No, fixed deposit interest earned by individuals in Malaysia is not taxable, provided the deposit is placed with licensed banks, licensed Islamic banks, or approved financial institutions under the Financial Services Act 2013 or Islamic Financial Services Act 2013. This interest is fully exempt from income tax and does not need to be declared. However, fixed deposit interest earned by companies or business entities is taxable and must be reported as part of their assessable income.
FD Interest Taxable in Malaysia
What Is the Tax Treatment of Fixed Deposit Interest for Individuals?
In Malaysia, interest income from fixed deposits placed with licensed financial institutions is tax-exempt for individual taxpayers, under Paragraph 33, Schedule 6 of the Income Tax Act 1967. This exemption applies regardless of the tenure, whether short-term or long-term, and irrespective of the amount of interest earned.
For example, if an individual earns RM1,200 interest from a 12-month fixed deposit with Maybank or CIMB, that amount is fully exempt from income tax and does not need to be declared in the income tax return (Form BE or B).
How Does Fixed Deposit Interest Taxation Work for Companies?
Unlike individuals, companies are required to declare fixed deposit interest as part of their taxable income. Interest earned from deposits is categorized under “other income” and must be reported in the company’s tax return (Form C). There is no exemption available for companies, and the full amount of interest, such as RM10,000 earned from a business fixed deposit, will be subject to corporate income tax based on the prevailing rate (e.g., 17% or 24%, depending on SME status and taxable income thresholds).
Which Financial Institutions Qualify for Tax-Exempt Fixed Deposit Interest?
Fixed deposit interest is tax-exempt for individuals only if the deposit is placed with licensed financial institutions approved by Bank Negara Malaysia (BNM). These include:
- Licensed commercial banks (e.g., Maybank, Public Bank, RHB Bank, Hong Leong Bank)
- Islamic banks (e.g., Bank Islam, Bank Muamalat)
- Licensed investment banks and finance companies
These institutions are regulated under the Financial Services Act 2013 and Islamic Financial Services Act 2013, ensuring that deposits made with them qualify for the tax exemption under Schedule 6, Paragraph 33 of the Income Tax Act 1967. Interest earned from fixed deposits placed with unlicensed entities, peer-to-peer platforms, or overseas banks may not qualify for this exemption and could be subject to tax.
Are There Any Thresholds for Taxable Fixed Deposit Interest?
For individuals, there is no minimum threshold for the tax exemption on fixed deposit interest. Whether the interest earned is RM50 or RM50,000, it remains fully exempt from income tax as long as the deposit is placed with a licensed financial institution regulated by Bank Negara Malaysia. This applies to both conventional and Islamic fixed deposits, regardless of tenure.
However, for companies, all fixed deposit interest income is taxable, with no exemption or threshold. Businesses must report the full amount of interest earned, even if it is minimal (e.g., RM10), under “other income” in their tax return and include it in their chargeable income for the relevant year of assessment.
What Is the Legal Basis for Fixed Deposit Interest Tax Exemption?
The tax exemption for fixed deposit interest earned by individuals is provided under Paragraph 33, Schedule 6 of the Income Tax Act 1967 (Act 53). This provision exempts from income tax any interest derived by an individual from deposits placed with a bank or financial institution licensed under the Financial Services Act 2013 or the Islamic Financial Services Act 2013.
Lembaga Hasil Dalam Negeri Malaysia (LHDNM) has also confirmed through public rulings and FAQs that interest earned by individuals from fixed deposits placed with licensed banks, Islamic banks, and finance companies in Malaysia is fully exempt from personal income tax. This policy supports national goals of encouraging savings, promoting financial inclusion and strengthening the formal banking sector.
Do Foreigners Pay Tax on Fixed Deposit Interest in Malaysia?
For non-resident individuals, the interest paid on fixed deposits by licensed Malaysian banks, merchant banks, or finance companies is exempt from withholding tax. Foreigners receive the same tax-advantaged treatment as local residents.
However, this exemption only applies to licensed banks and financial institutions. If a non-bank entity (such as certain corporate entities or special-purpose vehicles) pays interest to a non-resident, that interest is subject to a 15% withholding tax, unless lowered by a relevant tax treaty.
How Should Taxable Fixed Deposit Interest Be Reported?
For companies, all fixed deposit interest must be declared as “other income” in the Form C (Company Tax Return) submitted to Lembaga Hasil Dalam Negeri Malaysia (LHDNM). This interest income is included in the company’s total chargeable income and taxed at the applicable corporate tax rate.
