To Our Valued Clients
The Inland Revenue Board ["IRB"] has issued the Frequently Asked Questions ["FAQ"] on International Tax Issues due to COVID-19 Travel Restrictions to provide guidance on tax issues affecting individual/company in relation to tax residence status, permanent establishment and cross border employment income as a result of travel restrictions imposed under the COVID-19 pandemic situation.
Some of the pertinent points provided in the FAQ are as summarised below:-
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Tax Residence Status of Individual due to Temporary Absence / Presence in Malaysia |
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Individual (who is a tax resident under normal circumstances) |
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The period of temporarily absence from Malaysia due to COVID-19 travel restrictions of an individual shall be regarded as part of the period or periods of presence in Malaysia of that individual for the purpose of determining tax residence status in Malaysia. |
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Non-Resident Individual |
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The period of temporarily presence in Malaysia due to COVID-19 travel restrictions of an individual shall not be regarded as part of the period or periods of presence in Malaysia of that individual for the purpose of determining tax residence status in Malaysia. |
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| ii. |
Tax Residence Status of Company due to BOD Meeting Convenes outside / in Malaysia |
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Company (which is a tax resident under normal circumstances) |
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If a company is unable to convene its Board of Directors' ["BOD"] meeting in Malaysia due to COVID-19 travel restrictions, the company may be presumed to be a tax resident in Malaysia for the relevant year of assessment, provided that all the following conditions are met:- |
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The company is a resident in the immediate preceding year of assessment; |
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There are no changes to the economic circumstances (Note) of the company; and |
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The directors of the company have to attend the BOD meeting held outside Malaysia (either physical meeting or via electronic means) due to COVID-19 travel restrictions. |
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Non-Resident Company |
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If a company convenes its BOD meeting in Malaysia, the company may be presumed to be a non-tax resident in Malaysia for the relevant year of assessment in the event that:- |
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the company has to hold its BOD meeting in Malaysia due to COVID-19 travel restrictions; and |
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there are no changes to the economic circumstances (Note) of the company. |
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| iii. |
Issue of Permanent Establishment due to Presence of Employees or Personnel in Malaysia |
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Non-Resident Company |
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The IRB will consider the temporary presence of employees or personnel of a non-resident company in Malaysia as not creating a permanent establishment in Malaysia, provided that all the following criteria are met:- |
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The company does not have a permanent establishment in Malaysia before the existence of COVID-19 travel restrictions; |
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There are no other changes to the economic circumstances (Note) of the company; |
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The temporary presence of the employees in Malaysia is solely due to travel restrictions relating to COVID-19; and |
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The activities performed by the employees during their temporary presence would not have been performed in Malaysia if not for the COVID-19 travel restrictions. |
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| iv. |
Cross Border Employment Income due to Temporary Working from Home in Malaysia / Overseas |
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Individual Exercising Employment in Singapore |
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For an individual commuting daily to Singapore from Malaysia for employment in Singapore and has to work from home in Malaysia due to COVID-19 travel restrictions, his/her employment income may not be regarded as derived from Malaysia even though the employment was temporary exercised in Malaysia, provided that both the following conditions are met:- |
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No change in the contractual terms governing the employment overseas before and after the individual's return to Malaysia; and |
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It is a temporary work arrangement due to COVID-19 travel restrictions. |
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Individual Exercising Employment in Malaysia |
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For an individual who exercises employment in Malaysia and is forced to temporarily work outside of Malaysia due to COVID-19 travel restrictions, the employment income shall be deemed derived from Malaysia i.e. taxable in Malaysia. |
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With regard to the taxability of the employment income in the overseas country where the individual performs his/her work, the following will be considered:- |
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Availability of special tax measures for COVID-19 in that country, otherwise, the employment income may be subject to tax there; |
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If there is a tax treaty in force between that country and Malaysia, the employment income may not be taxable in that country, for example, the presence in that country does not exceed 183 days; or |
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If there is no tax treaty in force between that country and Malaysia, the employment income may be taxable in that country. In such case, the individual can claim credit relief in Malaysia. |
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Non-Resident Working from Malaysia for Overseas Employer |
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For a non-resident individual who works for an overseas employer and is currently working from Malaysia due to COVID-19 travel restrictions, the IRB will treat that individual as not exercising an employment in Malaysia for the period of temporary presence (during which he/she has been working remotely from Malaysia for the overseas employer) in Malaysia, provided that the following conditions are met:- |
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The period of temporary presence in Malaysia is for a period of not more than 60 days; and |
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The work being performed during the temporary presence in Malaysia:- |
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is not in connection with an assignment in Malaysia; and |
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would have been performed overseas if not for COVID-19 travel restrictions. |
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| Note: |
"Economic circumstances" refers to:- |
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| a. |
the principal activities and business model of the company; |
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the nature of the business operations and the conduct of the business in Malaysia and elsewhere; and |
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the usual locations in which the company operates. |
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It should be noted that the company/individual must keep the relevant documents in support of the conditions/criteria mentioned above and provide the relevant information to the IRB, upon request.
On a separate note, in response to the extension of Conditional Movement Control Order ["CMCO"] period until 9th June 2020, the IRB has on 10th May 2020 updated the FAQ on Tax Matters During the Movement Control Order ["MCO"] and CMCO Period (18th March 2020 to 9th June 2020) with minor changes. There is no change to extension of deadlines for submission of return forms and payment of tax during the MCO period granted earlier.
For your easy reference, a summary of some of the extended deadlines for submission of return forms and payment of tax during the MCO period is reproduced in the Appendix.
For further information, kindly refer to the following:-
Please do not hesitate to contact us if you need any clarification on the foregoing.