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

latest updates...
In the Budget 2022, 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. in response to global developments such as the global minimum tax and the recent European Union’s action to include Malaysia in its “grey list”.
https://www.theedgemarkets.com/article/delo...crease-tax-bill


This post has been edited by MUM: Oct 30 2021, 08:19 PM

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

This post has been edited by MUM: Oct 30 2021, 08:17 PM

This post has been edited by MUM: Oct 30 2021, 11:30 PM

Tax treatment

Ahmad exercises employment in Singapore because he physically carries out his employment duties in Singapore.
Therefore, he derives employment income from Singapore, which, being not derived from Malaysia, is not subject to income tax in Malaysia.

When Ahmad brought his Singapore earnings to Malaysia to acquire the orchard, the foreign-sourced income received in Malaysia is specifically tax exempt under Paragraph 28 of Schedule 6 of the Income Tax Act.
The rental from the Singapore flat is derived from Singapore because the real property is situated there.
The source of the rental income is in Singapore. Ahmad receiving the rental income in ringgit in Malaysia does not change the fact that it is foreign-sourced income, which, even when received in Malaysia, is specifically tax exempt.

The net proceeds from the sale of the fruits on consignment to the Singapore fruit trader are derived from Malaysia as the fruits are produced in an orchard in Malaysia.
This is subject to tax in Malaysia as business income. The fact that it is paid in a foreign currency and in a foreign country does not change its Malaysian-derived nature. The proceeds must be brought to tax in Malaysia.

very clear don't they?

mind telling where is "wrong"?

"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."

i read as "For freelancers, earning revenue from foreign companies (not based or registered in Malaysia) is not uncommon. (means common)
Here’s some good news, income earned from outside Malaysia (refer to those Freelancers who earn foreign sourced income) is excluded from tax as of YA 2004."

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/

Are all earnings considered taxable and what tax form should freelancers use?
Note: Income earned from foreign companies, in other words, businesses that are not based or registered in Malaysia, are exempted from tax, as of YA 2004. (before the latest Budget 2022 announcement)
https://www.comparehero.my/budgets-tax/arti...eelancer_easier

isn't that same/similar as by biztory?

Ahmad is under business,...in business they have expenses and need to calculates the P/L for tax purposes.
will it be? ....income sourced overseas in not taxed, but the income added into Ahmad business a/c will make the business has more more profits thus be taxed more??

some court cases on Local Income Versus Foreign Income
https://chengco.com.my/wp/2018/03/16/local-...foreign-income/

This post has been edited by MUM: Oct 31 2021, 02:04 AM

i think i am beginning to get what you meant,....
i think you could be right

thus i think they want to clear off all doubts,..effective Jan 2022, in Budget 2022, they propose the change

This post has been edited by MUM: Oct 31 2021, 02:08 AM

mind sharing what is the estimated income that is derived from foreign source per year?
since you mentioned that your income comes from international clients.....how do you sustain that income without any income to support your expenses locally?

btw,
for your mentioned item 1 & 2,....are you eligible to apply or do that?

This post has been edited by MUM: Nov 5 2021, 11:54 PM

while waiting for his response,
you can try his recent 6 Nov post
as in post 16
in this thread
https://forum.lowyat.net/topic/5212522

on this "This extra income, should I make a declaration to Msia tax department or it is exempted as considered foreign source income?"
In the Budget 2022, 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.
read the link in post 39 page 2
https://forum.lowyat.net/topic/3524728/+20

This post has been edited by MUM: Nov 8 2021, 02:06 AM

since you will using it over there,...M'sia govt should not have reason to questions you...unless, it you need to bring it back,...then they may question you....

just my guesses only....

This post has been edited by MUM: Nov 9 2021, 06:48 PM

from the link in post 123,...

Implications on Malaysian Investment Funds
Malaysian funds that invest abroad will also be disadvantaged, as the foreign income remitted by the funds is now taxable.
Investors may then invest through foreign funds or foreign vehicles, instead of Malaysian funds, as the additional tax cost will reduce the investment returns.
Ultimately, this would result in movement of funds abroad to invest in foreign funds.

just speculation on my side only....

i think they had already catch wind of that and had been reducing the dividend pay out to try to make it not as a shock to investors...

This post has been edited by MUM: Nov 16 2021, 10:04 PM

just read this,...may have potential impact to some forummers here .....

Another common situation, according to Deloitte Malaysia, involves a Malaysian who lives in Johor Baru and commutes daily to Singapore for work.

