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Retirement in Malaysia

by Robert Holland

Retirement often brings with it an uncertain financial future. Income is reduced; future expenditure is unknown, as is life expectancy. It greatly relieves the stress of retirement if it can be quickly ascertained that the retiree can live by Mr Micawber's principle of fiscal management, that happiness is the result of income exceeding expenditure and misery the reverse. Fortunately Malaysia has an exceptionally low cost of living when compared to the UK, and is aided by a tax regime that is most welcoming to foreigners.

The general overriding principle is that neither a long-term visitor to Malaysia nor a retiree going to Malaysia under the Malaysia My Second Home (MM2H) Scheme would normally pay Malaysian Income Tax. However, after living in Malaysia for 182 days in the first tax year and for 90 days in each subsequent tax year, a retiree becomes and remains resident for tax purposes, which is actually beneficial in several ways. Everyone should be tax resident somewhere and where better than a tax friendly country, outside of the EU and its onerous regulations. Put simply, for a foreigner, no tax is charged on any income derived outside of Malaysia.

Interest on any number of Fixed Deposits of RM 100000 or less, held in a Malaysian registered bank is also tax-free. The term Malaysian registered bank includes HSBC, Chartered bank and Citicorp. The current rate for a Fixed Deposit of twelve months is 3.7%, and in certain banks the interest can be paid monthly.

There is no Inheritance Tax and no Capital Gains Tax on assets other than property. Capital gains tax on the sale of property in Malaysia, owned for less than five years, is charged at 30%, but drops to less than 5% if the property is held for more than five years. There is no VAT, but there is a Government Sales Tax (GST) of 5% on hotel and restaurant bills and on professional bills such as lawyers' bills. One could, for example, become a Malaysian taxpayer if income is obtained from rental earnings in Malaysia or from royalties on published works in Malaysia. However, there are many allowances that greatly reduce such tax liability.

Personal possessions imported for personal use, when retiring to Malaysia, are exempt from tax, but should not contain daggers, drugs, firearms or alcohol. If recorded videos, VCDs or DVDs are imported they will be checked for content - there is a checking charge of RM30 or GBP4.30 per item.

Once the retiree has been out of the UK for the prescribed period, their offshore investments become free of UK Tax and are not taxed by the Malaysian Tax Authority. Several retirees have calculated that their living expenses within Malaysia are far less than their tax savings, making it in effect, cost free to live in Malaysia!

Property prices are well below those in the UK, with properties, such as a three-bedroom apartment in a condominium in Penang, available from just GBP36,000. In addition to the savings in buying a property, the Assessment (Malaysian equivalent to Council Tax) is much less. The annual Assessment for a terraced house would be GBP55, for a three-bedroom apartment GBP58 and GBP180 for a large four- bedroom apartment.

Flats are always charged at a higher rate because the Assessment is based on potential rental earnings, and flats command a higher rent, as the landlord has to pay the service charge and the Assessment. In a house the tenant pays for all outgoings, thus rents are lower. Unlike the UK, garbage from flats is collected 7 days a week and from houses 3 times a week. (Possible saving over the UK Council Tax of GBP1,300 per annum.)

Utility charges in Malaysia are lower than in the UK. With temperatures never dropping below 22oC at night, there is no need for central heating, but air-conditioning is normally considered essential, at least for the bedrooms. Even if air-conditioning is used regularly, the total electricity bill should not exceed GBP600 per annum and many families only use half that amount. (Possible saving of over GBP1,000.) There is no piped natural gas, but a large cylinder of LP gas is less than GBP2.20 including delivery, usually within four hours but often within 30 minutes. Telephone land lines cost GBP3.90 per month and local calls are GBP0.004 per minute. The cheapest international calls are via Call cards, and a GBP4.30 card enables over 3 hours 50 minutes of call time to the UK. Water and sewerage combined charges average less than GBP3 per month. Postal charges are also well below those in the UK: a First Class stamp costs less than 5 pence and an Airmail postcard to anywhere in the world costs 7 pence.

Local domestic help is readily available and, while it is not necessary to have a maid if living in a condominium, as there is less work than in a house, it certainly makes life more pleasant. Local maids are available for GBP1.50 per hour, and for many couples, hiring a maid for just a few hours a day to do the washing, ironing and cleaning is sufficient. A full time 'live-in' Indonesian maid costs about GBP75 per month, while an English-speaking 'live-in' maid from the Philippines would cost GBP110 per month. Overseas maids can be requested through an agency, but often take several weeks to arrive. However, for full-time employment, there are some pitfalls as the market in Malaysia is less regulated than in Singapore and Hong Kong. Thus the best solution is to take local advice and possibly take over a maid from a friend who is leaving, or to hire one on the recommendation of a friend. Most four bedroom properties and above have an additional maid's sleeping quarter and maid's bathroom off the yard or wet kitchen.

Public transportation is much cheaper than in the UK, and there are low cost airlines flying all over Asia. (A 6 kilometre bus ride costs about GBP0.10) Cars, however, are generally more expensive to buy than in the UK, especially imported models with a large engine capacity, while 'ASEAN' cars are just 10%-15% higher. (Foreigners, who join the Malaysia My Second Home Scheme, are entitled to buy or import one car, tax and duty free, making it considerably cheaper than in the UK.) Running costs are very cheap; petrol is less than GBP0.20 per litre. Road tax for a 2-litre car is GBP57, and for a 1-litre model the cost is GBP18.