For individuals, fixed deposit interest earned from licensed financial institutions in Malaysia is tax-exempt under Paragraph 33, Schedule 6 of the Income Tax Act 1967, and does not need to be declared in the individual tax return (Form BE or B). However, it is advisable to retain bank statements or interest credit advices as supporting documents in case LHDN requests verification during an audit or review.
What Happens If Fixed Deposit Interest Is Earned From Overseas Banks?
Interest earned from fixed deposits placed with foreign banks is not exempt under Malaysian tax law and is taxable for Malaysian tax residents. The exemption under Paragraph 33, Schedule 6 of the Income Tax Act 1967 applies only to interest from deposits with licensed financial institutions in Malaysia.
For example, if a Malaysian resident earns interest from a fixed deposit account with a Singaporean bank, that interest must be declared in the income tax return (Form B) and will be subject to Malaysian income tax, unless it qualifies for exemption under Section 127(3A) (e.g., foreign-sourced income remitted in specific conditions during tax exemption periods). Taxpayers are also required to retain supporting documents, such as foreign bank statements and remittance records, in case of LHDN review.
Are There Penalties for Not Declaring Taxable Fixed Deposit Interest?
Yes, failure to declare taxable fixed deposit interest, particularly by companies, can result in penalties imposed by Lembaga Hasil Dalam Negeri Malaysia (LHDNM) under the Income Tax Act 1967. If a company omits or underreports interest income in its Form C, it may be subject to:
- Additional tax assessments
- Penalties up to 100% of the underpaid tax under Section 113(2)
- Late payment interest under Section 103(3)
For individuals, misreporting taxable interest from foreign fixed deposits (e.g., overseas bank accounts) may also trigger tax audits or investigations. While most domestic fixed deposit interest is tax-exempt, individuals earning foreign-sourced interest must report it, especially if remitted to Malaysia and not covered by current exemption periods. LHDN encourages taxpayers to maintain proper documentation and ensure full disclosure to avoid enforcement actions or reputational risk.
Does Early Withdrawal Affect Fixed Deposit Interest Taxation?
Early withdrawal of a fixed deposit does not affect the tax exemption status for individuals, as long as the deposit was placed with a licensed financial institution in Malaysia. Even if the bank imposes a penalty or reduces the interest payout due to early withdrawal, the interest earned remains exempt from income tax under Schedule 6, Paragraph 33 of the Income Tax Act 1967. However, the actual interest received may be lower, depending on the terms set by the bank.
How Does Fixed Deposit Interest Compare to Other Tax-Exempt Income?
Fixed deposit interest for individuals is fully exempt, similar to savings account interest and certain dividend income in Malaysia. However, beginning Year of Assessment 2025, individuals receiving dividends exceeding RM100,000 annually will be subject to a 2% tax on the excess amount, as announced in Budget 2024. In contrast, fixed deposit interest remains fully exempt regardless of amount, making it one of the most tax-efficient forms of passive income for individuals.
What Documentation Is Needed to Prove Tax-Exempt Fixed Deposit Interest?
To support the tax-exempt status of fixed deposit interest, individuals should retain bank statements, fixed deposit receipts, or annual interest summaries from the financial institution. These documents act as proof of source and institution licensing, and should be kept for at least 7 years in case of LHDN audits or inquiries. Companies must maintain similar documentation as part of their financial records for compliance and audit purposes.
Can Tax Reliefs or Deductions Apply to Fixed Deposit Interest?
No, tax reliefs or deductions do not apply to fixed deposit interest for individuals because the income is already fully tax-exempt under Malaysian law. For companies, fixed deposit interest is taxable and generally cannot be offset with deductions, unless the company qualifies for specific investment or reinvestment incentives under the Income Tax Act or approved incentive schemes by MIDA or MOF.
How Does Malaysia’s Fixed Deposit Interest Taxation Compare Regionally?
Malaysia offers one of the most favorable tax treatments for fixed deposit interest in the region, as individuals enjoy full exemption regardless of amount or tenure. In Singapore, fixed deposit interest is usually exempt for individuals unless it exceeds SGD 100,000 annually, after which it becomes taxable. In Thailand, fixed deposit interest is subject to a 15% withholding tax, although residents may request refunds under specific conditions. Thus, Malaysia’s approach encourages savings by offering simplified and broad-based tax relief on interest income.
Who Should Consult a Tax Advisor on Fixed Deposit Interest?
Individuals and companies with complex income structures should consult a licensed tax agent or advisor, particularly when dealing with foreign interest income, cross-border banking, or corporate investments. This includes expatriates, holding companies, and businesses with mixed portfolios of interest, dividends, and capital gains. A tax advisor can ensure proper declaration, reporting, and use of tax incentives while avoiding compliance risks with LHDN.