Updated: Jun 5
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 HASiL regarding certain matters that are not considered as received in Malaysia, such as
Amounts applied in or towards satisfaction of any debt incurred in respect of a trade or business carried on in Malaysia.
Applied directly to purchase any property in Malaysia or movable property, which is brought into Malaysia.
Income not remitted into Malaysia as the amount receivable is offset (contra) against the amount payable due to bilateral relationship.
The explanation in paragraph 4.2 is sufficient to confirm that the matters stated by CTIM are not included in the meaning of 'received in Malaysia'.
How does a transaction using a payment card (debit card, credit card, and charge card) constitute remittance into Malaysia? Kindly elaborate.
Payment cards are used in Malaysia where the source of financing for the payment cards is a foreign source of income.
Is there a"location" of digital assets/cryptocurrency?
There is no issue regarding the location of digital assets/cryptocurrency as the financing for these assets is from outside the country.
The information in IRBM’s response above is insightful and hence we request for it to be included in IRBM’s Guidelines so that all taxpayers are informed.
If possible, also include examples of its practical application.
The explanation of "Received in Malaysia" and "Electronic fund transfer" in the guidelines is sufficient.
However, CTIM can provide suggestions for specific examples that they had in mind.
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