How to Pay Zero or Low Taxes in Malaysia (Territorial Tax)

From its tropical beaches to its lush green hilly countryside and stunning modern capital, Malaysia is beautiful.

But don’t just take our word for it; Compare the Market Australia has officially recognised it as the 13th most popular country to move to and has overtaken Thailand as the most visited country in Southeast Asia. 

On top of that, it’s one of Nomad Capitalist founder Andrew Henderson’s favourite spots. He owns property there, visits regularly and has many positive things to say about the place. We’ll touch on some of those later, but the bottom line is – if you can prove you have wealth, Malaysia will welcome you with open arms. 

In doing so, the county offers you significant tax, property, lifestyle and second residence benefits. With various residence options open to foreigners, moving there is now more straightforward than ever if you have the right help by your side.

That’s where we come in. Nomad Capitalist has helped over 1,500 clients move to multiple tax-friendly jurisdictions from Central America to Western Europe and further afield. Apply to become a client today, and our team will assess your personal and corporate vision and portfolio to determine the best solutions to help you retain and grow wealth, pay fewer taxes legally and acquire greater individual freedom. 

Why Move to Malaysia?

The clincher is that as a foreign resident, you are not taxed on your worldwide income or assets, only what you remit to the country to live on. 

It’s very rare for foreigners to get citizenship in Malaysia, but there are residence programs that allow you to stay there extensively if you want to. 

As a second residency, it’s an excellent option to have in your back pocket. Here’s the deal: if you put six figures in the bank, you’ll get a residence permit, and there isn’t much needed in order to maintain it. 

But before we get into that, there are plenty of other reasons why Malaysia is a fantastic choice to move to, both from a lifestyle and business point of view. Malaysia is tax-friendly, has excellent weather and wonderful people, and is at the heart of the fast-emerging Southeast Asia region. 

Malaysia is one of the most open countries in Asia and one where foreigners can buy land. Asia has always valued wealth; you are treated with respect if you have it. 

Malaysia, especially the capital, Kuala Lumpur, is very well-developed. The roads are impeccable, it’s easy to get around and things generally work. As Nomad Capitalist’s founder, Andrew Henderson, discovered recently, healthcare in Malaysia is of a very high quality.

Kuala Lumpur is one of the world’s most underrated yet liveable cities for Nomad Capitalists. A central hub with modern conveniences on every corner, Kuala Lumpur (or KL as it’s known) has plenty of shopping malls. If you like a bit of retail therapy, an abundance of superb restaurants and a great airport, it’s ideal. 

The city is well-connected, pleasant and easy to live in. Kuala Lumpur offers a high standard of living, excellent healthcare facilities, sound education systems, a modern infrastructure and a diverse culture. 

Malaysia also has some of Southeast Asia’s best real estate deals. For a larger property, there are options for around US$1500 per square metre, which is a decent amount of high-quality housing for a very reasonable price in some of the country’s best locations.

There’s also a Malaysian trend of building dual-key apartments that people put on Airbnb. Developers are working with planners there to build apartments with the intention of the owners letting them via vacation rental sites. It’s an intentional strategy to support people who want increased yields on vacation rentals. 

So, for anyone considering moving to Malaysia, the weather is hot, the cost of living is cheap, the lifestyle is laid-back and the people are genuinely friendly and kind. 

How to Get Residence in Malaysia

The Sarawak My Second Home (S-MM2H) and MM2H programs are both government initiatives aimed at enticing foreigners who meet specific requirements. These programs allow applicants to stay in Malaysia on a five or ten-year renewable, multiple-entry visa.

To qualify for the MM2H for five-year residency, you must be at least 35 years old, demonstrate assets of 1.5 million Malaysian ringgit (RM) – close to US$300,000 – and have a monthly income equivalent to RM40,000, worth around US$8500. 

Once approved and after spending a year there, you can withdraw up to RM500,000 to buy a home or car or pay for medical expenses or education in Malaysia. 

If you’re 50 or older, the S-MM2H scheme requires an average combined income of RM10,000 (US$2140) for a couple or RM7,000 for a single person. The amounts are based on a previous six-month calculation, and there are different options depending on the applicants’ age.

In addition, you need to prove assets of RM100,000 (US$21,400) or RM50,000, respectively. These assets can be based on investments, bank statements, stocks and pensions, among other things. 

