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Exemption – OBB Consultancy Sdn. Bhd. https://obbconsultancy.com/cn Always On The Lookout For A Better Way Wed, 03 Apr 2024 09:01:36 +0000 zh-Hans hourly 1 https://wordpress.org/?v=6.9 https://obbconsultancy.com/wp-content/uploads/2023/05/cropped-favicon-32x32.png Exemption – OBB Consultancy Sdn. Bhd. https://obbconsultancy.com/cn 32 32 Are You A Tax Resident in Malaysia? https://obbconsultancy.com/cn/are-you-a-tax-resident-in-malaysia/ Wed, 06 Sep 2023 07:36:01 +0000 https://obbconsultancy.com/?p=469

Background

Residency status of an individual can impact on his/her tax liability.

Individual who is a tax resident is entitled for personal reliefs and tax at scale rate; however, this is not applicable for non-tax resident.

Therefore, it is crucial for taxpayer to understand his/her residency status.

Check out below on the Process Flow Diagram of Individual Residency Test for ease of reference.

Tax Law and Regulations

  • Section 3 of Income Tax Act 1967 (“the Act”)
    “Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”
  • Paragraph 28, Schedule 6 of the Act, amended with effective from 1 January 2022.
    “The income arising from sources outside Malaysia and received in Malaysia by any person who is not resident in Malaysia.”
  • Section 7 of the Act, on residence of individuals

Application

RESIDENT NON-RESIDENT
Scope of charge Tax on income:

  • accruing in or derived from Malaysia; or
  • received in Malaysia from sources outside Malaysia.
 Tax on income accruing in or derived from Malaysia.
Eligible for tax exemption on income received in Malaysia form sources outside Malaysia (“foreign source income”) No Yes
Eligible for tax exemption on income from short-term employment of ≤60 days No Yes
Eligible for personal reliefs Yes No
Eligible for double tax relief Yes No
Income tax rate Graduated rates: 0% – 30% Flat rate: 30%
  • Tax residency status of the individual has no connection with his/her nationality, place of domiciled.
  • An individual is a resident in Malaysia in the basis year for a year of assessment under following circumstances:
  • An individual is deemed to be present in Malaysia for a day if he/she is present in Malaysia for part or parts of that day.

Contentious Tax Issue

Based on your understanding, is the individual a tax resident in Malaysia?

No. Transactions Yes / No
1 Mr. A arrives in Malaysia for the first time on 1 March 2022. His period of stay in Malaysia is as follows:

  • 1 March 2022 to 30 June 2022
  • 1 August 2022 to 30 October 2022

Mr. A leaves Malaysia on 31 October 2022.
Is Mr. A a tax resident in Malaysia?
2 Mr. B arrives in Malaysia for the first time on 1 September 2022. His period of stay in Malaysia is as follows:

  • 1 September 2022 to 31 December 2022
  • 1 January 2023 to 30 May 2023

Mr. B leaves Malaysia on 31 May 2023.
Is Mr. B a tax resident in Malaysia?

Any questions, please feel free to reach us.

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]]> Foreign Source Income https://obbconsultancy.com/cn/foreign-source-income/ Tue, 05 Sep 2023 06:40:39 +0000 https://obbconsultancy.com/?p=173

Background

In Budget 2022 (29 October 2021), Government of Malaysia has announced tax imposition on income derived from sources outside Malaysia and received in Malaysia by resident person.

This announcement was implemented though Finance Act 2021, with effective 1 January 2022.

Tax Law and Regulations

  • Paragraph 28, Schedule 6 of Income Tax Act 1967 (“the Act”), was amended:
    “The income arising from sources outside Malaysia and received in Malaysia by any person who is not resident in Malaysia.”
  • Prior to that, the Act was read as:
    28(1): “Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year for a year of assessment derived from sources outside Malaysia and received in Malaysia.”
  • IRBM Guideline: Tax Treatment in relation to Income Received from Abroad (Amendment), 29 December 2022
  • Income Tax (Exemption) Order 2022 [P.U. (A) 96/2022], 1 April 2022
  • Income Tax (Exemption) (No.5) Order 2022 [P.U. (A) 234/2022], 18 July 2022
  • Income Tax (Exemption) (No.6) Order 2022 [P.U. (A) 235/2022], 18 July 2022

Application

  1. With effective from 1 January 2022, generally all types of income which derived from sources outside Malaysia (hereinafter refers to as “foreign source income (“FSI”) and received in Malaysia by resident person is subject to tax.
  2. The foreign income is made reference to Section 4 of the Act, as below:
    • Gains or profits from a business;
    • Gains or profits from an employment;
    • Dividend, interest or discounts;
    • Rent, royalty or premium;
    • Pension, annuity or periodic payments; and
    • Other income other than (a) to (e) above.
      This means, foreign income from any of above sources which is derived from outside Malaysia and received in Malaysia, is subject to tax.
  3. Foreign income received in Malaysia which has been taxed by other jurisdiction either through withholding tax or income tax, can claim bilateral or unilateral tax credit.
    • The tax credit for a year of assessment must be claimed within two years after the end of that year of assessment.
    • Any claim for bilateral credit for a year of assessment must be made in writing to Director General of Inland Revenue.
  4. Tax rate on FSI
    Period Tax Rate Foreign Tax as a Relief
    1 January 2022 to 30 June 2022 3% from gross income No
    1 July 2022 onwards Prevailing tax rate Yes

    Following prevailing tax rate apply on FSI received on or after 1 July 2022:

    Income tax rate
    Resident individual
    •  Chargeable income ≤ RM 2 million
    		 0% – 28%
    • Chargeable income > RM 2 million
    		 30%
    Company & LLP
    • Paid up capital ≤ RM 2.5 million;
      Gross business income ≤ RM 50 million
      Chargeable income
      First RM 600,000
      Excess
    		 17%
    24%
    • Others
    		 24%
  5. Exemption
    Tax exemption granted on FSI received in Malaysia from 1 January 2022 to 30 June 2026.

    Taxpayer’s Category Types of Tax-Exempt Income Qualifying Conditions
    Company incorporated or registered under the Companies Act 2016

    Limited liability partnership (“LLP”) registered under the Limited Liability Partnerships Act 2012

    Individual partner (in relation to a conventional partnership business in Malaysia)

    		 Dividend i) The dividend income has been subjected to tax in the country of origin;

    ii) The highest tax rate (headline tax) in the country of origin is not less than 15%;

    iii) Comply with the economic substance requirements.
    Individual All types of income other than partnership income The income has been subjected to tax in the country of origin.
  6. Tax Reporting
    FSI received must be reported as prescribed below:

    Period of FSI received Form or Tax Return
    1 January 2022 – 30 June 2022 Prescribed form, submit by 31 July 2022
    1 July 2022 onwards Tax return for respective year of assessment

Contentious Tax Issue

Based on your understanding, are following transactions subject to tax under FSI?

No. Transactions Yes / No
1 Payment by overseas trade debtors on payment for goods and/or services.
2 Individual working in Singapore bring money back into Malaysia.
3 Parents in Malaysia received money from children staying overseas.
4 Interest income credited by overseas bank.
5 Loan or advances from related companies outside Malaysia (non-resident) into Malaysia.
6 Gains on realisation from disposal of overseas investment.

Any questions, please feel free to reach us.

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