Living the expat life in Malaysia; residency, taxes, etc.

Factual Questions
1

So, I have a job that lets me work anywhere. My wife and I have recently become interested in visiting Penang, Malaysia, and—if we like it—moving there in a couple of years. The cost of living is insanely low compared to the US, the food is supposed to be great, it’s supposed to have an exciting mix of cultures, there are supposed to be decent services (healthcare, electricity, internet, etc.), it’s a nice hopping-off point to a lot of other Asian countries that we’d like to visit, etc. We wouldn’t have to rely on local income, so work permits, etc., are not even an issue.

My preference would be (again, once we visit and decide that we do like it; if we don’t, then this is all moot) to go there and rent a place (probably a condo in a high-rise), live in Penang for a few months at a time, and leave the country frequently (3-4 times per year) to tour other Asian countries and to visit friends and family in the US, Europe, and NZ.

Now, Malaysia has a program called “Malaysia My Second Home” (MM2H) that is geared toward expats who wish to retire in Malaysia. Younger folks (me) can also take advantage of this, but it requires you to deposit a massive chunk of change (ca. $90k USD) in a Malaysian bank that you cannot touch for the duration of your residency. In return, you gain resident status during your 10-year visa and are exempted from paying Malaysian taxes on foreign income.

BUT… Malaysia also has one of the most liberal tourist visa policies vis a vis the US. US citizens don’t need visa approval before entering Malaysia; you simply present your passport, get it stamped, and are automatically granted 90 days within Malaysia. When your visa nears expiration, you then need only visit another country (some expats claim they leave for only a few hours, but admit that they may be tempting the generosity of the customs officials), re-enter Malaysia, and get your passport stamped for another 90 days. There are also no limitations on how many days of the year you can spend in the country in total (i.e., some countries may give you 30 days per visit, but a maximum of 60 days in-country per 180-day period). So, in theory, you could “live” in Malaysia on a practical full-time basis, leaving the country every 90 days in order to renew your visa status. (A number of expats–most of them seem to be Brits–do this; they are called “visa runs.”)

Now, from my standpoint, this sounds perfect. I want to leave the country about every 90 days, and expect that I may spend a fair bit of time in other countries (several weeks in NZ and Europe; possibly a month at a time each time I return to the US). My worries:

The Malaysian authorities may get annoyed that we are essentially living in their country for the better part of the year, yet on a tourist visa. I don’t plan on buying property there (I like the mobility of renting), so I don’t have to worry about being cut off from major assets. But I also wouldn’t want to get shut out of the country unexpectedly, leaving all of whatever stuff I own locked up in my apartment in Penang where I can’t retrieve it. We also have a dog (which presents its own housing issues, but that’s another lengthy consideration), and should we board her or have a pet-sitter come while we are traveling, I don’t want to be separated from her permanently. Does anyone have any idea of what the real risks are of being denied re-entry to Malaysia in this sort of scenario?

What happens to my taxes/residency in the United States? My income is from US sources. I of course expect to keep paying my Federal income taxes at the usual rates. But what about State income taxes? I currently live in Oregon. If I did this move (and possibly even if I stay here) I may switch my company from an Oregon-based one to a Delaware LLC (which requires no Delaware residency). I would probably have all of my mail routed through a mail forwarding service (they scan and open your mail for you, and ship it on to you or dispose of it as you direct). I get paper statements from banks and ISPs and the like now, but they’re always begging me to switch to paperless e-billing, which I could do. I already pay all but one of my bills via online banking, not my checkbook.

So I could get by fine without a permanent stateside residence to return to. The question is, where would I tell Uncle Sam and one of the lucky 50 states that my primary residence is? Here are some thoughts:

  • Oregon (I live here now, so it will be my last address of record before I move)
  • Pennsylvania (where our parents live; if we HAD to list a current stateside residence rather than a PO Box, we could put one of their homes down)
  • New York (lived there for years, own a piece of undeveloped property there, but no current physical residence to return to)
  • Penang (even though we’re only on tourist visas, should we come straight out and say that it’s our primary residence?)

