As a landlord, you are responsible for your properties and their management. One of the crucial aspects of owning properties in Malaysia, especially rented ones, is the management of rental income tax.
However, some people are still under the impression that rental income from non-business sources or residential properties is qualified under the investment category and therefore exempted from taxation.
That is far from the truth. In fact, if an individual possesses property in Malaysia and receives rental income, they must pay the rental income tax. Surprisingly, a large number of landlords are unaware of this.
We should not blame them because dealing with tax income can be daunting, especially when you do not know how to deal with it.
Worry not, because this article will provide you with a guide on managing rental income tax as a landlord in Malaysia.
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What is Rental Income Tax?
As the name suggests, rental income tax is levied on the earnings from renting out properties you own. In Malaysia, it applies to both residential and commercial properties. Other than that, it is also imposed on some movable properties such as ships and certain machinery.
Furthermore, rental income tax in Malaysia has differing rates according to the kind of property owned. According to the current progressive tax rate, the range goes anywhere from 0% to 30%.
Read More: The 6 Benefits of Documentation for Landlords in Malaysia
What Happens If One Does Not Declare Rental Income Tax
Many landlords would make the mistake of under-reporting their income and not disclosing their rental income because they view it as more of an investment rather than taxable income. However, Section 113 of the Income Tax Act (ITA) states:
Any person who—
- makes an incorrect return by omitting or understating any income of which he is required by this Act to make a return on behalf of himself or another person; or
b) gives any incorrect information concerning any matter affecting his own chargeability to tax or the chargeability to a tax of any other person, shall be guilty of an offence and shall, on conviction, be liable to a fine of not less than one thousand ringgit and not more than ten thousand ringgit and shall pay a special penalty of double the amount of tax which has been undercharged.
In simpler words, you should declare your rental income tax, and the more accurate it is, the better. Consequently, failure to oblige would cause you to be penalised under Section 113 of the Income Tax Act 1967, which imposes a fine between RM1,000-RM10,000 and 200% of the undercharged tax.
Read More: Do’s and Don’t’s Every Landlord in Malaysia Should Know
Managing Rental Income Tax as a Landlord in Malaysia
Moreover, rental income is primarily assessed on a net basis. This allows the reduction of the overall total from the gross rental income through certain deductible expenses.
How do we know what must be deducted from the overall gross rental income? Fortunately, the Inland Revenue Board of Malaysia (LHDN) has outlined some exceptions. Let’s look at this list to find out.
Deductible Expenses From Rental Income (H3)
There are a few deductible expenses applicable to reduce rental income tax. According to LHDN, these expenses include the following:
- Quit rent
- Interest on home loan
- Assessment tax
- Fire insurance payments
- Property supervision and repair expenses
- Maintenance fee
- Expenses incurred on rent collection
- Expenses incurred on rent renewal
Tax Incentives Applicable For Rental Income (H3)
Other than deductible expenses, do look out for tax incentives the government usually provides to ease taxpayers’ burden.
For example, the government gazetted a Special Income Tax Deduction for the Reduction of Rentals to a Tenant other than a Small and Medium Enterprise in September 2021. This is where property owners who provide at least 30% discounts on rentals to their tenants would be granted special deductions. This went on until June 2022.
Declaring Your Rental Income
As of January 2020, LHDN has announced that property rental income in Malaysia is taxed at 24% and is computed on a net basis. The net basis is determined after direct expenses are subtracted from the finalised earnings.
Still confused about how to calculate the total of your rental income tax? Here’s an example:
| GROSS RENTAL INCOME | Monthly Rent | RM2,200 |
| Contract Term | 12 months | |
| DEDUCTIBLE EXPENSES | Fire insurance | RM150 |
| Assessment tax | RM1,000 | |
| Quit rent | RM100 | |
| Property repairs | RM6,000 | |
| NET RENTAL INCOME | (Monthly rent x contract term) – (Total deductible expenses) | (RM2,200 x 12) – RM7,250= RM19,150 |
Based on the calculation above, RM19,150 is the amount taxable under rental income in this case.
Rental Income Taxation for Foreigners in Malaysia
We have discussed how rental income taxation works for Malaysians owning a rented property in Malaysia. We have also laid out the percentages have been laid out and made the calculations. However, how does it work for foreigners who own properties in Malaysia? How do they pay their dues to LHDN?
Malaysian properties are attractive, making it the centre of attention for foreigners. Despite that, there has been confusion on how much tax to pay for rental income. Therefore, it is equally important to know the tax rate to avoid unpleasant moments in the future for the owners.
Currently, the Malaysian taxation of rental income for foreigners charged by LHDN differs by your status of being either a resident or non-resident in Malaysia. Resident status is acquired when someone has stayed in Malaysia for a certain period, 182 days to be exact.
Foreigners with resident status are imposed at the rate of 0-28%, depending on the circumstances. On the other hand, non-residents will be charged at a flat rate of 28%.
Read More: Renting Guide for Landlords
Making Your Property Rental Much Easier
For landlords out there, the struggle of finding the right tenant to occupy your property is definitely real. Nonetheless, it does not mean you have to do it on your own!
Rumah-i is ready to serve you with its world-class comprehensive rental services. Best believe your property would be in good, professional hands.
Our services do not just include rental management services but also home-improvement services such as makeovers, housekeeping, maintenance service, and more!
