Rental income is taxable in Malaysia. That statement should not surprise anyone. What surprises investors is how much the tax treatment varies depending on a single variable: your residency status. A Malaysian tax resident earning RM 3,500/month in rent might pay RM 150/month in tax. A Singaporean non-resident earning the same RM 3,500/month pays RM 525 — 3.5 times more. Same property, same tenant, same rent. The only difference is which side of the border you sleep on for 182 days a year.
This guide covers how rental income is taxed under the Income Tax Act 1967, what you can and cannot deduct, the actual filing process with LHDN, and worked examples for both residents and non-residents.
The Legal Basis
Rental income in Malaysia falls under Section 4(d) of the Income Tax Act 1967 — income from rents, royalties, or premiums. It is assessed on a calendar year basis (January to December) and must be declared in your annual tax return.
Key points:
- All rental income derived from property located in Malaysia is taxable, regardless of where the landlord resides.
- The tax obligation falls on the registered property owner. If the property is jointly owned, income is apportioned according to ownership shares.
- Rental income is assessed separately from employment income — but for residents, it is added to your total income and taxed at progressive rates.
Tax Rates: Residents vs Non-Residents
This is the critical distinction.
Malaysian Tax Residents (182+ days in Malaysia per year)
Rental income is added to your other income sources (employment, business, dividends) and taxed at Malaysia's progressive individual rates:
| Chargeable Income (RM) | Rate |
|---|---|
| 0 – 5,000 | 0% |
| 5,001 – 20,000 | 1% |
| 20,001 – 35,000 | 3% |
| 35,001 – 50,000 | 6% |
| 50,001 – 70,000 | 11% |
| 70,001 – 100,000 | 19% |
| 100,001 – 400,000 | 25% |
| 400,001 – 600,000 | 26% |
| 600,001 – 2,000,000 | 28% |
| Above 2,000,000 | 30% |
The effective rate depends on your total income. A salaried employee earning RM 80,000/year who adds RM 30,000 in net rental income pays tax on the rental portion at the marginal rate applicable to the RM 80,001-110,000 band — which is 19-25%. Not 30%.
Non-Residents (fewer than 182 days in Malaysia per year)
Flat 30% tax on net rental income. No progressive rates. No personal reliefs. No tax-free threshold.
This applies to most Singaporean investors, expats collecting rent from a previous residence, and any foreign national earning rental income from Malaysian property.
The 30% non-resident rate is applied to net rental income (after allowable deductions), not gross. This was clarified under LHDN's public ruling on rental income and significantly reduces the effective tax burden. A non-resident with RM 3,500/month gross rent and RM 1,500/month in deductions pays 30% on RM 2,000 — not 30% on RM 3,500.
Allowable Deductions
These are expenses you can subtract from gross rental income before calculating tax. Both residents and non-residents can claim these deductions.
| Deduction | Deductible? | Notes |
|---|---|---|
| Assessment tax (cukai taksiran) | Yes | Paid to local council, semi-annual |
| Quit rent (cukai tanah) | Yes | Paid to state land office, annual |
| Fire insurance / takaful premium | Yes | Houseowner policy required by lender |
| Maintenance fees | Yes | Strata properties — monthly charge |
| Sinking fund contributions | Yes | Typically 10% of maintenance fee |
| Repairs and maintenance | Yes | Must be revenue in nature, not capital |
| Property agent commission | Yes | Letting fees, tenant-finding fees |
| Legal fees for tenancy agreement | Yes | Drafting and stamping the tenancy |
| Advertising costs | Yes | Listing fees on iProperty, Mudah, etc. |
| Property management fees | Yes | If you engage a property manager |
| Interest on loan / financing cost | Yes | Only the interest/profit portion |
| Mortgage principal repayment | No | Capital repayment, not an expense |
| Capital improvements | No | Renovations that add value, not repair |
| Personal travel to property | No | Not deductible even for non-residents |
| Furnishing costs (lump sum) | No | But see capital allowance below |
| Depreciation on furniture | Partial | Capital allowance at prescribed rates |
The Repair vs Improvement Distinction
LHDN draws a sharp line between repairs (deductible) and improvements (not deductible):
- Deductible: Replacing a broken water heater with an equivalent model, repainting walls, fixing leaky pipes, replacing worn-out flooring with the same material.
