Malaysia: Exemption Orders for foreign-sourced income

Exemption Orders for foreign-sourced income have been published in the official gazette

Exemption Orders for foreign-sourced income have been published in the official gazette

Orders on foreign-sourced income have been published in the Malaysian official gazette.

The following foreign-sourced income, which is brought into Malaysia from 1 January 2022 to 31 December 2026, will remain exempt from Malaysian income tax:

Item

Category of resident taxpayers

Type of foreign income exempted

(a)

Individuals

All classes of income under Section 4 of the Income Tax Act, 1967 (excluding a source of income from a partnership business in Malaysia)

 

(b)

  • Companies incorporated or registered under the Companies Act 2016
  • Limited liability partnerships registered under the Limited Liability Partnerships Act 2012
  • Individuals who brought into Malaysia foreign-sourced dividends in relation to a partnership business in Malaysia (excluding those carrying on the business of banking, insurance, or sea or air transport)

 

Dividend income


The exemption of the foreign income would be subjected to the fulfillment of the following conditions:

Item

Conditions

(a)

1. The income has been subjected to tax of a similar character to income tax under the law of the originating jurisdiction.

(b)

1. The income has been subjected to tax of a similar character to income tax under the law of the originating jurisdiction; and

 

2. The highest rate of tax charged by the originating jurisdiction is not less than 15%.

 

Based on the Orders, the exemptions are subject to compliance with the conditions imposed by the Ministry of Finance as specified in the guidelines to be issued by the Malaysian Inland Revenue Board (MIRB).  This will be particularly important in meeting the minimum 15% tax rate charged by the originating jurisdiction when dividends are paid to a Malaysian resident through intermediate holding companies.  The guidelines have not been issued by the MIRB to date.

Further, any deduction in relation to the income exempted must be disregarded in ascertaining the chargeable income of the qualifying person.

Read a July 2022 report prepared by the KPMG member firm in Malaysia

 

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