Foreigners who rent out Malaysian property face a tax question that most agents never mention: are you a resident or non-resident for tax purposes? The answer changes your effective tax rate from a progressive 0-30% to a flat 30%. That single classification can mean the difference between a cashflow-positive investment and one that bleeds money every year after tax.
This is not an edge case. It affects every Singaporean landlord, every Hong Kong investor collecting rent from a KL condo, every British expat who moved home but kept the Penang apartment. The Malaysian tax system treats you very differently depending on how many days you physically spent in the country. Not where your visa says you live. Not where your passport was issued. How many days your body was on Malaysian soil.
The 182-Day Residency Test
Malaysian tax residency is determined by Section 7 of the Income Tax Act 1967. The primary test is simple: if you are physically present in Malaysia for 182 days or more in a calendar year (January to December), you are a tax resident for that year (LHDN — Non-Resident).
Key points most foreigners get wrong:
MM2H does not make you tax resident. MM2H is an immigration programme that grants a long-term social visit pass. It has no bearing on tax residency. An MM2H holder who spends 150 days in Malaysia and 215 days in Singapore is a Malaysian tax non-resident. Full stop.
The 182 days do not need to be consecutive. You can accumulate days across multiple trips within the same calendar year. LHDN counts the day of arrival and the day of departure.
There are secondary tests. If you were resident in the prior year and the following year, and you are present for at least 90 days in the current year, you may qualify as resident. If you have been resident for 3 out of the preceding 4 years, shorter stays may also qualify. But the 182-day test is the primary one, and the one most foreign landlords should focus on.
The burden of proof is on you. If LHDN questions your residency claim, you need to produce evidence — passport stamps, flight records, immigration records. Keep your travel documentation.
For most foreign property investors — Singaporeans, Indonesians, mainland Chinese, Hong Kongers, Brits, Australians — the realistic scenario is non-resident. You bought a Malaysian property as an investment. You live and work in your home country. You visit Malaysia occasionally. You are a non-resident taxpayer.
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Tax Rates: Resident vs Non-Resident on Rental Income
This table shows the contrast between progressive resident rates and the flat non-resident rate (LHDN — Tax Rate; LHDN — Non-Resident). The resident rates apply to total chargeable income (rental plus all other Malaysian income sources combined). The non-resident rate applies to net rental income only.
| Chargeable Income (RM) | Resident Rate | Non-Resident Rate |
|---|---|---|
| 0 – 5,000 | 0% | 30% |
| 5,001 – 20,000 | 1% | 30% |
| 20,001 – 35,000 | 3% | 30% |
| 35,001 – 50,000 | 6% | 30% |
| 50,001 – 70,000 | 11% | 30% |
| 70,001 – 100,000 | 19% | 30% |
| 100,001 – 400,000 | 25% | 30% |
| 400,001 – 600,000 | 26% | 30% |
| 600,001 – 2,000,000 | 28% | 30% |
| Above 2,000,000 | 30% | 30% |
The rates only converge at the very top. For a typical rental income of RM40,000-60,000 per year (a RM3,500-5,000/month rental), a resident might be paying 3-11% effective tax on that income. A non-resident pays 30%. The gap is enormous.
Non-residents get no personal reliefs, no tax-free threshold, no progressive scaling. Every ringgit of net rental income is taxed at 30%. This is the single biggest cost disadvantage foreign landlords face.
Residents also benefit from personal reliefs — RM9,000 individual relief, medical expenses, lifestyle relief, and others — that reduce total chargeable income before the progressive rates apply. Non-residents get none of these.
Allowable Deductions for Foreign Landlords
The one area where residents and non-residents are treated equally is deductions. Both can subtract qualifying expenses from gross rental income before tax is calculated. The 30% non-resident rate applies to net rental income, not gross. This distinction matters enormously.
Rental income for most passive landlords is classified under Section 4(d) of the Income Tax Act 1967. Only direct expenses incurred in producing the rental income are deductible under this classification. If LHDN classifies your rental as business income under Section 4(a) — because you provide comprehensive maintenance and support services — broader deductions including capital allowances may be available.
| Expense | Deductible? | Typical Annual Amount |
|---|---|---|
| Assessment tax (cukai taksiran) | Yes | RM500 – RM2,000 |
| Quit rent (cukai tanah) | Yes | RM50 – RM500 |
| Fire insurance / takaful | Yes | RM200 – RM800 |
| Maintenance fees | Yes | RM1,200 – RM6,000 |
| Sinking fund contributions | Yes | RM120 – RM600 |
| Interest on housing loan | Yes | Varies — often the largest deduction |
| Repairs and maintenance | Yes | Variable |
| Property agent commission | Yes | RM3,000 – RM6,000 per tenancy |
| Legal fees for tenancy agreement | Yes | RM300 – RM800 |
| Property management fees | Yes | 8-12% of gross rent |
| Advertising / listing fees | Yes | RM100 – RM500 |
| Mortgage principal repayment | No | — |
| Capital improvements / renovations | No | — |
| Travel to inspect property | No | — |
| Furnishing (lump sum) | No | Capital allowance may apply |
The loan interest deduction is critical for leveraged investors. If you are paying RM2,000/month in loan instalments and RM1,200 of that is interest (typical in early years of a mortgage), that RM14,400 in annual interest is deductible. On a RM60,000 gross rental, that alone cuts your taxable income to RM45,600 before other deductions.
