Digital nomad taxes suggestions.

[bambangan]

Hey guys,

I'm a freelancer from Malaysia and based in Malaysia. I've been travelling around and planning to travel more eventually as my work is fully remote.
I currently have to pay around 20% in income tax in Malaysia, if I'm out of the country more than 183 days it'll be a fixed 30% rate which is quite high.

Any recommendations on how I can legally pay less taxes? Should I look to set up a company abroad or consider looking for a tax residency somewhere else? I'm still quite new to this and hope you guys could share some tips and recommendations. I'm open to all options!

Thank you in advance.

 

[Sols]

Do you work for companies/clients in Malaysia or outside of Malaysia?

The 30% tax rate for non-residents is for income accruing in or derives from Malaysia.

So if you become non-resident of Malaysia your clients are in Malaysia, there is 30% tax on that income if you leave Malaysia. However, if your clients are from outside of Malaysia and you are non-resident, there would be no Malaysian tax.

If you add a company and stay resident in Malaysia, you're looking at between 15% and 24% corporate income tax. Dividends are not taxed.

If you leave Malaysia (fully and properly) and form a company wherever you set up base, there would be no scope for Malaysian tax.

A good tax lawyer can give you more detailed guidance, though.

 

[jafo]

So if you become non-resident of Malaysia your clients are in Malaysia, there is 30% tax on that income if you leave Malaysia.

If @bambamgan leaves he is taxed more than if he stays and consumes local resources?
Can anyone explain the logic of the tax authorities here?

PS. I know it's bold for me to assume there is a "logic", but can someone please humor me?

 

[Sols]

If @bambamgan leaves he is taxed more than if he stays and consumes local resources?

The highest tax bracket for individuals in Malaysia is 30%, but all Malaysian-sourced income earned by a non-resident is taxed at 30%. So you don't get the benefit of the lower brackets.

Can anyone explain the logic of the tax authorities here?

PS. I know it's bold for me to assume there is a "logic", but can someone please humor me?

If I had to guess, it's probably a combination of simplicity (it's hard to track how much a non-resident earns in total, so just go with a flat percentage) and to dissuade locals leaving while continuing to work for local employers.

 

[Larin]

If @bambamgan leaves he is taxed more than if he stays and consumes local resources?
Can anyone explain the logic of the tax authorities here?

PS. I know it's bold for me to assume there is a "logic", but can someone please humor me?

Russia was looking into something similar. Not sure if they went ahead with it, but they wanted to apply a withholding tax on any income received by a non-resident that is double the local tax rate.

US does something similar with applying a withholding tax on non-resident divident payments for example. Basically, it's a tax designed to discourage non-residency, as it is very difficult to tax such a person. In some counties, a non-resident can apply to get the withholding back at the end of the tax year provided they fulfil certain criteria. Malaysia is probably not one of those counties.

 

[bambangan]

Do you work for companies/clients in Malaysia or outside of Malaysia?

The 30% tax rate for non-residents is for income accruing in or derives from Malaysia.

So if you become non-resident of Malaysia your clients are in Malaysia, there is 30% tax on that income if you leave Malaysia. However, if your clients are from outside of Malaysia and you are non-resident, there would be no Malaysian tax.

If you add a company and stay resident in Malaysia, you're looking at between 15% and 24% corporate income tax. Dividends are not taxed.

If you leave Malaysia (fully and properly) and form a company wherever you set up base, there would be no scope for Malaysian tax.

A good tax lawyer can give you more detailed guidance, though.

I work solely with clients outside of Malaysia.

If I'm travelling going to different countries every 90 days or less, does that mean I don't need to pay taxes for that? Or do I probably need some proof of paying taxes elsewhere?

Yeah, I'm looking for countries where I can set up base too. Any recommendations?

 

[Sols]

I work solely with clients outside of Malaysia.

Excellent.

If I'm travelling going to different countries every 90 days or less, does that mean I don't need to pay taxes for that? Or do I probably need some proof of paying taxes elsewhere?

In theory, that is possible. In reality, you'll be much better off if you find a place in the world to call your home and have your primary economic interests in.

Yeah, I'm looking for countries where I can set up base too. Any recommendations?

It depends on what you're looking for (in terms of location, lifestyle, culture) and income level.

Here's a great list to get you started: 58 Countries With Digital Nomad Visas - The Ultimate List

 

[bambangan]

Excellent.


In theory, that is possible. In reality, you'll be much better off if you find a place in the world to call your home and have your primary economic interests in.


It depends on what you're looking for (in terms of location, lifestyle, culture) and income level.

Here's a great list to get you started: 58 Countries With Digital Nomad Visas - The Ultimate List

Is it possible to open a remote company in another country with lower taxes and pay taxes there instead (with DTA)? Maybe bill some of my clients through that company?

 

[Sols]

Is it possible to open a remote company in another country with lower taxes and pay taxes there instead (with DTA)? Maybe bill some of my clients through that company?

That's not realistic if you're a one-person company and if you stay in Malaysia. If you form a foreign company but operate (control and manage) it from Malaysia, the company becomes Malaysian for tax purposes and has to pay Malaysian tax. So in that case, you might as well form a local company in Malaysia instead. It's possible that no one catches you, but that's a risk you'd have to live with every single day.

But if you become tax non-resident of Malaysia and move a country with no tax (at all or on foreign income), you can invoice clients in Malaysia and pay no tax. Check the previous link for some options to consider for that.