So Malaysian residents will be taxed on foreign sourced income remitted to Malaysia from 1 Jan 2022. How to get around this? I might go work overseas next year and most of salary will salary TT to my account here. Will I be considered Malaysian resident if I spend most of my days abroad? I know LHDN has few criteria to define Malaysian Tax resident. Is this same criteria to define Malaysian resident?

GSK & Associates, May 24, 2019

FOREIGN-SOURCED INCOME - MALAYSIAN INCOME TAX
Updated: Nov 17, 2020

Foreign-sourced income is NOT subject to tax in Malaysia, except for certain activities, such as banking, insurance, and air and sea transport operations.
References - Income Tax Act, 1967
Section 3 of the Income Tax Act, 1967 (ITA) states that “income shall be charged for the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia”.
The phrase accruing in or derive from Malaysia means the source of income must be in Malaysia

With effect from YA 2004, foreign source income derived from sources outside Malaysia and received in Malaysia by any person is NOT subject to Malaysian income tax

Section 12 of the Income Tax Act, 1967 is about the determining the source of income or derivation of income

The tax exemption is stated in the Schedule 6, Paragraph 28 of the Income Tax Act, 1967 - click the link below for the PDF copy of the Schedule 6;

www.hasil.gov.my/pdf/pdfam/Schedule_6.pdf
http://phl.hasil.gov.my/pdf/pdfam/Schedule_6.pdf
How to determine income derived from Malaysia or Outside Malaysia (Foreign-Sourced)

Derivation of income is defined in Section 12 of the ITA.

Determining the source of income is indeed difficult and often open to discussion and also can be complex and contentious.
There is no exact guide that can be applied to every scenario to determine whether an income is Malaysian-sourced or foreign-sourced.
It depends on the nature of the income and of the business transactions which give rise to such income.


Generally, the income shall be deemed derived from outside Malaysia if the income is attributed directly to activities conducted outside Malaysia.
The burden is on the tax payer to prove that his income is foreign-sourced.
As per the Section 12(1)(a), gross income that is not attributable to operations of business carried on outside Malaysia would be deemed Malaysian derived income.
Therefore, if the gross income is related to the work performed outside Malaysia and the taxpayer wishes to treat it as foreign source income, the taxpayer would need to substantiate that it is attributable to operations of business carried on outside Malaysia. 
General points to consider in determining source of income

Where does the contracts concluded - in Malaysia or Outside Malaysia?

Whether the ownership risk of the business is in Malaysia or Outside Malaysia

Whether services are rendered in Malaysia or Outside Malaysia
Briefly on Section 12 (1) & 12 (2):
more ....
https://www.gskassociates.net/post/foreign-...sian-income-tax

This is confusing, sorry Ayam English is bad,

I’m doing freelance and have some affiliate / commission for what I sold to a U.S company, I get commission in USD.

I shall assume it’s taxable right ?

I haven’t remit any money back atm.

Why on earth in budget, only now they say foreign income now taxable from January 2022? Dont tell me they only targeting those income overseas and living overseas.

according to this Jun 25, 2019 blog postings

What if your freelance income is from outside of Malaysia?
For freelancers, earning revenue from foreign companies (not based or registered in Malaysia) is not uncommon.
Here’s some good news, income earned from outside Malaysia is excluded from tax as of YA 2004.
https://www.biztory.com.my/freelancer-have-...-in-malaysia-2/

This is confusing, sorry Ayam English is bad,

I’m doing freelance and have some affiliate / commission for what I sold to a U.S company, I get commission in USD.

I shall assume it’s taxable right ?

I haven’t remit any money back atm.

Why on earth in budget, only now they say foreign income now taxable from January 2022? Dont tell me they only targeting those income overseas and living overseas.

living overseas income overseas not affected

this targeting online sellers/traders, freelancers, etc...

This is confusing, sorry Ayam English is bad,

I’m doing freelance and have some affiliate / commission for what I sold to a U.S company, I get commission in USD.

I shall assume it’s taxable right ?

I haven’t remit any money back atm.

Source (1): LHDN:  https://phl.hasil.gov.my/pdf/pdfam/PR_12_2019.pdf

Source (2): https://www.thesundaily.my/business/is-fore...xable-HF7986977

If individuals are managing their business or carrying out the business of investments overseas from a base in Malaysia and most activities in connection with the purchase and sale or the business decisions needed to run the overseas operations are undertaken in Malaysia, income from such activities, although earned overseas, will be treated as domestic source and taxed in Malaysia. The reason for taxing such income in Malaysia is because the key activities giving rise to the generation of that income is based in Malaysia.