- Not deductible: Upgrading a kitchen, adding built-in wardrobes that did not exist before, converting a room, installing a new air-conditioning system where none existed.
The test is whether the expenditure restores the property to its original condition (deductible) or enhances it beyond that (not deductible). Keep receipts for all property expenditure — LHDN can request documentation for any claimed deduction.
Interest Deduction — The Biggest Line Item
For leveraged properties, loan interest or Islamic financing profit is typically the largest single deduction. In the early years of a mortgage, when the interest component of each payment is highest, this deduction can substantially reduce or even eliminate taxable rental income.
Deductible Interest = Total Annual Payments − Principal Repaid During Year
On a RM 720,000 loan at 4.0% over 35 years, first-year interest is approximately RM 28,500 — against gross rent of RM 42,000 (at RM 3,500/month). After interest alone, the taxable amount drops to RM 13,500 before other deductions.
By year 15, interest has dropped to approximately RM 20,000/year while rent may have increased. The tax burden grows over time as the interest deduction shrinks.
Worked Example: Resident Landlord
Profile: Malaysian tax resident, employed with annual salary of RM 72,000. Owns one rental property.
Property details:
- Monthly rent: RM 3,500
- Annual gross rental income: RM 42,000
- Loan: RM 600,000 at 4.0%, year 5 of 35-year tenure
- Annual interest component: RM 22,800
Allowable deductions:
| Deduction | Annual (RM) |
|---|---|
| Loan interest | 22,800 |
| Maintenance fee (RM 300/month) | 3,600 |
| Sinking fund | 360 |
| Assessment tax | 1,200 |
| Quit rent | 100 |
| Fire insurance | 480 |
| Agent commission (1 month rent / 2-year tenancy) | 1,750 |
| Total deductions | 30,290 |
Net rental income: RM 42,000 − RM 30,290 = RM 11,710
Tax calculation:
Total chargeable income = RM 72,000 (salary) + RM 11,710 (rental) = RM 83,710
Before the rental income, this person falls in the 19% bracket (RM 70,001-100,000). The additional RM 11,710 is taxed at the marginal rate of 19%.
Tax on rental income: RM 11,710 × 19% = RM 2,225/year = RM 185/month
That is an effective rate of 5.3% on gross rental income — substantially below the headline 19% marginal rate, because the deductions eliminated 72% of the gross income before any tax was applied.
Worked Example: Non-Resident Landlord
Profile: Singaporean citizen, tax non-resident in Malaysia. Same property, same tenant, same rent.
Property details: Identical to the resident example above.
Allowable deductions: Same RM 30,290 — non-residents can claim the same deductions.
Net rental income: RM 42,000 − RM 30,290 = RM 11,710
Tax on rental income: RM 11,710 × 30% = RM 3,513/year = RM 293/month
| Resident | Non-Resident | |
|---|---|---|
| Gross rental income | RM 42,000 | RM 42,000 |
| Total deductions | RM 30,290 | RM 30,290 |
| Net taxable rental | RM 11,710 | RM 11,710 |
| Tax rate applied | 19% (marginal) | 30% (flat) |
| Annual tax | RM 2,225 | RM 3,513 |
| Monthly tax | RM 185 | RM 293 |
| Effective rate on gross rent | 5.3% | 8.4% |
The non-resident pays 58% more tax on identical income. Over a 10-year holding period, the cumulative difference is RM 12,880 — the price of a decent renovation.
For non-resident investors, the interest deduction is your most powerful tool. Properties financed at high LTV in the early years of the loan often produce zero taxable rental income because interest exceeds rent. This window closes as the loan amortizes, so the tax burden increases over time.
SST on Rental Income
Service Tax generally does not apply to residential rental income. The threshold for SST registration is RM 500,000 in annual taxable services — and residential property rental is classified differently from commercial property rental under the Service Tax Act 2018.
