The Inland Revenue Board of Malaysia (IRBM) has published amended technical guidelines – Tax Treatment In Relation To Income Received From Abroad (Amendment) – on 20 June 2024. This guidance provides clarification regarding the tax treatment of foreign income. The new guidelines will replace previous provisions issued in December 2022.
The technical guidelines have been updated by the Income Tax (Exemption) (No. 6) Order 2022 (Amendment) Order 2024, as published in the Official Gazette on 12 June, 2024.
The amendment of this provision is to provide equitable tax treatment on foreign income with the income accrued in or derived from Malaysia in line with Malaysia’s commitment towards compliance with international tax best practices. The objective of this guideline is to explain the tax treatment of foreign income received in Malaysia by a resident.
The 2022 Budget measures have limited the general tax exemption on foreign-source income received in Malaysia to non-residents. Consequently, from 2022, resident individuals and companies were subject to tax on their foreign-source income, beginning with an initial 3% transitional tax.
However, there are tax exemptions given concerning foreign income received in Malaysia by a resident subject to certain conditions. These are:
- Foreign dividend income received in Malaysia by a resident company, resident LLP and resident individual in relation to a partnership business in Malaysia. This exemption does not apply to a resident carrying on the business of banking, insurance or sea or air transport.
- All foreign income excluding income from a partnership business received in Malaysia by a resident individual.
At the end of 2022, a temporary exemption was announced for certain foreign-source income covering the period from 1 January, 2022, to 31 December, 2026. This exemption includes income tax relief on foreign-source dividend income for resident companies, limited liability partnerships (LLPs), and individual partners involved in partnership businesses in Malaysia.
This exemption will be applied if the following conditions are met:
- The dividend income has been subject to tax in the country of origin where the income arises;
- The headline tax rate in the country of origin is at least 15%; and
- The recipient of the dividend income complies with economic substance requirements.