If we say OR, PA, or NY, I presume we would pay state/local income taxes for that state/municipality. Is it even possible to list NO stateside residence? I assume that the various state/local/federal governments would like a real physical address, and that banks, etc., would as well (though with them, we could be cagey and just “forget to update” our physical address, only changing our mailing address).

Has anyone out there lived the international travel bum life? Insights?

2

I don’t have much knowledge about the visa regulations of Malaysia (only been there three times on a tourist visa) but if it’s similar to Thailand then I would take the underlined part with a grain of salt. Here in Thailand if you are physically working in the country, even though your employer or clients are from out country you still need a work permit to be legit. Of course chances of being caught are small, and if so probably you wouldn’t face a harsh penalty but it’s something you should check before assuming a work permit is not necessary.

3

You do not have to have a state of residence as far as the US tax system is concerned. Moving your company to Delaware may or may not help because most states tax you based on business presence and source of income. That is, if you’re not doing business in Oregon, it may not matter whether you’re registered there or not, and if you are doing business in Oregon, it doesn’t matter which state you’re registered in. (That’s a gross oversimplification, but is the general principle).

On the personal income tax side, you may still have to file a tax return with a state that you have income from, but if you are no longer living there, you can file a non-resident return. This return tends to make sure you are taxed only on income from the state, not your worldwide income, but each state is different. Your mailing address is not really important. You can be a non-resident of OR with an OR mailing address, though you might be encouraging an auditor to check on you.

If you meet certain requirements (like being out of the country for 330 out of 365 days) you may be able to claim a foreign income exclusion on your earnings in Malaysia (if any) so that you won’t pay taxes on that to the US. You’d still pay taxes as usual on any US-source income.

4

I can’t help you with the visa issues, but I too am planning to spend some considerable time in Malaysia starting next year so just wanted to go “woo yeah Malaysia!”

Penang’s very nice. Georgetown’s fun, the coast leading up to Batu Ferringhi is a bit “Brits in Spain” beach/housing. Batu’s a good place - touristy but quiet. The interior of the island is very much more “developing country” style, and very Muslim. Here are my thoughts on the place when there in 2005.

Another incentive (as if I needed any) arrived in my inbox this morning from AirAsia advertising flights out of KL all over Asia for insanely low prices - e.g. US$51 to India, Sri Lanka, Hong Kong, etc. Flown them before, good airline. I refer to them as “the RyanAir of Asia” in my travelogue, but really they’re much better - the Malaysian side anyway. The Thaksin-owned Thai branch of the company is a bit scary to be honest.

5

When I lived abroad, I contacted the State of California to ask whether I should file state taxes, since I was still filing federal taxes and I wasn’t a resident of any other state. They never answered, so I never filed, and when I returned and started filing again, they never asked about the gap. The language that occasionally came up (for voting / jury duty) was “resident of California, but not domiciled in California.”

6

You’re sure that Malaysians will rent to you for longer than the duration of your visa?

7

In the US, the general rule is that your state of residence is whatever state you last resided in with the intent to stay.

8

No, I hear you. I’ve dealt with LLCs in 3 states thus far. Part of the proposed DE move was simply to avoid having to dissolve and set up a new one every time I move.

9

True. I work out of the house, anyway, so it seems unlikely I’d be detected. (Heck, my neighbors here barely even know what I do.)

10

Nice! Thanks for the link.

11

Well, I suppose it’s possible that they won’t. But I can’t see it would be any different than me renting the apartment for the whole year, every year so I would have a dedicated vacation home, and only visiting the country for 2 months out of the year.

12

I can’t advise very much in detail about Malaysia, but I can say that yes, its regulations are famously more foreigner-friendly than Thailand’s. And yes, there is a program aimed at attracting expat retirees, I’ve heard of that. I believe you can even actually own land, unlike in Thailand. Check out the regs thoroughly, though. But it’s a delightful little country.

13

I’ve never lived in Malaysia, but I’ve been an expat for the past five years or so, including a couple of years in Indonesia. I went to KL a lot for R&Rs.

It will be easiest for you to list the state that you most recently lived in. Spend the money for a good tax guy who is familiar with expat issues.

I am not a tax guy, but there are essentially two ways of being tax exempt for the US.

