Earning money from trading FX or binary options is not illegal on its own. It is operating an unlicensed FX or binary options trading scheme that is illegal. So, whatever proceeds you earn from your FX or binary options trading is not illegal income. The question is whether it's taxable or not.

There are quite a lot of grey areas here and I've never got a clear answer from LHDN even though I've tried asking a few times. The impression I got was this:

1. If your only source of income is from trading in FX, binary options, stocks, bonds, etc., whatever you have earned is taxable income.

2. If you have other sources of income too, LHDN applies a threshold. So, if at least 90% of your income comes from trading, that is considered taxable income. Less than 90% of your income comes from trading, it is not taxable.

3. If you lose money in one tax year, do you get a tax credit to be applied the next year? This is the question that LHDN wasn't able to give me a clear answer.

Actually, it's not black and white and I'm not even sure if it's completely legit. I could never get a proper written directive from LHDN and the impression I get is they are not 100% sure themselves.

I think I understand the rationale though. The idea is that if "most" of your income comes from trading, then your "real job" is trading, and you should be taxed on that trading income.

The complication is that you might make 360k one year and the next year you lose 200k. Does that mean you get a tax credit on that 200k you lose? That is the one that I couldn't get a straight answer from LHDN.

There's a rule (which is in black and white) that if your entire business is "trading", say you are a broker or a market maker, it is treated as income and not capital gains. See, for example, the discussion in The Star here:

http://www.thestar.com.my/news/nation/2012...e-to-be-taxing/

Profits derived from dabbling in the share market is an adventure in the nature of trade and is taxable as a business income if some characteristics of the badges of trade as follows exist: profit-making motive such as engaging the service of a portfolio manager; assets were purchased with the intention of selling for profit; and the period of ownership.

Anyway, I've only looked into this out of my own interest and I don't make a business out of trading or investing. I would advise that, if you are serious about this, you consult a relevant tax expert.

Whether it's legal or not, there's always the VPN at hand and I would also recommend u this list of trusted Forex brokers http://trade-leader.com/forex/category/trusted-brokers to begin with

It is an offense to trade other than the registered traders, as there are lots of registered Forex traders in Malaysia.
There several banks who have halfhearted Forex trading sections that you can try.

Things to Avoid:

Forex trading with offshore company is not suggested as these companies seem legitimate and pressurized you to deposit money with a scheme of adding bonus of the same amount you deposit.

When you try to withdraw the amount they ignore your calls and emails.

If you have been in a situation like these then there are several companies like Wealth Recovery International that will assist you to recover your money from these fraudsters companies.

Note: I am not here to promote Wealth Recovery International or company like this, their mention is just because as one of my friend got scammed by one of the offshore Forex trading company.