Effective 1 January 2022, the tax exemption for foreign-sourced income ("FSI") received by Malaysian residents provided for under Para 28 was removed following the Budget 2022 made on 29 October 2021.
The removal of the tax exemption for foreign-sourced income received by Malaysian residents implies that this type of income will be taxable in Malaysia, unless eligible for tax exemptions. Foreign Income received in Malaysia which is eligible for the tax exemptions are as follows:
Foreign dividend income received in Malaysia by a resident company, resident LLP and resident individual in relation to a partnership business in Malaysia [P.U.(A) 235/2022].
All foreign income excludes income from a partnership business received in Malaysia by a resident individual [P.U.(A) 234/2022].
This means that Malaysian residents who receive income from foreign sources, unless qualifying for the exemption, will have to pay taxes on that income to the Malaysian government.
The amount of tax to be paid will depend on the applicable tax rates and the amount of foreign-sourced income received.
Amended Guidelines for tax treatment in relation to income received from abroad provide explanations and clarifications on the subsequent terms:
4.2 "Received in Malaysia" means transferred or brought into Malaysia whether in the form of cash or through electronic funds transfer, or both.
4.3 “Cash” means notes, coins, and cheques;
4.4 "Electronic fund transfer" means bank transfer (e.g. credit transfer, debit transfer), payment card (debit card, credit card, and charge card), electronic money (e-money), privately-issued digital assets (e.g. crypto assets, stablecoins) and Central bank digital currency (CBDC).CTIM has requested clarification from IRBM regarding the Foreign currency exchange rate for foreign-source income received in Malaysia.
Such exchange rates:-
1) must refer to the monthly rate that is available via the link published on IRBM's website: Accountant Generals Department of Malaysia (AGD) - Foreign Currency Exchange, or
2) must this be based on the remittance date (e.g. rate available on the BNM website)?
LHDNM's Feedback:
The amount of foreign income received in Malaysia must be reported according to the foreign currency exchange rate on the date the income is received in Malaysia.
Taxpayers can use the exchange rate based on the rate on the Official Portal of the Accountant General's Department (AGD) or, if the transfer is through a bank entity, the foreign currency exchange rate used by the bank.
The exchange rate, either AGD or the foreign currency exchange rate used by the bank (through a bank entity), should be consistent for a particular assessment year.
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