How to claim tax back: from non-resident to resident tax rate in Malaysia

Claiming back your first year, as a non-resident, overpaid taxes when you become a resident tax payer is not as difficult as it seems in Malaysia! No need for an agent.

A little disclaimer, I am not a tax expert – I can only share my experience for my specific case in hope that, if your situation is the same as mine, it can help you go through the same process. Please get professional help for your own circumstances if needed.

This article title is promising right? Let’s set the scene to see if this applies to you. If you arrived in Malaysia and on the first year couldn’t stay the 182 days required to qualify as resident, then you probably were taxed at a flat rate of 30%. (the non-resident tax rate)

Then as your working life continues, on the second year, you become a resident tax payer and will have the standard scaled tax system which is definitely lower.

The question is, well how can we link the first year to the second, so that the first year you could also be considered as a resident taxpayer and claim back the overpaid taxes?

Some vocabulary and useful links to ensure I don’t lose anyone during this article:

The Malaysia inland revenue bureau is also called Hasil and their website is in English and extremely helpful: Hasil website.

Resident tax payer: in short, a person who has spent at least 182 days in a year in the country. To calculate the number of days in and out, the stamp of entry and exit of Malaysia in your passport (s) are used as proof. 

A non-resident tax payer: Someone who hasn’t spend 182 days in a year in Malaysia.

How to link the Year 1 (non-resident) to the Year 2 so that you can be granted Year 1 a resident tax status?

You MUST stay the night of the 31^st December to the 1^st January of that year… yes that works also on your last year in the country ( to ensure your last year, if you leave before June, is also considered as resident tax status… ) 

This is not really written anywhere, I asked on my last tax clearance in 2012 and re-asked to our tax consultant when I moved here in 2020. And it’s still very much an “unspoken” rule applied for “short stay”. 

I believe if you have stayed 3 consecutive years as resident, then this “consecutive year” link isn’t requested anymore. Check the official website for more information on this.

Malaysia is a great place to spend the New Year anyway 😊

The case study – and possibly the most common scenario for an expat

My only revenue is from work in Malaysia. 

I arrived in August of Year 1 and therefore was taxed as a non-resident for my first months of employment in Malaysia at a flat rate of 30%. I did my tax declaration online as a non-resident without any issue at the required time.

I waited then July of Year 2, where I would have spent more than 182 days and was therefore qualifying as a resident. This year 2 my company was already taking from my salary at a resident tax rate since January anyway. But I would officially qualify as a resident and could start the process of claiming Year 1 overpaid taxes.

Step 1: Check which branch you are registered at

This retro-claiming process has to be done at the branch your file belongs to. Your registration would have been done by your company when they got your visa, or maybe yourself just as you arrived so you could receive your first salary.

If you already know your branch and do not need to change it:  Skip to Step 2.

If you do not know – you can contact the tax department via their Customer feedback form:

You can use the Enquiry form and ask for the location of your file at the same time as the enquiry for the location, you can also ask for the file to be moved to a branch of your choice.

To choose your branch, visit the Contact us > Branch page. Where you would see the list of all the available branches.

Alternatively, if you already know where your file is, you can also contact your branch by email directly by going to the Contact > Department/state office / branches page, then select the state where you file is. 

In the list of contact for your branch, you should have a Customer Care officer. You can send an email directly to this branch to request the transfer out, by using the link.

For example, the KL Duta branch below:
 

The Customer Care officer, will only ask you to write some sort of official letter saying that you wish to change the location of your file from “your branch” to “the new branch”, date sign and send. It’s really a two sentences kind of document that you can type and email. I did mine in English.

I did this totally online via their customer feedback forms, during covid time, since all their offices were closed. It took me about 1 month. It would probably be just a few days if you were to do it now that everything is open !

Step 2: How to claim the overpaid taxes from your previous year as a non-resident.

The key is to have the audit department of the inland revenue bureau assess the Year 1 and requalify your status as resident. 

Under normal circumstances, just walk in your tax office with the below documents and you can start the process right away.

During covid time, I called my tax department and got directed to the audit department where I was shared the email from the agent in charge. I did then everything by email. The tax audit took 1,5 months. From the moment I was confirmed that I was considered a resident, I was refunded the overpaid taxes of year 1 within 10 days.

I received the official letter by mail about 3 weeks later ( but by email 10 days before the refund).

Document that needs to be prepared:

1. Confirmation Letter on whether the tax is borne by employer or employee. Find a template here.
2. EA Form of Year 1 : This one should have been shared by your employer
3. Monthly Tax Deduction Form (PCB) for Year 1 : This needs to be filled by your employer, as it must contain the payment references to Hasil that shows the employer has paid your taxes on a monthly basis.
4. Year 1 in & out Schedule. Find the template enclosed.
5. Copy of the Passport (all pages even the blank ones and covers) 
6. Confirmation on refund payment mode 

6a. If Inside Malaysia bank transfer : the content in the Tax bourne letter is enough 

6b. If you wish to be refunded to an oversea account, then the below information have to be shared for a Telegraphic Transfer:

• Bank’s Name
• Bank’s Account No
• Full Bank’s Address
• Currency preferred
• Full Name (as per Bank Account)
• Passport number
• Correspondent address
• TTCode (please refer schedule)

Once you have submitted all of the above. Wait for the process to be done, the agent will inform you of the leadtime. As I did mine by email, the agent directly liaised to the payment team with the right authorization and a summary document of what needed to be refunded.

If you were to do it at the branch, as the non-covid process and in person, I believe you would have to go to retrieve that official letter.

As you can see it’s not that difficult to get this done when you have a simple revenue set up. If you were to have a lot of different income sources, I am sure that the audit department would ask for more details and it would then make sense to hire someone to help you.  But if you are like me, then it’s really an easy process that is insanely rewarding when you finally receive that refund in your bank account!

Malaysia tax department speaks very good English, are friendly and helpful. I have had to call their hotline, the branches, the general customer care hotline and received good guidance on the next steps and processes. And oh ! it’s not too late to claim back, my friends managed to do it 3 years after his arrival in Malaysia for his first year ! Although I don’t know how far back you can go – it might be worth giving a call to your local branch to ask?