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

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.

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.