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Further to the amendment, foreign income received in Malaysia by a person who is resident will be taxable effective from 1 January 2022. The amendment provides equitable tax treatment on the foreign income with the income accrued in or derived from Malaysia in line with Malaysia’s commitment towards compliance with international tax best practices.
Generally, all types of foreign income received in Malaysia by a resident is subject to tax. The types of foreign income which is subject to this tax treatment according to Section 4 of ITA 1967 are as follows:
(a) Business
(b) Employment
(c) Dividends, interest or discounts
(d) Rent, royalty or premium
(e) Pension, annuity or periodic payments
(f) Other income
Subject to the provisions under the ITA 1967, expenses or deductions incurred in relation to foreign income received in Malaysia will be allowed.
Foreign income received in Malaysia that has been taxed by other jurisdiction may be eligible for bilateral or unilateral tax credit. Evidence must be kept to substantiate that foreign tax has been imposed on that particular income. Tax credit for a year of assessment has to be claimed within 2 years after the end of that year of assessment. If the tax credit claimed for a year of assessment exceeds the Malaysian tax payable on foreign income received in Malaysia, the excess tax credit shall be disregarded.
However, there are tax exemptions given in relation to foreign income received in Malaysia by a resident subject to certain conditions. Foreign income received in Malaysia which is eligible for the tax exemptions are as follows:
(1) Foreign dividend income received in Malaysia by a resident company, resident Limited Liability Partnership (LLP) and resident individual in relation to a partnership business in Malaysia (it does not apply to a resident carrying on the business of banking, insurance or sea or air transport)
(2) All foreign income exclude income from a partnership business received in Malaysia by a resident individual
Foreign dividend income received in Malaysia by a resident company, resident LLP and resident individual in relation to a partnership business in Malaysia from 1 January 2022 until 31 December 2026 is exempted from tax subject to the following conditions:
(a) Dividend income has been subjected to tax in the country of origin which the income arises; and
(b) The headline tax rate in the country of origin is not less than 15%
All foreign income other than partnership income received in Malaysia by a resident individual from 1 January 2022 until 31 December 2026 is exempt from tax provided the income has been subjected to tax in the country of origin.
Taxpayers must keep documents which indicate that the income has been taxed outside Malaysia. Taxpayers need to declare that the foreign income is eligible for tax exemption in the income tax return form.
Reference/ Citation:
Official Portal of Inland Revenue Board of Malaysia www.hasil.gov.my