“He draws a salary from his Singaporean employer. Under the tiebreaker rule, he is a Malaysian tax resident given that his permanent home is in Johor Baru.
Before Jan 1, 2022, he can remit his salary into Malaysia without paying Malaysian tax.
Under the new rule, his remittance would be subject to Malaysian tax,

“The Singapore taxes paid can be used as a set-off. However, he would need to top up the net additional tax and pay the Malaysian tax authorities.
In short, there would be an incremental tax,” it added.

https://www.theedgemarkets.com/article/delo...xation-malaysia

just found this,...

Income vs capital

The first hurdle to cross is to determine whether the monies remitted into Malaysia is income or capital: Income is taxed whilst capital is not.

Taxpayers are going to have difficulties in dealing with this issue since the monies would have been accumulated over a long period of time and unless you have good records, you may have difficulty in arguing that the amount remitted is capital in nature.

What income is taxable?

All types of income will be taxable, and this will include dividend income, interest income, rental income, pension income, employment income, and annuities even though some of these types of income will not be taxable in Malaysia if the income had arisen in Malaysia.

An example would be dividend income paid by Malaysian companies will not be taxable.

more
How is foreign sourced income taxed?
https://www.thesundaily.my/business/how-is-...taxed-AB8535064

i think not yet,...but my guess is very high chances of it being passed....
seldom heard budget proposed items not passed ....
hopefully it may also possible to contain minor changes too

This post has been edited by MUM: Nov 16 2021, 11:56 PM

my guess is,
if you can proof that that money is legally acquired in Malaysia, paid taxes and had documented proof that, that money was transferred out of malaysia previously....
then i guess you should not be taxed...

for it mentioned in your link,...
"IRB will review and examine the income information of Malaysian residents deposited abroad that has been received through tax information exchange agreements with other countries."
“If the review found that the income kept abroad originating from Malaysia has not been reported, additional assessment can be imposed together with penalties in accordance with the provisions of the Income Tax Act 1967,” it said.

my guess again,...there should be a threshold of the amount of money before they start the reviews....
more of a concerns if the names are listed in the Pandora papers recently....

This post has been edited by MUM: Nov 17 2021, 09:39 AM

other than "counter checking" with the tax form,....

for it mentioned in earlier link,...
"IRB will review and examine the income information of Malaysian residents deposited abroad that has been received through tax information exchange agreements with other countries."

for most Malaysians working in Spore but stayed in JB, i think they don't submit ITR form to LHDN.....
so i guess LHDN does not know about the foreign a/c if LHDN just rely on the "tick" for disclosing in the form...

i happened to read this earlier...

"As for the impact on individuals, Deloitte Malaysia said one common situation involves rental income earned by a Malaysian tax resident from a real property located outside of Malaysia.

Citing a rental income from Singapore as an example, Deloitte Malaysia said, this income is an FSI and would not be taxed in Malaysia presently, but from Jan 1 next year, the income remitted to Malaysia would be taxed.

“In this case, both countries have the right to tax.
To avoid double taxation on the same rental, Malaysia, being the country of residence, would grant foreign tax credit based on a prescribed formula that takes into account the taxes paid in Singapore against the Malaysian tax payable,” it said.

However, it noted, the Malaysian resident landlord would still need to pay the net tax to the Malaysian government.

Another common situation, according to Deloitte Malaysia, involves a Malaysian who lives in Johor Baru and commutes daily to Singapore for work.

“He draws a salary from his Singaporean employer. Under the tiebreaker rule, he is a Malaysian tax resident given that his permanent home is in Johor Baru.
Before Jan 1, 2022, he can remit his salary into Malaysia without paying Malaysian tax.
Under the new rule, his remittance would be subject to Malaysian tax,

“The Singapore taxes paid can be used as a set-off. However, he would need to top up the net additional tax and pay the Malaysian tax authorities. In short, there would be an incremental tax,” it added.

https://www.theedgemarkets.com/article/delo...xation-malaysia

foresee implementation issues that needed ironing out...
page 6
https://www.pwc.com/my/en/assets/publicatio...-2022-Part2.pdf

from this article,....it seems like no remit back will also kena??

“After the expiration of the period, IRB will review and examine the income information of Malaysian residents deposited abroad that has been received through tax information exchange agreements with other countries.

“If the review found that the income kept abroad originating from Malaysia has not been reported, additional assessment can be imposed together with penalties in accordance with the provisions of the Income Tax Act 1967,” it said.

Therefore, IRB said taxpayers are encouraged to participate in this special programme in order to update their tax position.

https://www.malaymail.com/news/malaysia/202...sidents/2021425