The Inland Revenue Board of Malaysia has issued Public Ruling No. 3/2026, updating guidance on bilateral and unilateral foreign tax credits for Malaysian tax residents facing double taxation. The ruling replaces Public Ruling No. 11/2021 and revises key rules on eligibility, calculation methods, and the treatment of foreign-sourced income.
The Inland Revenue Board of Malaysia has issued Public Ruling No. 3/2026 on 22 May 2026, guiding the application of bilateral and unilateral tax credits where a Malaysian tax resident is subject to taxation in both Malaysia and a foreign jurisdiction, resulting in double taxation.
The ruling explains the eligibility requirements, methods for calculating the credit—including in cases involving overlapping income periods—as well as the relevant time limits and procedures for making a claim. It further clarifies that bilateral tax credits are generally available where a double taxation agreement exists between Malaysia and the foreign country, while unilateral tax credits apply in the absence of such a treaty.
Public Ruling No. 3/2026 updates and replaces Public Ruling No. 11/2021.
The key updates include the following:
- Section 6(a) was updated and mentioned that where there is no DTA between Malaysia and a foreign country, relief that can be granted is known as unilateral credit. This credit can be claimed by a person who is resident in Malaysia for the basis year for a year of assessment and who is charged to tax in Malaysia and has suffered tax in respect of the same income in that foreign country in which the income arose. The general rules that govern unilateral credit are as follows:
- Similar to rules governing bilateral credit, Unilateral credit can be allowed in the same way as bilateral credit.
- Based on the definition of foreign income in relation to unilateral credit, unilateral credit can only be claimed for income derived from outside Malaysia charged to foreign tax. That means income outside Malaysia which derived from Malaysia is not eligible for unilateral credit claims.
- In the calculation of a unilateral credit under Section 6(b), the formula has been revised by replacing “Foreign income (gross)” with “Foreign income (statutory income)” to align it with the bilateral credit methodology. The tax credit is capped at the lower of either half of the foreign tax payable on the foreign income for the year or the Malaysian tax attributable to that same foreign income. The revised formula is as follows: Foreign income² (statutory income) / Total income × Malaysia tax payable before unilateral credit, or one-half of the foreign tax, whichever is lower.² Foreign income refers to income derived from outside Malaysia.
- A new paragraph 7(c) has been introduced to clarify that, effective 1 January 2022, all categories of foreign-sourced income received in Malaysia by a resident are generally subject to tax, subject to any exemptions granted by the Minister of Finance.
- In addition, paragraph 7(e) has been added to reflect the introduction of Capital Gains Tax effective 1 January 2024, specifying that gains or profits arising from the disposal of capital assets outside Malaysia and received in Malaysia are taxable, with eligibility for bilateral or unilateral tax credits under Sections 132 and 133 of the Income Tax Act.
Updates have also been made to selected definitions and illustrative examples.