  1. Stay out of the US 330 days of every year (that’s how I did it).
  2. Establish residency in another country. This will mean not being in Malaysia on a tourist visa (sorry).

If you don’t plan on going back to the US more than a month in a year, option one works. If you plan on going back to the US more often than that, then you will need to establish residency.

Also if you are constantly coming and going out of Malaysia on tourist visas, there is a pretty good chance that some observant customs person is going to notice (or it will get flagged in the system) and take a longer look at your status.

14

I’ve been living in a rented apartment in Penang for the last 4 years. I’m here on a 90 day tourist visa… no problems going in and out, no questions asked. Malaysian immigration is much less complicated than Thailand.

I don’t think the tax people care about any money that’s earned and banked offshore. The only person you have to convince of financial responsibility is the landlord. That’s easily done. It’s a renter’s market. Plenty of available rental units all over the island. Local condo-owners like renting to expats.

You can get a decent broadband connection here. There are plenty of ATMs to access your foreign bank account… all over Penang and throughout SE Asia.

Bottom line: Easy deal. The price is right. However, not the most exciting place on earth.

15

Ah! Exactly the situation I’m looking at. Thanks for the info.

16

I have zero experience of beinng an expat, but I can still give this piece of advice. If you’re interested in jogging and meeting people socially, both other expats and natives, you should seek out the Hash House Harriers.

17

My wife is from Penang, Malaysia. So far I have visited once for a week. I can’t comment on visas and taxes but you really should make sure it is right for you before you move.

Some items to think about:

[ul]
[li]It is very hot all year round. It was almost unbearable for me.[/li]
[li]It is predominantly a Muslim country. When I went to the beach, the local women were wearing burkas covered from head to toe. I’m not saying this is bad but it may be a culture shock if you are not expecting it.[/li]
[li]Former Prime Minister Mahathir has a long history of making anti-Semitic remarks and various other wacky comments. He was the leader of the country for over 20 years and is highly respected there.[/li][/ul]

18

Mahathir is history. I wouldn’t say he’s universally respected. Only his own political faction thinks much of him (albeit that’s a large chunk of the polity).

Anti-Semitism is essentially unknown internally in Malaysia. Very few people there have ever met a Jew, still less have opinions about same one way or the other. The Malay population tends to a very insular mentality that at times shades into xenophobia. I.e. they distrust and dislike all non-Malays more or less equally.

There are three large ethnic groups. Malay, Chinese, and Indian. The Indians are mostly Tamil. The Chinese are mostly of Hokkien derivation. Though people with roots in other regions of those countries are found too. The Chinese population heavily dominates business. The Indian population has the English-language private education industry completely sewn up. The Malay population is dominant in rural regions; many urban Malays find employment in government service. The Chinese population is high in urban areas, including Georgetown. The aboriginal tribes, Orang Asli (‘original people’) are a tiny minority in peninsular Malaysia, and either live in remote wild areas of the interior, or find themselves at the socieconomic bottom when they migrate to the cities.

The patterns of Malaysia’s population were formed by the economics of British colonialism and exploitation of resources. The Chinese were brought there in large numbers as tin miners in the 19th century, and also built up the country’s modern business infrastructure where none had existed before. Tamils were brought in the same era and in the early 20th century as rubber plantation workers. Many menial Chinese workers raised their status by hard work and family business connections, and many menial Tamil workers raised their status through education, becoming today’s urban population.

Meanwhile the indigenous Malay population was bypassed by this colonial economic development, except for the sultans of the various states, whom the British cut various deals with. The economic disparity of ethnic groups came to a head in May 1969 with the infamous race riots, which led to systemic reforms called the New Economic Policy, which basically established economic affirmative action for Malays, and and also led to Malay ethnic dominance in politics. This situation is what first brought Mahathir to power. There had long been (and still are) feelings of resentment silently simmering in the Malay community about how their country was exploited for profit by foreigners while they were left out, which is what was behind the 1969 race riots. Before colonialism, there had been no urban centers to speak of in Malaysia, and the indigenous population had been content to live simply, catching fish and picking coconuts.

Just some background. In Georgetown you probably won’t hear much of this, as Penang seems like a forward-looking place, and all this has little to do with the expats of today. Just FYI.

