U.S. Tax Planning for American Expats in Malaysia: Expert Insights from Melbourne Capital Group and American International Tax Advisers

In Malaysia, individual income tax rates are progressive up to 28%, while those who do not meet residence requirements are taxed at a flat rate of 26%. An individual is considered tax resident if he/she is in Malaysia for 182 days or more in a calendar year.

For most expats living in Malaysia, these local Malaysian tax rates are the only taxes that they are affected by. However, American citizens and green card holders are liable for U.S. taxes, regardless of country of residence. In fact, the U.S. is one of only two countries in the world that uses a citizenship-based taxation system rather a residency-based taxation system.

Fortunately, there are some exemptions that allow Americans living in Malaysia to pay less or no US income tax on their Malaysian earned income to the IRS. The main exemptions are the Foreign Earned Income Exclusion (FEIE) and the Foreign Tax Credit (FTC).

The Foreign Earned Income Exclusion (FEIE) allows American expats to exclude up to $120,000 of their foreign earned income from their US taxable income for 2023 on the condition that they meet one of the following two requirements:  

1. A taxpayer must be out of the country for 330 days.

or

2. A taxpayer must be a Bona Fide resident of another country, depending on how the IRS determines the status of a person’s residency.

Additionally, the Foreign Tax Credit (FTC) allows taxpayers to claim a credit for foreign taxes paid or accrued on their foreign income. The FTC is generally more beneficial than the FEIE for taxpayers with higher incomes. In limited situations, it is even possible to receive a refund with no tax paid if a U.S. Citizen has earned income abroad and also has children.  

Overall, filing taxes as an American living in Malaysia can be complicated due to the different rules and regulations between both countries. However, understanding these rules can help expats save money on their taxes and ensure that they remain compliant with both governments, avoiding potential penalties.

At Melbourne Capital Group, we partner with American International Tax Advisers to simplify the technical aspects of American tax planning and reporting. If you would like to get updated on the latest American tax landscape, please join us for our upcoming seminar.

This seminar is designed specifically for American expats residing in Malaysia and will provide a comprehensive overview of the unique tax challenges and opportunities that come with living abroad. With a focus on the American expat community in Malaysia, Thomas Carden, the International Tax Director at American International Tax Advisers, will delve into the tax pitfalls to avoid, and offer tips and strategies for becoming more tax efficient.

You will learn about the latest developments in tax laws and regulations, as well as practical steps you can take to minimize your tax liability and maximize your savings. Michael Garcia, Private Wealth Manager here at Melbourne Capital Group, will be touching on U.S.-compliant wealth structures and investment opportunities. We offer our American clients access to international, U.S.-registered investment platforms along with qualified, SEC-regulated investment managers. The portfolios are composed of approved investments that are registered in the U.S., which will prevent them from being categorized as a “Passive Foreign Investment Company” (PFIC).

In addition to the above, this seminar will also highlight the importance of having a local, Malaysian Will as an American expat here. The issue of estate planning is often overlooked by expats, but it is crucial to have a valid will in place, especially when living and owning assets in multiple countries. Sharm Ravindran, Managing Parter of Messrs Ravidran will be highlighting how a Malaysian Will is necessary to ensure that your Malaysia-based assets are distributed according to your wishes and minimize the risk of legal disputes.

Details of the event below:

Date: Saturday, 4^th March 2023.

Time: 12:30pm – 3:00pm, Malaysia time.

Venue: Carlton 8, The Ritz Carlton KL.

Limited spots available.

Register now.
 
Michael Garcia is Melbourne Capital Group's dedicated U.S. Private Wealth Manager with a decade-long experience of living abroad as an American. Michael's dedication and expertise in handling the complex world of international taxation and reporting requirements enable him to provide exceptional services to his clients. Do not hesitate to contact him at michaelgarcia@melbournecapitalgroup.com if you would like to ensure that your financial interested are protected and optimized to the fullest.