This is a question I received a while ago from one of my readers, Ashley, she asks:

I would like to sell handmade stuff on an online marketplace like Ebay.com and use Paypal to accept payments. If someone from the U.S. buys my product, do I need to pay any taxes (e.g. income, sales, etc.) to the Malaysian government? Would I be considered as a business?

The ‘official’ stand of the Malaysian tax department is that any and all income made by a Malaysian, within Malaysia (as in the money ends up in Malaysia) is by law, taxable.

If you’re not hitting the tax bracket of around RM2000 a month, I don’t think you have to pay tax anyway.

Get Some Tax Advice

However, if you are making more than RM2000/ month from online sales, I would suggest you go see a tax consultant or anybody who does tax for small businesses.

Tell that person roughly how much you make selling goods online and find out from them what your tax deductibles could be.

Will you owe money to the government, or would it be possible to offset your tax by claiming deductibles?

I can’t answer these questions for you, only a qualified tax expert can, so go find one, or ask a friend who owns a business who does their tax for them and make a meeting to go see them.

What Rich Dad Poor Dad Says About Tax

From my understanding of the ‘Rich Dad Poor Dad’ series of books, Robert Kiyosaki is basically telling people, the number 1 reason you should start a business is to save on tax.

Now tax may not be the biggest issue in Malaysia, as our tax brackets don’t go to crazy percentages such as 45% or 48% in foreign countries like USA, UK or Australia, but you can still take some learnings from businesses that operate in those countries.

If you’re holding down a full time job you have to realize that there’s almost no way to run away from tax. In Malaysia especially, there are only a certain set of deductibles you can claim in a year, these would include, books, computers, EPF, insurance etc.

If your salary is medium to high, then there’s no real way to run away from tax, the deductibles will never be enough for you to NOT pay for tax.

However, if you own your own business, it’s a different story entirely.

Everyone has heard that ‘meals’ or ‘cars’ or ‘houses’ are tax deductibles for business men or women and that’s why you see business men with huge wallets full of receipts.

A business person who makes $10,000/ month and an employee who makes $10,000/ month pay a very large difference in taxes at the end of the year, with the employee always losing out.

Tax Is Good

Tax, if used by the government like it should be used for, such as to build roads, schools and hospitals, is a great thing.

I can’t really comment what happens to our tax in Malaysia, but for a business person, the more taxable income you have, well, the more income you have – and that’s not a bad thing right?

Find out what your tax deductibles are and you may not actually owe the government anything, which at even a tax rate of 28%, means you could be making that much more a year in income.

A $10,000/ month employee will essentially only be bringing home $7,200/ month based on the tax figure above.

A $10,000/ month business man/ woman could be taking almost all that amount home.

I hope that answers your question Ashley, as well as anyone else out there who may have had this on their mind.

The bottom line – you have to pay tax for online income. But I think you should register a business and declare it as business income, then find tax deductibles to try and keep as much of that income to yourself as possible.

Keep the questions coming!

- William