To Our Valued Clients
In the Guidelines on Tax Treatment in Relation to Income Received from Abroad issued by the Inland Revenue Board ["IRB"] on 29th September 2022, it explains the tax treatment and exemption of foreign-sourced income received by residents in Malaysia pursuant to the amendment of Paragraph 28, Schedule 6 of the Income Tax Act 1967, effective 1st January 2022. Foreign dividend income received in Malaysia by a resident company, Limited Liability Partnership and individual (through a partnership business in Malaysia) [hereinafter referred to as "the qualifying person"] from 1st January 2022 until 31st December 2026 is exempted from tax on the conditions that:-
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the dividend income has been subjected to tax in the country of origin which the income arises; and |
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the headline tax rate in the country of origin is not less than 15% |
Following the above, the IRB has recently issued the amended Guidelines on Tax Treatment in Relation to Income Received from Abroad dated 29th December 2022 to impose an additional qualifying condition for the above exemption of foreign dividend income.
The salient amendments included in the above amended Guidelines are as follows:-
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The qualifying person will now need to comply with the economic substance requirements. |
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The economic substance requirements shall deemed to have been complied with by the qualifying person if it has:- |
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employed adequate number of employees with necessary qualifications to carry out the specified economic activities in Malaysia; and |
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incur adequate amount of operating expenditure to carry out the specified economic activities in Malaysia. |
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Due to the varying mode of operation across various industries, the minimum thresholds for the economic substance requirements have not been specified. The facts of each case will be taken into consideration in determining the minimum thresholds for the economic substance requirements. |
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Factors that will be taken into account in determining the minimum thresholds for the economic substance requirements include:- |
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The number of employees having regard to the nature of the relevant activities (i.e. capital or labour-intensive) |
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Whether the employees are employed on a full-time or part-time basis; |
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Whether the office premises have been used to undertake the relevant activities; and |
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Whether the premises are adequate to undertake the relevant activities. |
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The IRB has announced in the media release dated 30th December 2022 that taxpayers who have submitted their income tax return form ["ITRF"] on or before 29th December 2022 are required to submit an amended ITRF if the above additional qualifying condition on economic substance requirements has not been complied with. No penalties will be imposed.
For more information, please refer to the following:-
Please do not hesitate to contact us if you require any clarification on the foregoing.