Paying taxes is a civic duty, but that doesn’t mean you can’t reduce your tax burden. The Malaysian tax system offers various legal avenues to help individuals save on taxes through deductions, reliefs, and exemptions. By planning your finances strategically and leveraging these options, you can retain more of your hard-earned income while staying compliant with the law. Here’s a guide on how to save money on taxes legally in Malaysia.
1. Understand Your Taxable Income
Taxable income in Malaysia is calculated after deducting allowable expenses, reliefs, and exemptions from your total income. Familiarize yourself with the Income Tax Act 1967 to identify sources of taxable income and understand what qualifies for deductions or exemptions.
2. Maximize Tax Reliefs
The Malaysian government offers various tax reliefs to encourage responsible financial behavior. Here are some key reliefs to consider:
Lifestyle Relief (up to RM2,500): This includes expenses on books, newspapers, sports equipment, computers, smartphones, and broadband subscriptions.
Childcare Relief (up to RM3,000): For parents sending their children to registered childcare centers or preschools.
Education Fees (up to RM7,000): Applicable for courses at local institutions to improve skills and qualifications.
EPF and Life Insurance (up to RM7,000): Contributions to the Employees Provident Fund (EPF) and premiums for life insurance policies are deductible.
3. Contribute to Tax-Advantaged Accounts
Take advantage of accounts designed to help you save for retirement, healthcare, and education:
Employees Provident Fund (EPF): Contributions up to RM4,000 are deductible.
Private Retirement Scheme (PRS): Voluntary contributions to PRS accounts are tax-deductible up to RM3,000 annually.
National Education Savings Scheme (SSPN): Contributions to SSPN are deductible up to RM8,000 annually, encouraging parents to save for their children’s education.
4. Claim Medical and Insurance Reliefs
Healthcare and insurance expenses can be a significant part of your budget. The Malaysian tax system recognizes this by providing reliefs for:
Medical Expenses for Parents (up to RM8,000): Covers treatments and care for elderly parents.
Medical Insurance (up to RM3,000): Premiums paid for medical or education insurance qualify for tax deductions.
Serious Illness Treatments (up to RM8,000): Covers treatments for critical illnesses for self, spouse, or children.
5. Leverage Donations and Charity
Donations to approved charitable organizations in Malaysia are tax-deductible:
Cash Donations: Up to 10% of aggregate income for companies and 7% for individuals.
Non-Monetary Donations: Contributions of goods or property are also eligible, provided they meet the stipulated guidelines.
6. Deduct Business-Related Expenses
If you’re self-employed or run a business, claim allowable business expenses to lower your taxable income. These include:
Rent for office space
Utility bills
Travel expenses for work
Professional fees
Ensure you keep accurate records and receipts for all claims to avoid disputes with the Inland Revenue Board (IRB).
7. Utilize Investment Incentives
The Malaysian government offers tax incentives for specific investments:
Real Property Gains Tax (RPGT) Exemption: RPGT exemptions may apply to certain property transactions.
Approved Equity Investments: Investments in venture capital companies or angel investments may qualify for tax incentives.
Unit Trust Funds: Certain funds provide tax relief, particularly those linked to government initiatives.
8. File Taxes Electronically
Filing taxes online via e-Filing not only saves time but also reduces errors. The Inland Revenue Board of Malaysia (LHDN) provides an easy-to-use platform where taxpayers can access pre-filled forms, calculate taxes automatically, and receive faster refunds.
9. Plan for Family Reliefs
Married couples, parents, and individuals supporting dependents can benefit from specific tax reliefs:
Spouse Relief (up to RM4,000): For non-working spouses.
Child Relief (up to RM8,000 per child): For children in higher education or disabled dependents.
10. Stay Updated on Tax Policies
Tax laws and reliefs in Malaysia are subject to change annually, especially during the presentation of the federal budget. Staying informed ensures you’re aware of new opportunities for tax savings and can adapt your financial planning accordingly.
11. Seek Professional Advice
If your financial situation is complex, consult a tax professional. They can provide tailored strategies for maximizing deductions and ensuring compliance with Malaysian tax laws.
Conclusion
Saving money on taxes legally in Malaysia is about understanding the tax system and making strategic financial decisions. By leveraging tax reliefs, investing in tax-advantaged accounts, claiming allowable deductions, and staying informed, you can significantly reduce your tax burden. Proper planning and record-keeping are essential to ensure compliance while maximizing your savings. Take advantage of the opportunities available and consult professionals when necessary to make the most of Malaysia’s tax-saving options.