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Insights Guidelines on tax treatment of income received from outside Malaysia

Guidelines on tax treatment of income received from outside Malaysia

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Following the gazette of the income tax exemption orders in relation to tax exemption on specified foreign sourced income, the Malaysian tax authorities issued the Guidelines on Tax Treatment of Income Received from Outside of Malaysia (“the Guidelines”).
  

The guidlines in a nutshell

The Guidelines cover: 
  1. Conditions to qualify for exemption from income tax on foreign sourced dividend received by resident companies, limited liability partnerships and individuals; 
  2. Conditions to qualify for exemption from income tax on foreign sourced income received by resident individuals; 
  3. Tax administration, i.e., declaration in tax returns and necessary supporting documentation; 
  4. Computation of foreign tax credit on foreign sourced income which is subject to tax; and 
  5. Interaction of foreign sourced income which is subject to tax under Cukai Makmur. 
 
In addition, the exemption orders state that the qualifying conditions are subject to compliance with the following conditions imposed by the Minister of Finance:
  
  1. The foreign sourced income received in Malaysia is subject to foreign tax, i.e., tax of a similar character to income tax under the law of the territory where the income arises (“the subject to tax rule”); and 
  2. In relation to dividend income, the highest rate of tax of a similar character to income tax charged under the law of the territory where the income arises at that time is not less than 15 percent (“minimum 15 percent foreign tax rate rule”)

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