced (no need for employees) so this could be a solution where you have Labuan within a structure (perhaps as parent company with UK subsidiary). Labuan can then charge management fees to UK subsidiary to gain the benefits of the reduced corporate tax rate.
So its definitely still beneficial depending on how its structured. I would say a key reason some have been turned off is the volatility of the recent rule changes, it's been fairly chaotic both in Malaysia generally & specifically with Labuan - they have been scrambling around to comply with international standards, but at the same time still trying to appease foreign investors, often leading to last minute U-turns on new rules and just creating a lot of uncertainty. A lot of countries, UK included, specifically exclude Labuan from treaty benefits in the Double Tax Treaty so that aspect can also unnerve some. So whilst you can definitely get some advantages today, its hard to say with much certainty how the picture will look 2-3 years down the line - Malaysia is scheduled to remove the non taxability of foreign sourced income generally from 2027 so the direction of travel doesn't feel too promising in the long run.
@@WorldTaxAndy Thanks Andy - really helpful.
Hi Andy would like to know how crypto is treated in Malaysia, is it considered a foreign income or because you are buying and selling while living in Malaysia is it considered Malaysian income?
Hi Mitchell, crypto largely depends on how you earn on crypto.
If you're simply an investor, and you make gains in crypto now and again, you don't have to worry because this is treated as a capital gain. Malaysia has no capital gains taxes so this makes it a very attractive place for long term crypto investors.
It's different if you're a trader though. The general characteristics Malaysia uses to determine that you're a trader rather than investors is:
- Large number of trades (thousands per year)
- Short period of ownership (frequently holding onto assets for a few days or weeks)
- Using high-frequency exchanges
- Work done (by you) to increase the marketability of the traded asset
- Not offered for sale in a forced manner (e.g., the sudden need of cash; foreclosure)
- The motive is business related rather than investment (this can be subjective & hard to argue)
- Obtaining short-term financing to trade
If you ARE a trader, then crypto gains can be treated as 'income' and can be taxable in Malaysia if it's Malaysian sourced. Now this is the next question - is it Malaysia sourced? This is where its a bit of a grey area. If you're using a Malaysian crypto exchange then it's going to be Malaysian sourced.
On a similar note, the Malaysian authority deems a lot of crypto trading taxable when it's not done via a centralised broker (lets say its via a Decentralised Exchange) because the trader himself is holding the assets in Malaysia, and using his skills to generate profits in Malaysia.
If you're using a foreign exchange e.g US or EU based? This is where we actually don't yet have clarity from Malaysia's tax authority. Many have taken the interpretation that it's foreign sourced, because ultimately the assets are all held outside Malaysia, and even if the trader is using his skills to make the profit, the ultimate profit is really generated by activities happening elsewhere (i.e the gain in value of a crypto is highly dependent on global events irrespective of the trader's activities). But note this is just a common interpretation I've seen recommend by some lawyers - this is likely an evolving area, it's not one Malaysia has paid much attention to in the past. So it's definitely one worth keeping an eye on.
@@WorldTaxAndy thanks for the detailed and speedy response Andy, I’m a long term investor so seems that mine will be treated as a capital gains tax. You have got a subscribe from me, would love to see a video of the MM2H requirements when they update them.
@@Fozibear Great good to know and thanks for the subscription! Yep there will be a lot of Malaysian videos to come, the MM2H has been driving a lot of interest recently so I'll provide a lot more guidance on this
@@WorldTaxAndy I’ve been told they are reviewing the current requirements of the program as it hasn’t been as successful due to the high requirements, hopefully they change these up soon
Andy I will be booking a consultation with you but to make it more relevant do you have email on X twitter or directly so that I can send email prior to consultation so you have a bit of background. I am UK citizen but am from Malaysia originally. Going to become non UK resident but has uk state pension and uk rental income. Cognisant that Jeremy Hunt trying to change non dom rules. In fact whole family needs to engage you in due course. Kind regards Richard
Hi Richard, thanks for reaching out, feel free to email me at advisers@degenwealth.com