I haven’t visited Penang; I spent two years near Kuala Lumpur, 1994–1996. My employer there got me a work permit. Shortly after I returned to the United States, the IRS called me and said they’d noticed I hadn’t filed a return for 1995, what was up with that? I said I had been out of the country with no residence in the US and had not even set foot in the country the whole year of 1995, and more to the point I had zero income in the US for that year. They were satisfied with this explanation and dropped the subject.

While in Malaysia I found it constantly exasperating how my (ethnically Malay) employer took such a slipshod, lackadaisical approach to getting anything done. The Malay culture heavily emphasizes respect, self-control, social status, and formality. But efficiency? Attentiveness to one’s tasks? What’s that? My employer told me they’d handle all the paperwork, fees, etc., for my stay in the country, which they often goofed up.

Worst of all, I discovered to my shock when about to catch my flight back to America that I could not leave because I had not paid some expat worker tax for both years—which my employer was supposed to have taken care of, but had totally spaced out. I was taken to the airport police station, where suspected drug runners were held behind bars (eventually to receive the death penalty for daddah [drugs]). I was not carrying a huge amount of cash. My flight was leaving in ½ hour. I had to run upstairs, wait in a long line at the bank to exchange what dollars I had on hand for ringgits, and take it back to the police. They let me go with paying only some of what they said I owed. (Was that a legit tax, or were they just extorting the foreigner? I have no idea.) I just barely made the flight.

Fortunately, that wouldn’t be your problem. Just beware of bureaucratic inefficiency, I’m just saying.

Once I was in line at the post office and in front of me was a Polish expat I knew, trying to mail a large envelope of paperwork to the embassy of Poland in nearby Kuala Lumpur. The Malay postal clerk charged him for a whopping sum of postage. When he protested that it couldn’t possibly cost that much, it transpired that the clerk had rung up postage to mail the thick packet all the way to Warsaw, Poland. Disgusted did not begin to describe my Polish friend’s reaction.

I have lots of nice memories of Malaysia nonetheless. At the upscale beach resorts, the only women wearing hijab are the workers servicing the resort goers, who are all in normal beach attire. The resort of Pulau Pangkor Laut is utterly awesome—I strongly recommend it. Ultimately I had to leave the country because the extreme humidity of the heat was more than I could take. Imagine living in a steam bath 24/7/365. It’s equatorial, so there are no seasons. Nothing but intensely humid heat all year round (the only break in the heat being the monsoon rains, which are negligible that close to the equator.

Plus, I would not go back there now, because the upsurge of Islamist politics since I left means that they’re now harshly cracking down on trans people. I would basically be illegal to exist there (except they’d have no way to know my medical history, since all my ID says female). Ironically, Malaysia was the one country where I saw lots of trans people openly all over the place. Wonder what it’s like now, on the street…

19

Mahathir is history. I wouldn’t say he’s universally respected. Only his own political faction thinks much of him (albeit that’s a large chunk of the polity).

Anti-Semitism is essentially unknown internally in Malaysia. Very few people there have ever met a Jew, still less have opinions about same one way or the other. The Malay population tends to a very insular mentality that at times shades into xenophobia. I.e. they distrust and dislike all non-Malays more or less equally.

There are three large ethnic groups. Malay, Chinese, and Indian. The Indians are mostly Tamil. The Chinese are mostly of Hokkien derivation. Though people with roots in other regions of those countries are found too. The Chinese population heavily dominates business. The Indian population has the English-language private education industry completely sewn up. The Malay population is dominant in rural regions; many urban Malays find employment in government service. The Chinese population is high in urban areas, including Georgetown. The aboriginal tribes, Orang Asli (‘original people’) are a tiny minority in peninsular Malaysia, and either live in remote wild areas of the interior, or find themselves at the socieconomic bottom when they migrate to the cities.

The patterns of Malaysia’s population were formed by the economics of British colonialism and exploitation of resources. The Chinese were brought there in large numbers as tin miners in the 19th century, and also built up the country’s modern business infrastructure where none had existed before. Tamils were brought in the same era and in the early 20th century as rubber plantation workers. Many menial Chinese workers raised their status by hard work and family business connections, and many menial Tamil workers raised their status through education, becoming today’s urban population.