Another thing I want to point out is this. In Malaysia, cash-basis accounting is not allowed when it comes to tax-related calculations.
The rule is to use accrual accounting which means you have to file for tax based on your statement/invoice date.
This is true EVEN if you haven't remitted back the money.
See Source(1) for official examples from LHDN.

according to this Jun 25, 2019 blog postings

What if your freelance income is from outside of Malaysia?
For freelancers, earning revenue from foreign companies (not based or registered in Malaysia) is not uncommon.
Here’s some good news, income earned from outside Malaysia is excluded from tax as of YA 2004.
https://www.biztory.com.my/freelancer-have-...-in-malaysia-2/

veiven, updated info,...just in case you missed this latest info
but, but
In the Budget, it has been proposed that income tax be imposed on residents in Malaysia with income derived from foreign sources and received in Malaysia from Jan 1, 2022.
https://www.theedgemarkets.com/article/delo...crease-tax-bill

But in my case, all activities are run overseas.
As in, I earn sth like sort of a middleman fees.

I suppose that also means the activities are in Malaysia because I’m in Malaysia ?

I can tell you the biztory post is 100% wrong.

There is A LOT of confusion regarding "foreign income."

Foreign Income has a SPECIFIC definition. Not ALL money you make from abroad is considered Foreign Income.
The KEY is the LOCATION where substantial economic activities are performed.

Examples of Foreign Income
1. You live in Johor, commute to work in Singapore daily (pay taxes in Singapore instead)
2. You're a Malaysian YouTuber, you live and make videos in Tokyo that generate revenue from ads.  (pay taxes in Japan instead)
3. You found a job in Australia after graduating in 2015 and worked there until 2019. The salary is foreign income.  (pay taxes in Australia)
4. You're a freelance graphic designer. Your client from the US paid you to work at their US office for x months. (pay taxes in US)
(the above is under double taxation agreement,...where you are taxed once only??)
also
For an individual residing in Malaysia for a period exceeding 183 days, the individual is deemed to be a resident for tax purposes in Malaysia under the ITA 1967.
However, if the said individual does not receive any income deriving from Malaysia and only receives employment income derived from Singapore, then the individual is still not liable for tax in Malaysia.
The resident status of an individual in Malaysia will not automatically result in the income received by the individual to be subjected to Malaysian tax laws.
https://www.theedgemarkets.com/article/taxp...axable-malaysia

NOT FOREIGN INCOME:-
1. You live in Johor, you travel daily to wholesale nasi lemak to someone in Singapore.
2. You're a Malaysian YouTuber, you live and make videos in Perlis that generate revenue in USD.
3. You found a job in Australia, but you work remotely from your home office in Sabah. You're paid in AUD. It's NOT foreign income.
4. You're a freelance graphic designer. You're based KL, but your clients are from the US.

according to this
With effect from YA 2004, foreign source income derived from sources outside Malaysia and received in Malaysia by any person (other than a resident company carrying on the business of banking, insurance or sea or air transport) is not subject to Malaysian income tax. (exclude the latest Budget 2022 proposed criteria)

https://www.3ecpa.com.my/resources/malaysia...sourced-income/

For your freelance work, I'm certain that it's not considered "Foreign Income." Since you said you're in Malaysia.

For your affiliate marketing biz, I guess it depends. If you don't actively work on it, and the whole website, server, etc. are all overseas. I guess it can be considered "foreign income."?

However, say you work on it actively from Malaysia, doing things like adding content, maintenance, paying bills, advertising, marketing, etc--I would say it's not considered "foreign income."

Your safest bet is to ask an accountant OR call LHDN directly.

I can tell you the biztory post is 100% wrong.

There is A LOT of confusion regarding "foreign income."

Foreign Income has a SPECIFIC definition. Not ALL money you make from abroad is considered Foreign Income.
The KEY is the LOCATION where substantial economic activities are performed.

Examples of Foreign Income
1. You live in Johor, commute to work in Singapore daily (pay taxes in Singapore instead)
2. You're a Malaysian YouTuber, you live and make videos in Tokyo that generate revenue from ads.  (pay taxes in Japan instead)
3. You found a job in Australia after graduating in 2015 and worked there until 2019. The salary is foreign income.  (pay taxes in Australia)
4. You're a freelance graphic designer. Your client from the US paid you to work at their US office for x months. (pay taxes in US)

NOT FOREIGN INCOME:-
1. You live in Johor, you travel daily to wholesale nasi lemak to someone in Singapore.
2. You're a Malaysian YouTuber, you live and make videos in Perlis that generate revenue in USD.
3. You found a job in Australia, but you work remotely from your home office in Sabah. You're paid in AUD. It's NOT foreign income.
4. You're a freelance graphic designer. You're based KL, but your clients are from the US.

i think your examples are terbalik and some wrong

if I'm expat living, working, paying tax oversea... IRB has nothing on me... I'm tax residence country X and legally obligated to country X only, unless I also have income in Malaysia, then I also pay a flat rate tax on that income to IRB

foreign income is exactly that... you are local tax payer who is earning foreign income... currently you are exempted from any tax, but next year you need to pay

anyways I'm meeting IRB next week... will ask

anyways I'm meeting IRB next week... will ask

Please tell IRB to exempt dividends and capital gains from overseas sourced investment...

Check out Example 2 in this article: https://www.theedgemarkets.com/article/taxp...axable-malaysia