Malaysia Tax Bracket 2025: Income Tax Rates for Employers

Payroll management is not just managing and paying employees' salaries but also responsible for tax deductions.

Employers must deduct the right amount of income tax from employees’ pay and submit it to LHDN.

That is why, employers should know the latest tax brackets and filing rules.

This can help businesses avoid errors and keep operations running smoothly.

In this article, you will learn the updated tax bracket in Malaysia and how to file the tax between Malaysian and foreign workers.

Read the explanation below.

Do Employers Have to Pay Tax on Behalf of Employees?

Employers do not pay tax for employees.

Instead, they deduct the required amount from the employee’s salary every month through MTD/PCB and send it to LHDN.

MTD/PCB is like a prepaid tax system, meaning the money deducted will be counted as part of the employee’s tax payment.

At the end of the year, employees file their tax returns. If they have paid more than they need, they get a tax refund. If they have paid less, they must pay the balance.

Employers must deduct and submit the tax on time. If they fail to do so, they may get fined or face legal problems.

The amount deducted depends on the employee’s salary, bonuses, and benefits. Any delay or mistake in deduction can result in penalties.

Who is Considered a Tax Resident in Malaysia?

An individual is considered a tax resident in Malaysia if they meet any of the following conditions:

Present in Malaysia for at least 182 days in a calendar year.
Present in Malaysia for less than 182 days in a year but linked to a consecutive 182-day period in the previous or following year. Temporary absences due to business trips, medical treatment, or short social visits (not exceeding 14 days) are included in this calculation.
Present in Malaysia for 90 days or more in the current year and have been in Malaysia for at least 90 days in 3 out of the last 4 years.
Resident in Malaysia for the previous year and for 3 of the 4 years before that.

Employers should ensure that their employees' residency status is correctly classified to determine the applicable tax rates.

Malaysia Tax Bracet (Rates and Chargeable Income (YA 2024/2025))

Malaysia uses a progressive tax system, which means higher salaries have higher tax rates.

Employers must understand the tax bracket in Malaysia so they can deduct the correct amount from their employees' salaries.

For Year of Assessment (YA) 2024/2025, the tax rates are:

Chargeable Income (RM)	Tax (RM)	Percentage on Excess
5,000	0	1%
20,000	150	3%
35,000	600	6%
50,000	1,500	11%
70,000	3,700	19%
100,000	9,400	25%
400,000	84,400	26%
600,000	136,400	28%
2,000,000	528,400	30%

Special Tax Rates for Certain Individuals

Some individuals qualify for special tax rates of 15% on their employment income. These include:

Knowledge workers in Iskandar Malaysia (applications must be submitted by 31 December 2024).
Approved individuals under the Returning Expert Programme (applications open until 31 December 2027).
Non-citizens earning RM25,000 or more per month in key leadership roles under the PENJANA relocation tax incentive (applications open until 31 December 2024).
Individuals working in Forest City Special Financial Zone (date to be announced).

Tax Rates for Non-Resident Individuals

Non-resident individuals are taxed at fixed rates depending on the type of income:

Type of Income	Tax Rate (%)
Business and employment income	30%
Public entertainer’s professional income	15%
Interest	15%
Royalties	10%
Rental of movable properties	10%
Advice, assistance, or services rendered in Malaysia	10%
Foreign film actors and movie crews	0-10%

Dividend Tax for YA 2025

From YA 2025, a 2% tax will be imposed on dividend income exceeding RM100,000 received by individual shareholders, including non-residents and individuals holding shares through nominees.

Example of Tax Calculation

If an employee earns RM50,000, their tax is calculated in parts:

The first RM5,000 is not taxed.
The next RM15,000 is taxed at 1% = RM150.
The next RM15,000 is taxed at 3% = RM450.
The final RM15,000 is taxed at 6% = RM900.
Total tax to pay: RM1,500.

Employees can lower their tax payments by claiming tax reliefs and deductions for expenses like education, medical bills, and insurance.