Repairs vs improvements. Fixing a leaking pipe is a deductible repair. Installing a new kitchen is a capital improvement — not deductible. The test is whether the expense restores the property to its original condition (deductible) or enhances it beyond that (not deductible). LHDN applies this distinction strictly.
Worked Example: The RM5,000/Month Rental
Let us run the numbers for a common scenario: a foreigner renting out a KL condominium for RM5,000 per month.
Gross annual rental income: RM60,000
Annual deductions:
| Deduction | Amount (RM) |
|---|---|
| Maintenance fees | 3,600 |
| Sinking fund | 360 |
| Assessment tax | 1,200 |
| Quit rent | 100 |
| Fire insurance | 400 |
| Loan interest | 9,600 |
| Repairs (average) | 1,500 |
| Agent commission (amortised) | 1,240 |
| Total deductions | 18,000 |
Net rental income: RM60,000 - RM18,000 = RM42,000
As a Tax Resident
Assuming rental income is the only Malaysian income (no employment income):
- First RM5,000: 0% = RM0
- RM5,001 to RM20,000: 1% = RM150
- RM20,001 to RM35,000: 3% = RM450
- RM35,001 to RM42,000: 6% = RM420
- Less personal relief (RM9,000): reduces chargeable income to RM33,000
- Recalculated: first RM5,000 at 0% = RM0, next RM15,000 at 1% = RM150, next RM13,000 at 3% = RM390
Tax as resident: approximately RM540
As a Non-Resident
- Net rental income: RM42,000
- Tax rate: flat 30%
- No personal reliefs
Tax as non-resident: RM12,600
The Difference
| Resident | Non-Resident | |
|---|---|---|
| Tax payable | ~RM540 | RM12,600 |
| Effective rate on gross rent | 0.9% | 21.0% |
| Monthly impact on cashflow | ~RM45 | RM1,050 |
Difference: RM12,060 per year. That is RM1,005 per month in additional cost purely because of tax residency status. On a RM5,000/month rental, the non-resident tax effectively wipes out 21% of gross rental income.
This is why the residency question is not academic. It is the single largest variable in your cashflow calculation as a foreign landlord.
If your net rental yield before tax looks attractive at 4-5%, deduct 30% for non-resident tax and check if it still works. Many properties that appear cashflow-positive on paper go negative once the non-resident tax hits.
Filing Your Malaysian Tax Return
Non-residents earning rental income from Malaysian property must file a tax return with LHDN (Lembaga Hasil Dalam Negeri, the Inland Revenue Board). This is mandatory. Not filing is a tax offence regardless of where you live.
Which form? Non-residents file Form M (Borang M). Residents with rental income should file Form B (not Form BE, which is for employment income only). If you are a resident with rental income, use Form B.
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Due date: 30 April of the following year for manual filing, or 15 May for e-filing. Rental income earned in calendar year 2025 must be declared and tax paid by 30 April 2026 (or 15 May 2026 via e-filing). Note: the 30 June deadline applies to Form B (resident individuals with business income), not Form M.
How to file from abroad: You have two options:
-
Online via MyTax (formerly e-Filing). Non-residents can register for a tax identification number and file online at mytax.hasil.gov.my. From YA 2024, LHDN mandates electronic submission for all taxpayers. You need a Malaysian phone number for the PIN activation. Some foreigners use a prepaid Malaysian SIM.
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Appoint a tax agent. This is the more practical option for most foreign landlords. A licensed Malaysian tax agent will prepare and file Form M on your behalf. Cost: RM500 – RM1,500 per year depending on complexity. They will also calculate your deductions, ensure you claim everything allowable, and handle any LHDN queries.
Penalties for late filing: LHDN can impose a penalty of 10% on the tax payable for late submission. If you fail to file entirely, the penalty increases and LHDN can raise an estimated assessment.
Tax reference number: Every taxpayer needs an Income Tax Reference Number (formerly SG number, now assigned via MyTax registration). Your tax agent can help you register if you do not have one.
Withholding Tax: What Tenants Must Know
Unlike some countries (the United States, for example, requires tenants to withhold 30% of rent paid to foreign landlords under FIRPTA rules), Malaysia does not require tenants to withhold tax from rental payments to foreign landlords.
