The Inland Revenue Board (IRB) has on 27 April 2011 issued a press release that taxpayers who wish to claim the 15% tax rate as knowledge worker in their income tax return must first obtain the approval of the Minister of Finance. The IRB clarified that a knowledge worker will benefit from the 15% flat rate if his annual chargeable income is more than RM106,200. Chargeable income below RM106,200 for a year of assessment will benefit using the normal individual scheduler tax rate which is lower.
Pursuant to Part XIV, Schedule 1 of Income Tax Act 1967 (ITA) as amended by Finance Act 2010 (Act 702), with effect from year of assessment 2010, the chargeable income of a knowledge worker residing in a specified region, in respect of having or exercising employment with a person who is carrying on a qualified activity in a specified region, will be assessed at a flat rate of 15%. Where the qualified knowledge worker has income from a source other than the employment income referred to in the above, the portion of chargeable income of the knowledge worker shall be determined by the Minister by gazetted rules made under the ITA.
The Income Tax (Determination of Knowledge Worker, Qualified Activity and Specified Region) Rules 2010 [P.U.(A) 344/2010], gazetted on 7 October 2010 (and reported in e-CTIM No.49/2010 dated 18 October 2011) set out the following criteria:
1. The Rules apply to qualified individual who has made application to the Minister of Finance between 24 October 2009 and 31 December 2015 via Iskandar Region Development Authority (IRDA) for approval to be subject to tax under Paragraph 1, Part XIV of Schedule I of ITA and whose application has been approved, and to income received by the qualified individual from an employment with a designated company beginning from 1 January 2010;
2. A qualified individual is a knowledge worker who has not derived any employment income in Malaysia for at least three years, or such other period as the Minister may determine, prior to the date of application and is employed in a qualified activity by a designated company commencing on or after 24 October 2009 but not later than 31 December 2015. The qualified individual must reside within the Iskandar Development Region (IDR) for the respective year of assessment;
3. A knowledge worker is a holder of a degree or master degree in any professional or technical field from an institution recognised by the Government of Malaysia and has at least 10 years, or 5 years in the case of holder of doctoral degree, working experience in any of the qualified activity and any other criteria as may be determined by the Minister.
4. Qualified activities are specified in the Schedule of the Rules and include some sub-sectors in biotechnology. Green technology, educational services, healthcare services, creative industries and related services, financial advisory and consulting services, logistic services and tourism.
5. A designated company is a company which undertakes a qualified activity in the specified region within IDR and is either granted the IDR status, BioNexus status or MSC status; or is incorporated and resident in Malaysia.
6. Specified regions are Nusajaya, Western Gate Development, Johor Bahru Central Business District, Eastern Gate Development and Skudai-Senai within the IDR.
7. Where a qualified individual has income in respect of employment with a designated company in the basis period for a year of assessment , the chargeable income which is subject to tax under Paragraph 1, Part XIV of Schedule I of ITA shall be ascertained in accordance with the formula (A/B) x C where
A is the gross income from employment with the designated company
B is the total of gross income from all sources, and in the case of combined assessment under Section 45(2) of ITA, include the income from spouse
C is the chargeable income from all sources
Further clarification can be obtained from the official website of the IRDA at http://iskandarmalaysia.com.my. The IRB’s press release can be viewed at their website at http://www.hasil.gov.my/pdf/pdfam/KnowledgeWorker2011.pdf.
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