EMPLOYMENT

INCOME

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 Meaning of employment

• Sec. 2
– a) employment in which the relationship of master
and servant subsists; (employer and employee)
– b) any employment or office, for which
remuneration is payable.

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 employer
• where the relationship of master and servant exists;
THE MASTER
• where the relationship does not exists, the person who
pay or responsible to pay any remuneration to the
employee, although they are the same person acting
in different capacities

employee
 where the relationship of master and servant
subsists; THE SERVANT
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 Profession vs Employment

A professional exercised his particular skill and

experience .
• Example doctor, lawyer, programmer, artist
(business income- S 4(a))
• However, if they work for a salary they would
be regarded as employee, thus received an
employment income- S 4(b)

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 How to distinguish
Employment income vs. business Income
S. 4(b) vs. S. 4(a)
• Type of contract
– Contract for service (exercising a profession-self employed)
– Contract of service (exercising an employement)
• Control of job
– Whose control and direct the way to accomplish the job
• Substitution of staff
• Nature of remuneration
• power to delegate
• Sharing of financial risk and success
• Freedom to contract with other parties
• Tool and equipment
• Defined hours of work
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 Contract for service
Vs. Contract of service

• Contract for service – business income

• Contract of service – employment income
• Example;
– professional public entertainer
– Doctor, solicitor and accountant
• can have a Contract for service; or Contract of service

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 Differences between employment
and business income
• Employment
– No utilization of losses
– Scheduler tax system
– Received medical benefit,
sick pay and leave pay
– Tax exempt for
compensation and gratuity
– Exempted from taxation for
NR if the employment is
less than 60 days
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• Business income
– Losses can be deducted
from other sources of
income
– Unabsorbed losses ca be
carried forward to future
YAs
– Allowed to claim capital
allowance
– Flat tax rate- for company
– Required to contribute 12%
EPF to employee
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 Example: 1

• Jack is an accountant by profession. During the

evening he is engaged as a news reporter for TV 5.
Under the term of the contract, he is required to
report for duties at 10 pm to 12 am and to report news
prepared by TV 5. He was paid RM1500 for two
hours work. TV 5 provides him the necessary
equipment including clothing to carry out his duty.
• Explain, whether he is exercising an employment.

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 DERIVATION OF EMPLOYMENT
INCOME
Deemed derived in Malaysia s. 13(2), s. 13(3)- would be
taxed
Received in M’sia from outside M’sia (foreign source of
income ) – exempted with effect from YA 2004
 The following issues were not relevant:
 The employer is not in Malaysia
 The employee is a non resident
 The payment of salary is made outside Malaysia
 The employment income is not received in
Malaysia

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 Derivation of
Employment Income

Normal S. 13(2) Special S 13(3)

Employees’ activities Employer resident Public service employee

exercise employment in In M’sia (resident (M’sian Citizen)
M’sia company)
S. 13(2)a
Employment is
Director exercised
Leave attributable to s. 13(2)d
the exercised outside Malaysia
employment in M’sia s. 13(3)a
S. 13(2)b
Employment is Leave attributable
exercised on the
Perform outside M’sia to the exercise
ship or aircraft
duties incidental to the of the employment
S. 13(2)e
exercised of outside M’sia
employment in M’sia S. 13(3)b
S. 13(2)c 10
 S. 13(2)a
employment exercised in Malaysia
The place of discharging the duties is in M’sia
• Source of employment (location of the employer) is not
relevant
• Employee employed in M’sia but stationed outside M’sia, his
remuneration is not taxable in M’sia as the source is not in
M’sia
• Employer outside M’sia sent his employee to M’sia to render
service, such employee is taxable in M’sia

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 Example: 2

• Tan Lily, M’sian resident entered into an employment

contract with HL Bank Bhd.in M’sia to be the finance
manager for its subsidiary HB Bank in Hong Kong.
• Explain whether the employment income is derived
from M’sia or not.

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 Leave attributable to the exercised
employment in M’sia : S. 13(2)b
• Any leave pay in connection to the exercising employment in
M’sia will be tax in M’sia.
• Example: Karan Singh was employed as a Professor at UPM
for a period of 1 year in 2016. He was paid RM150,000 for
teaching from 1.1.2016 to 31.10.2016. He return to India for a
holiday from 1.11.2016 to 31.12.2016.The leave pay for two
months amounted to RM30,000
• Explain the taxability of his income.

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 Perform outside M’sia duties “incidental to” the
exercised of employment in M’sia :
S. 13(2)c
• Performing duties outside M’sia is part of his duties in M’sia.
• Any income from performing the duties outside M’sia will be
taxable.
Example: 3
• John, a British citizen commenced employment in M’sia as a
technical officer with an oil company in 2016. In the same year
he was sent to Brunei for one month to check the company’s
installation works there and was paid RM5000 while he was in
Brunei.
• Is he liable to tax on the RM5000 received while in Brunei.

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 S. 13(2)d & S. 13(2)e

• The main concerned is the employer residence status

– The remuneration paid to the director, although the director
is not exercising employment in M’sia , the remuneration is
meant to be derived from M’sia and liable to M’sian
income tax
– Remuneration paid to employees of resident sea or air
transport co.-> deemed to derive from M’sia.
• In the event that s. 13(2)d is not applicable, the
general provision in S 13(2)a shall apply

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 Example: 4a

• Mr. Richard was appointed as a Director in Power

Tax (M) Bhd. (tax resident in M’sia)to administer the
UK office. He spent the whole year in UK and was
paid RM200,000 per annum as director’s fess in UK.
• Is he liable to tax on the RM200,000 received in UK?

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 Example: 4b

• Mr. Thornton was appointed as a Director in

Moonlite Ltd (Singapore resident company) to
administer the Malaysian branch operation. He spent
the whole year in Malaysia and received RM200,000
per annum as director’s fess and it was paid in
Singapore.
• Explain whether he is liable to tax on the RM200,000
received in Singapore?

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 Exemption of Employment Income
Schedule 6 para 21, ITA, 1967
 income of non-resident individual from an employment exercised
in M’sia is exempted under the following condition;
a) The period or periods not more that 60 days in the basis
year
b) The period does not exceed a continuous period of 60 days
which overlaps 2 successive basis years; and
c) The continuous period in (b) together with another period or
periods do not exceed 60 days
***60 days refer to the period when the employee exercises
employment in M’sia and not the day of his physical presence
in Malaysia.
 The 60 days exemption is not applicable to director remuneration
and public entertainer.

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 Exemption of Employment Income
Double Taxation Agreement (DTA)

• The 60 days exemption rule may be extended under

certain agreement between 2 countries
• M’sia has signed 74 DTA with other countries
• The provision on DTA will override the ITA 1967

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