Employers can support them by sharing information about these options to prevent unnecessary overpayment.

Personal Tax Reliefs for Resident Individuals

The Malaysian government offers several tax reliefs to ease the financial burden on taxpayers. Here are some key reliefs for YA 2025:

Type of Relief	Amount (RM)
Self	9,000
Disabled individual (self)	7,000
Spouse	4,000
Disabled spouse	6,000
Child (below 18 years)	2,000 per child
Child (higher education)	8,000 per child
Disabled child	8,000 (additional RM8,000 for higher education)
EPF contributions	4,000
Private retirement scheme	3,000 (until YA 2030)
Medical expenses for parents (including grandparents)	8,000
SOCSO contributions	350
Medical expenses for serious diseases, fertility treatment, and vaccinations	10,000
Education fees (self)	7,000
Purchase of lifestyle items (books, electronics, internet subscription, etc.)	2,500
Childcare/kindergarten fees	3,000 (until YA 2027)
Sports equipment and activities	1,000
Electric vehicle charging facilities and food waste composting machines	2,500 (until YA 2027)
Housing loan interest (for first-time buyers)	5,000-7,000 (until YA 2027)

Tax Rebates for Resident Individuals

The Malaysian government also provides tax rebates, which directly reduce the amount of tax payable:

Type of Rebate	Amount (RM)
Chargeable income does not exceed RM35,000	400
Joint assessment (income does not exceed RM35,000)	800
Zakat, Fitrah, or other Islamic religious dues	Actual amount paid
Departure levy for Umrah or pilgrimage	Actual amount paid

Tax Filing for Foreigners (Residents & Non-Residents)

Employers with foreign employees must determine their tax residency status because tax rates are different for residents and non-residents.

Foreigners who stay in Malaysia for at least 182 days in a year are considered residents and pay tax using the same progressive tax rates as Malaysians.
Foreigners who stay in Malaysia for less than 182 days are non-residents and pay a fixed tax rate of 30% on their salary.

Employers must:

Identify whether a foreign employee is a resident or non-resident based on their stay in Malaysia.
Deduct tax based on the correct rate.
Submit important tax forms for foreign employees, including:
- CP21: Required when a foreign employee leaves Malaysia to process tax clearance. Employers must submit this at least 30 days before the departure date.
- CP22: Must be submitted within 30 days of hiring a foreign employee to notify LHDN.
- M Form: Foreign employees must use this when filing their annual income tax return.

Employers should also remind foreign employees about LHDN tax deadlines to help them avoid penalties for late filing.

What Kind of Support Should Employers Provide?

Many employees, especially new hires and foreign workers may not fully understand how Malaysia’s tax system works. Employers can help in these ways:

Provide Important Tax Documents

Employers must give employees certain documents for tax filing:

EA Form to sum up employees' salary, bonuses, and tax deductions. Share the form to employees by February 28 each year.
CP22: Submit this form LHDN when hiring a new employee.
CP22A: Give this form to employees who resign or retire.
CP38: If LHDN asks for extra tax deductions for an employee who owes taxes, share this form.

Deduct and Submit Tax Correctly

Using payroll software can help calculate tax deductions automatically and reduce errors. Employers must:

Deduct MTD/PCB correctly based on employee income.
Submit tax payments to LHDN on time to avoid penalties.
Keep records of all tax deductions and payments.

Help Foreign Employees with Tax Filing

Foreign employees may not understand Malaysia’s tax rules. Help them by:

Checking whether they are taxed as residents or non-residents.
Informing them which tax forms they need, such as M Form (for non-residents).
Reminding them of LHDN tax deadlines to avoid late penalties.

Knowing the tax bracket in Malaysia, tax rates for foreign employees, and required documents helps businesses stay compliant and makes tax filing easier for employees.

A smooth payroll and tax deduction process not only prevents fines but also helps employees manage their taxes better.

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