4th January 2022 - 2 min read
The government has made a turnabout on its decision to begin taxing foreign-sourced income in Malaysia starting from the year of assessment 2022 (YA2022). With this, individuals earning all types of foreign incomes will continue to benefit from tax exemption, and it has also been extended to dividend incomes earned by limited liability companies and partnerships.
According to the Ministry of Finance (MOF), this exemption will take effect starting from 1 January 2022 until 31 December 2026. The ministry also clarified that this exemption will be subject to selected eligibility criteria, which will be further detailed in the Inland Revenue Board’s (LHDN) guideline.
“For individual taxpayers, the government provides exemption to all individuals except those who conduct business partnerships in Malaysia, which will be subject to tax on foreign-sourced income received. Non-resident categories (individuals, companies, etc) remain eligible for income tax exemption,” the ministry noted.
For context, Malaysians earning foreign-sourced income were originally not required to pay tax on their gains, except for selected activities such as banking, insurance, and air and sea transport operations. This was provided with effect from 1998 (YA1997) for companies, and 2005 (YA2004) for individuals.
During the tabling of Budget 2022, however, Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz proposed the withdrawal of the tax exemption on foreign-sourced income received in Malaysia. At that time, he stressed that this move was essential as a part of MOF’s revenue sustainability measures, adding that it is in line with international regulations. In response, several parties urged the government to reconsider the plan as it could have significant repercussions.
Aside from announcing the government’s reversal in taxing foreign-sourced income, MOF also said that foreign-sourced income received in YA2022 will be exempted from Cukai Makmur as well. For context, Cukai Makmur is a one-off windfall tax (33%) that will be levied upon companies that profited more than RM100 million in YA2022.
(Source: The Edge Markets)
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