The system is self-assessment. The landlord — whether resident or non-resident — is responsible for declaring rental income and paying the tax due. The tenant pays the agreed rent in full. No deductions. No withholding.
This means there is no automatic enforcement mechanism at the payment level. LHDN relies on the landlord to declare income voluntarily. In practice, LHDN does cross-reference property ownership records with tax filings. If you own property registered with a state land office and no rental income appears on any tax return, that is a flag.
Some tenancy agreements include a clause requiring the landlord to provide proof of tax filing. This is not legally required but is becoming more common in corporate tenancies.
Double Taxation Agreements
If you pay tax on Malaysian rental income and your home country also taxes worldwide income, you may be taxed twice on the same rental income. Double Taxation Agreements (DTAs) exist to prevent this.
Malaysia has DTAs with over 75 countries. Key ones for property investors:
| Country | DTA Status | Method | Notes |
|---|---|---|---|
| Singapore | Active | Credit | Tax paid in Malaysia credited against Singapore tax liability |
| China | Active | Credit | Applies to mainland Chinese residents |
| Hong Kong | Active | Credit | |
| Indonesia | Active | Credit | |
| United Kingdom | Active | Credit | |
| Australia | Active | Credit | |
| Japan | Active | Credit | |
| South Korea | Active | Credit | |
| India | Active | Credit | |
| Thailand | Active | Credit | |
| Taiwan | No DTA | — | No relief — potential double taxation |
| Vietnam | Active | Credit |
How the credit method works:
- You earn RM42,000 net rental income from Malaysia.
- You pay RM12,600 tax to LHDN (30% non-resident rate).
- Your home country (say Singapore) taxes your worldwide income including the RM42,000.
- You claim a foreign tax credit of RM12,600 against your home country tax liability on that income.
- If your home country tax rate on that income is lower than 30%, you cannot get a refund of the excess — but you will not pay additional tax in the home country on that income.
Singapore-specific note: Singapore does not tax foreign-sourced income that is not remitted to Singapore. If you earn rental income from Malaysia and do not bring the funds into Singapore, it may not be taxable in Singapore at all. Consult a Singapore tax advisor on the remittance basis rules.
Important: DTAs do not reduce your Malaysian tax. You still pay 30% to LHDN as a non-resident. The DTA only prevents your home country from taxing the same income again (or gives you a credit for the Malaysian tax paid).
Strategies to Reduce Your Tax Burden
There are limited but legitimate strategies to manage the tax impact:
Maximise deductions. Claim every allowable expense. Many foreign landlords miss deductions for sinking fund contributions, legal fees for tenancy agreements, and property management fees. Appoint a good tax agent who will identify all claimable items.
Consider residency planning. If you spend significant time in Malaysia — working remotely, semi-retired, or running a regional business — structuring your stay to hit 182 days converts you from non-resident to resident. The tax savings on a RM5,000/month rental are over RM12,000/year. That funds a lot of days in KL.
Time your expenses. If you need to make repairs, do them in a year when rental income is higher. Bunching deductions into high-income years maximises their value against the flat 30% rate.
Keep impeccable records. LHDN can audit non-resident taxpayers. Have receipts for every claimed deduction. Digital copies stored in cloud storage are fine — you do not need physical paper in Malaysia.
What Happens If You Do Not File
Some foreign landlords assume LHDN will not pursue non-residents. This is a risky assumption.
LHDN has access to land title records, stamped tenancy agreements, and banking data. If a property registered to a foreign owner shows rental deposits flowing through a Malaysian bank account, and no corresponding tax return exists, LHDN can and does issue estimated assessments.
Penalties include:
- 10% surcharge on tax payable for late filing
- Further penalties of up to 45% of tax payable for continued non-compliance
- Criminal prosecution in extreme cases (deliberate tax evasion)
LHDN also has information exchange agreements with tax authorities in Singapore, Australia, the UK, and other countries under the Common Reporting Standard (CRS). Your Malaysian bank account information may be shared with your home country's tax authority.
The cost of compliance — RM500-1,500/year for a tax agent — is trivial compared to the penalty exposure.
Sources
- Income Tax Act 1967 (Act 53) — Sections 4(d) and 7
- LHDN — Individual Tax Rates (YA 2023-2025)
- LHDN — Non-Resident Tax (30% flat rate)
- LHDN — MyTax Portal
- Malaysia Double Taxation Agreements — LHDN
Related Resources
For a broader overview of how rental income is taxed for all property owners, see our rental income tax guide. If you are still evaluating whether to buy Malaysian property as a foreigner, start with the complete foreign buyer guide. For understanding your capital gains tax exposure when you eventually sell, read the RPGT guide. And to model your after-tax cashflow before buying, use our rental income tax calculator.