Exemption Orders - Foreign-Sourced Income
Introduction
Before the 1st of January 2022, Foreign sourced income remitted back to Malaysia was exempt from taxation per Schedule 6 paragraph 28 of the Income Tax Act 1967 (ITA).
Budget 2022
The amendment to Schedule 6 paragraph 28 proposed by the Budget 2022 to take effect on 1 January 2022 will remove the exemption for foreign-sourced income for Malaysian tax residents.
The Finance Act of 2021 has adopted this proposal.
As a result of the Finance Act 2021
Foreign-sourced income for Malaysian tax residents, if brought into Malaysia, will be subject to Malaysian taxes;
If the foreign-sourced income is not brought into Malaysia, it will not be subject to Malaysian taxes;
All non-residents will continue to be exempted from tax under Schedule 6 paragraph 28;
The territorial basis of taxation, which has been used in Malaysia for a very long time, will now be replaced by a territorial and remittance basis due to this change.
Ministry of Finance (MOF)'s Press Release
It was announced by the Ministry of Finance (MOF) in a press release on December 30 2021, that subject to the eligibility conditions stated in the guidelines; the government has agreed to exempt from taxation until December 31, 2026:
All sorts of foreign income generated by individuals (except for individuals carrying on business through partnerships in Malaysia); and
Dividend income earned by Companies and Limited Liability Partnerships.
Federal Government Gazette
The following orders have been gazetted on July 19 2022, as a result of the above announcement made by the Ministry of Finance on December 30 2021, concerning the tax exemption of particular forms of foreign-sourced income (FSI) received from January 1 2022 to December 31 2026:
Income Tax (Exemption) (No. 5) Order 2022
To provide an exemption of FSI for the individual resident in Malaysia who has income received in Malaysia from outside Malaysia;
110.1 Income Tax (Exemption) (No. 5) Order 2022 - PU(A) 234
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Income Tax (Exemption) (No. 6) Order 2022
To provide an exemption for dividends derived from overseas sources that are received by Malaysian resident businesses, limited liability partnerships (LLPs), and individuals in connection with a Malaysian partnership activity.
110.2 Income Tax (Exemption) (No. 6) Order 2022 - PUA 235 (2022)
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