This article is for Malaysian traders wanting more clarity on their tax obligations, including the different tax rates for tax residents vs. non-tax residents, how Malaysia regulates Forex, the brokers available to Malaysian traders, an overview of tax benefits and exemptions, as well as taxation tips for Malaysian traders. I aim to give readers a clearer understanding of the retail trading environment, particularly regarding Forex trading, in Malaysia.
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Basics of Malaysian Tax on Forex Trading
In Malaysia, Forex trading is taxable at the personal income tax rates. That means Forex trading income should be reported in your annual income tax return, with accurate records of trading activities. There are two separate rates, depending on whether you are a tax resident or a non-tax resident. The first step is to confirm your tax residency status.
The 182-Day Rule for Tax Residency
If you are physically present in Malaysia for at least 182 days or more during the calendar year (which is the same as the tax year in Malaysia), the Inland Revenue Board Malaysia (IRBM) will consider you a tax resident. The 182 days do not have to be consecutive days—they can be spread throughout the year. If you are present in the country for less than 182 in the calendar year, you are not a tax resident for that year, and different tax rates will apply.
What Are the Tax Rates for Forex Trading Income in Malaysia?
Tax Residents
The personal income tax rates for Forex income are:
Income below 5,000 MYR: 0% tax rate
RM5,000 - 20,000 income: 1% tax rate
RM20,000 - 35,000 income: 3% tax rate (plus RM150 tax for the first RM20,000 income)
RM35,000 - 50,000 income: 6% tax rate (plus RM600 tax for the first RM35,000 income)
RM50,000 - 70,000 income: 11% tax rate (plus RM1500 tax for the first RM50,000 income)
RM70,000 - 100,000 income: 19% tax rate (plus RM3,700 tax for the first RM70,000 income)
RM100,000 - 400,000 income: 25% tax rate (plus RM9,400 tax for the first RM100,000 income)
RM400,000 - 600,000 income: 26% tax rate (plus RM84,400 tax for the first RM400,000 income)
RM600,000 – 2,000,000 income: 28% tax rate (plus RM136,400 tax for the first RM600,000 income)
RM2,000,000+ income: 30% tax rate (plus RM528,400 income on the first RM2,000,000 income)
Non-tax Residents
Non-tax residents have a flat income tax rate of 30%.
Malaysia Forex Legislation
Malaysian-registered Forex Brokers
The best Forex brokers in Malaysia are regulated by either the Securities Commission Malaysia (SC) or the Labuan Financial Services Authority (LFSA).
Maximum Leverage Legislation
One key piece of legislation that affects traders using a Malaysian-registered Forex broker is that leverage is capped at 50:1.
Internationally Regulated Brokers
Brokers regulated outside of Malaysia may legally offer their services to Malaysian customers.
This includes brokers registered in jurisdictions such as the UK, Australia, European Union, Canada, etc. These jurisdictions open up many different services for Malaysian traders, such as access to greater leverage on trades, other trading platforms, trade copying and signal services from brokers, and many other facilities that may not be available domestically.
Choose a Broker with Segregated Accounts
Keep in mind, whichever broker you choose, ensure strong regulation, not just high leverage. Many strong regulatory jurisdictions, such as Australia and the UK, require their brokers to use segregated accounts to keep client funds separate from the brokers’ operations. Top brokers offer segregated accounts and I consider this to be a key requirement for any broker I choose.
Malaysia Financial Regulators
Several entities oversee the Malaysian financial sector:
The Bank Negara Malaysia (BNM) is the main authority on the Malaysian ringgit (MYR), banking, payment systems, and digital currency activities.
The Securities Commission of Malaysia (SC) is the primary regulator of Forex trading, securities, and futures contracts in Malaysia. The SCM reports to the Malaysian Ministry of Finance and is authorized to regulate companies that deal with securities and futures contracts in Malaysia.
The Shariah Advisory Council of the BNM is mandated to ensure compliance with Shariah banking principles and guarantee that financial service providers in Malaysia do not contravene Islamic prohibitions.
The Securities Commission of Malaysia and the Bank Negara Malaysia issue guidelines, circulars, and standards to ensure compliance with regulatory requirements and promote market integrity.
How Much Trading Income Is Tax-Free in Malaysia?
Technically, since the Inland Revenue Board Malaysia (IRBM) requires Malaysians to report Forex trading income in their annual income tax returns, there is no tax-free level of trading. That said, if you are a tax resident and your total income from all sources is under 5,000 MYR, then the tax rate is 0%.
Tax Benefits and Exemptions in Malaysia
Prerequisites
A perquisite is a perk or benefit given to you by your employer, like travel and medical allowances.
Benefits-in-kind
Benefits-in-kind are a type of benefit given to employees but not included in their salary, such as cars, furniture, and personal drivers.
You must make sure to keep track of prerequisites or benefits-in-kind because they may either be taxable or tax-exempt. Malaysia operates a self-assessment system for income tax, so taxpayers are responsible for calculating their own chargeable income and payable tax. That means it is up to you to know which parts of your income are taxable or exempt.
Tax exemptions reduce the amount of income tax you pay, and most Malaysian taxpayers have exemptions that reduce their tax bill.
Taxation Tips for Forex Trading in Malaysia
- I always recommend working with a tax specialist, especially if your situation is complex, for example, because you have many tax exemptions, multiple sources of income, or trading is a major source of income for you.
- Take full advantage of the available tax exemptions and don’t overpay your taxes.
- Keep accurate records for tax purposes throughout the year.
Bottom Line
For Malaysians, trading profits are subject to personal income tax. Remember, you are a tax resident if you are in the country for 182 days (it does not have to be consecutive). Residents' income tax rates go from 1% to 30%. Non-residents pay a flat rate of 30%. Because tax is self-assessed, keep accurate records of your trading and any tax exemptions to which you may be entitled.