If you earn rental income from commercial property (offices, retail, serviced residences on commercial title), SST may apply once your annual rental income from taxable services exceeds RM 500,000. This is relevant only for investors with large commercial portfolios.
For the vast majority of residential landlords — even those with multiple properties — SST is not a factor.
How to Declare Rental Income
For Malaysian Tax Residents
Form: Form BE (individuals without business income) or Form B (if you have business income)
Section: Declare rental income under Section 4(d) — "Rent, royalty, or premium"
Deadline: April 30 of the following year (e.g., 2026 rental income declared by April 30, 2027)
Process:
- Log in to LHDN's e-Filing portal at mytax.hasil.gov.my
- Select the appropriate form (BE or B)
- Navigate to the statutory income section
- Enter gross rental income under Section 4(d)
- Enter allowable deductions — you will need to itemize each category
- The system calculates net rental income and adds it to your other income
- Submit and pay any tax due
Supporting documents: You do not need to submit receipts with your e-Filing, but you must keep them for 7 years. LHDN can audit and request documentation at any time during this period.
For Non-Residents
Form: Form M (for non-resident individuals)
Deadline: June 30 of the following year (non-residents get an extra 2 months)
Process:
- Register for a Malaysian tax number with LHDN if you do not already have one (use Form CP600)
- File Form M through the e-Filing portal or submit a physical form
- Declare gross rental income and deductions
- Pay the 30% tax on net rental income
Tax agent: Many non-resident landlords appoint a Malaysian tax agent to handle filing. Typical fees range from RM 500-1,500/year for straightforward rental income declarations.
Withholding tax note: If you engage a property management company in Malaysia, they may be required to withhold tax on payments to non-residents under Section 109B. Clarify this arrangement upfront to avoid double-taxation or filing complications.
Common Mistakes and LHDN Red Flags
1. Not declaring at all. LHDN has access to land registry records. If a property is registered to your name and tenancy agreements are stamped (as they should be), LHDN knows you have rental income. Non-declaration triggers penalties of 45-300% of the tax undercharged.
2. Claiming capital improvements as repairs. A full kitchen refit is not a "repair." LHDN auditors know the difference. If caught, you pay the shortfall plus penalties.
3. Inflating deductions. Claiming maintenance fees higher than what the MC actually charges, or fabricating agent fees. Keep actual receipts.
4. Ignoring joint ownership. If the property is owned 50/50 with your spouse, each person declares 50% of the rental income (and 50% of deductions). You cannot assign 100% to the lower-income spouse to reduce the marginal rate — LHDN follows the ownership split on the title.
5. Missing the deadline. Late filing penalty: RM 200-20,000 or imprisonment or both. In practice, LHDN typically imposes a 10% penalty on tax payable for late submissions.
Rental Tax and Your Investment Cashflow
Tax is a real, recurring cost that directly reduces your net cashflow. When evaluating a property's investment potential, you need to model the tax line item explicitly — not as an afterthought.
For a quick estimate of your rental income tax liability under different scenarios, use our rental income tax calculator. It handles both resident and non-resident rates, factors in common deductions, and shows the monthly impact on your cashflow.
For the full picture of how rental tax fits into the broader cost stack — alongside maintenance, vacancy, insurance, and financing — see our complete ownership cost breakdown. And for understanding how net yield after tax compares to gross yield, see our analysis of gross yield vs net cashflow.
Rental income tax in Malaysia is not optional, it is not avoidable, and it is not as painful as most investors fear — provided you claim every legitimate deduction. The gap between gross tax liability and actual tax paid can be 50-70%, depending on your financing structure and property costs. Know your deductions. File on time. And build the real tax number — not the headline rate — into your cashflow model.
Sources & Further Reading
- Income Tax Act 1967, Section 4(d) — rental income classification
- LHDN Public Ruling on Rental Income — allowable deductions and expenses
- Budget 2026: Tax Rate Changes — latest personal tax rate adjustments
- LHDN e-Filing Portal — online tax return submission