Third party insurance for all cars without No Claims Bonus is GBP14 per annum. A 'No Claims Bonus' (NCB) can be transferred from a UK insurer at up to 30%-40% depending on the company and further NCBs can then be earned, up to a maximum of 55%. However, it is necessary to bring a written NCB declaration from one's UK Insurance Company, as a copy of a UK Insurance Contract will not normally be sufficient proof to claim an initial NCB. Comprehensive insurance is based on the replacement value of the car and therefore varies with the model and age of the car. As repairs and maintenance are very cheap, and the insurance companies operate a 'Knock for Knock' policy, whereby both parties lose their NCB, irrespective of who was at fault, many vehicle owners prefer to pay for their own repairs and insure for Third party only. This is mandatory but does not cover Fire and Theft. A major 20,000 kilometre service by the registered agents for a two litre Proton Perdana costs GBP85, while a basic oil change service at a local garage costs GBP28. (This includes being driven back home after delivering the car to the local garage and then being picked up to collect the car after the service.) Parking charges vary from GBP0.04 per half hour in a metered space (minimum GBP0.015 pence for 8 minutes) to GBP0.06 pence per half hour in a warden controlled space, to GBP0.14 per hour in a car park, up to as high as GBP0.50 per hour in the most expensive hotel underground car park. For parking illegally, the fine is up to RM30 or GBP4.28

There is good news and bad news regarding the essentials of life. The good news is that imported cigarettes cost less than GBP1 for 20 and local ones even less, but alcohol, especially premium brand imported spirits, is expensive. Wine is available from GBP3 per bottle upwards - alas, a long way upwards - as the percentage duty increases with the value of the wine. Beer in the supermarkets fluctuates according to the current special offer, and, when bought by the case, varies from GBP0.45 to GBP0.75 per small can. Imported spirits are about GBP12 per bottle, but locally bottled gin, vodka, rum, brandy and whisky are available for less than GBP4 per bottle. As mixers, other than the whisky, they are ideal, but for most expatriates the whisky is noticeably different from the usual proprietary brands. All international flights into Malaysia allow a litre of duty free spirits per person to be brought into the country, and the island of Langkawi, just a ferry ride away, is totally duty free.

Eating out is one of the great joys of Malaysia, a social activity that takes place 24 hours a day, seven days a week and seems to involve the entire population. Costs range from less than GBP1 per person for a casual snack at one of the hawker stalls, to GBP5 per person for a delightful dinner in a small restaurant or club, up to a sumptuous buffet (with wine and beer included) in a premier hotel, such as the Eastern and Oriental located on the harbour front, for less than GBP10 per person. Food of every variety and flavour is available in Penang, a true melting pot of culinary styles.

Shopping for food and general household products is generally cheaper than in the UK, and there are several international chains operating in Malaysia, such as Tesco, Carrefour, Welcome and Cold Storage. For imported goods, the prices are similar to those in the UK, but locally sourced items are considerably cheaper. The range of products, however, is considerably less than in the UK. There are far fewer types of cheese, fewer UK biscuits and items such as Paxo stuffing and Bisto are not available throughout the year. If they are on the shelves in October buy then, because by Christmas they will have sold out! The local markets are good value, especially for local vegetables, which are offered for sale only hours after being picked. There is an abundant choice of fresh fruit, both locally and internationally sourced, and in the wet markets the fish and poultry is killed and prepared to order. The price of most basic ingredients is controlled by the government, so inflation remains low.

An additional expense in Malaysia is that of joining and being a member of a club. The majority of expatriates who retire to Malaysia join at least one club, as membership forms a pleasant part of the social fabric of retired life. Waiting lists for temporary membership are quite short, normally until the cheque has cleared, and full membership can often be obtained within three or four months. There are various types of club. In a member-owned club, each member owns a share of the club and an elected committee of members runs the club. This type of membership, which costs from GBP1,600 to GBP5,000, can be sold on at a later date if the member moves away. The club normally takes about 25% of the sale price as an administrative fee, but over the long term these memberships can increase in value. The other type of club is a commercial club, which charges a lower yearly membership fee of GBP200 to GBP300, that must be renewed each year, but the members have no control over the club. In addition to the joining fee, club members have to pay a monthly fee ranging from GBP8 to GBP20. This goes towards the running of the club, as facilities are free and food and beverage prices are often subsidised - thus, the more one uses the club, the better value it becomes. Malaysia is a land blessed with many golf clubs, and around both Kuala Lumpur and Penang there are at least half a dozen, to which non-members can easily drive. During the week, non-members can use such places simply by paying green fees of GBP10-GBP20, inclusive of buggy. Caddies cost GBP3 upwards.

In general terms, whatever their disposable income, a retiree to Malaysia can guarantee a lifestyle far, far better than that available in the UK with the same funds. Money in Malaysia really does go a lot f u r t h e r.

(The exchange rate used in all the above quoted examples was RM7 to GBP1)

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