Meanwhile the indigenous Malay population was bypassed by this colonial economic development, except for the sultans of the various states, whom the British cut various deals with. The economic disparity of ethnic groups came to a head in May 1969 with the infamous race riots, which led to systemic reforms called the New Economic Policy, which basically established economic affirmative action for Malays, and and also led to Malay ethnic dominance in politics. This situation is what first brought Mahathir to power. There had long been (and still are) feelings of resentment silently simmering in the Malay community about how their country was exploited for profit by foreigners while they were left out, which is what was behind the 1969 race riots. Before colonialism, there had been no urban centers to speak of in Malaysia, and the indigenous population had been content to live simply, catching fish and picking coconuts.

Just some background. In Georgetown you probably won’t hear much of this, as Penang seems like a forward-looking place, and all this has little to do with the expats of today. Just FYI.

I haven’t visited Penang; I spent two years near Kuala Lumpur, 1994–1996. My employer there got me a work permit. Shortly after I returned to the United States, the IRS called me and said they’d noticed I hadn’t filed a return for 1995, what was up with that? I said I had been out of the country with no residence in the US and had not even set foot in the country the whole year of 1995, and more to the point I had zero income in the US for that year. They were satisfied with this explanation and dropped the subject.

While in Malaysia I found it constantly exasperating how my (ethnically Malay) employer took such a slipshod, lackadaisical approach to getting anything done. The Malay culture heavily emphasizes respect, self-control, social status, and formality. But efficiency? Attentiveness to one’s tasks? What’s that? My employer told me they’d handle all the paperwork, fees, etc., for my stay in the country, which they often goofed up.

Worst of all, I discovered to my shock when about to catch my flight back to America that I could not leave because I had not paid some expat worker tax for both years—which my employer was supposed to have taken care of, but had totally spaced out. I was taken to the airport police station, where suspected drug runners were held behind bars (eventually to receive the death penalty for daddah [drugs]). I was not carrying a huge amount of cash. My flight was leaving in ½ hour. I had to run upstairs, wait in a long line at the bank to exchange what dollars I had on hand for ringgits, and take it back to the police. They let me go with paying only some of what they said I owed. (Was that a legit tax, or were they just extorting the foreigner? I have no idea.) I just barely made the flight.

Fortunately, that wouldn’t be your problem. Just beware of bureaucratic inefficiency, I’m just saying.

Once I was in line at the post office and in front of me was a Polish expat I knew, trying to mail a large envelope of paperwork to the embassy of Poland in nearby Kuala Lumpur. The Malay postal clerk charged him for a whopping sum of postage. When he protested that it couldn’t possibly cost that much, it transpired that the clerk had rung up postage to mail the thick packet all the way to Warsaw, Poland. Disgusted did not begin to describe my Polish friend’s reaction.

I have lots of nice memories of Malaysia nonetheless. At the upscale beach resorts, the only women wearing hijab are the workers servicing the resort goers, who are all in normal beach attire. The resort of Pulau Pangkor Laut is utterly awesome—I strongly recommend it. Ultimately I had to leave the country because the extreme humidity of the heat was more than I could take. Imagine living in a steam bath 24/7/365. It’s equatorial, so there are no seasons. Nothing but intensely humid heat all year round (the only break in the heat being the monsoon rains, which are negligible that close to the equator.

Plus, I would not go back there now, because the upsurge of Islamist politics since I left means that they’re now harshly cracking down on trans people. I would basically be illegal to exist there (except they’d have no way to know my medical history, since all my ID says female). Ironically, Malaysia was the one country where I saw lots of trans people openly all over the place. Wonder what it’s like now, on the street…

20

Former Prime Minister Mahathir is continuing to do an excellent job at making Anti-Semitism well known internally in Malaysia. In a Jan 21, 2010 speech, he said Jews “had always been a problem in European countries. They had to be confined to ghettos and periodically massacred. But still they remained, they thrived and they held whole governments to ransom… Even after their massacre by the Nazis of Germany, they survived to continue to be a source of even greater problems for the world.”