If you’re between 40 and 49, you must have children enrolled in a school in Sarawak or own real estate worth RM500,000 (approximately US$106,000). This program lasts for ten years, after which you can renew and must reside in Sarawak for at least 30 days each year. 

The Premium Visa Program started this year and has accepted applications since October 2023. Under the provisions of this program, if you invest in Malaysia, you can live there for 20 years without physical presence requirements or age restrictions. You can add all your dependents – children up to 21 years of age, parents and in-laws – to your visa and even bring a maid.

To qualify, the principal applicant must make a 1 million ringgit deposit with a local bank (approximately US$200,000). Withdrawals are not allowed in the first year, but after that, 50% of the value can be withdrawn for a specific purpose, such as purchasing a home or paying for medical or educational expenses. Applicants must prove offshore income of at least RM40,000 (about US$8,500) a month or RM480,000 per year (approximately US$102,000).

 As a second residency, it’s an excellent option to have in your back pocket. The deal’s very straightforward: put six figures in the bank and get a residence permit. 

The Malaysian Tax System 

In principle, Malaysia is a territorial tax country, meaning it taxes what you make at standard rates and leaves everything else alone. That’s right, you pay no taxes on foreign-earned income or assets.

There is one caveat: They tax what you bring in on a remittance basis. Income remitted to Malaysia up to 30 June 2022 was subject to a tax rate of 3%. After this, foreign-sourced income from abroad is taxed at standard tax rates – currently, there’s a progressive rate between 0% and 30% on chargeable income. 

There have been some recent changes to how this is applied. Until January 2022, you did not have to worry about foreign-sourced income when filing your tax returns. However, at that point, the blanket exemption on foreign income was removed. As a result, the foreign income received by a tax resident from outside Malaysia was deemed taxable unless specific conditions were met. 

That announcement prompted much criticism, and in response, the government has rolled back somewhat by granting an extended exemption until 31 December 2026. That applies if your qualifying foreign income has been subject to tax in your country of origin or in the country where the income comes from. It should be taxed somewhere.

If the tax system in your home country does not impose tax, or if it’s below the taxable threshold, you’re still safe. It all sounds a bit confusing, but the bones of it are that you will still pay very little tax if you structure things properly in Malaysia. 

Benefits for Nomads in Malaysia

With a residence permit, you can live in the country full-time or part-time, with tax benefits. The M2H program requires 90 days in Malaysia, unlike the premium VIP version, which doesn’t and allows you to spend very little time on the ground there. 

So, you can study, work, invest there, and keep it in your back pocket should the need arise. 

We’re huge fans of having a backup residency. In effect, for tax planning, with its territorial, tax-friendly system, you can have no tax exposure there and still have the opportunity to send your kids to study there, if that’s important, or work there if you want to. 

To get residency, you must know what you’re doing, but the process is relatively easy – it’s not intentionally bureaucratic. If you’re okay with diversifying some cash into the Malaysian financial system, you can be confident about the world-class banks there. 

If you spend over six months in the country, you can secure a free tax residence and pay as little as zero in taxes. You can put the money you save into an investment in property. There are costs, but it’s important to consider that you’re making an investment in lifestyle in a fast-emerging economy.  

Not only can Malaysia be a back-pocket ‘just in case’ option, but it’s also one where you can spend quality time in a fantastic country on a tax-friendly basis. It is not somewhere we recommend establishing companies, but plenty of alternative profitable opportunities exist. 

Minimise Your Tax Obligations

Asia is about showing you have money and then proving it to get a high-quality second residence. Yes, there are some hoops to jump through first, but truthfully, this is one of the more robust second residency options for all the reasons outlined above.

As a good backup, or even somewhere to spend three months for people who like to travel around, Malaysia is ready-made for the trifecta approach. The trifecta approach means having three bases where you combine lifestyle, asset protection, and diversification strategies to minimise your tax obligations.

That’s precisely what Nomad Capitalist has helped many expats, including some in Malaysia, achieve. For years, we’ve been saying that Malaysia is a friendly, affordable and pleasant place to live, whether full-time or as one of your bases, and we’ve made it work for our clients. Make no mistake: at Nomad Capitalist, we like Malaysia.

Nomad Capitalist is a turnkey solution for offshore tax planning, dual citizenship, asset protection, and global diversification. We have helped 1,500+ high-net-worth individuals and can help you, too. Find out how here.