Foreign Sourced Income Received in Malaysia will be Taxed from 2022 – As announced during the tabling of Budget 2022, foreign sourced income received in Malaysia will be taxed.
While some may see this as a quick method to raise revenue collection, Malaysia has in some ways been compelled to do so in order to comply with global tax standards.
Foreign Sourced Income Received in Malaysia will be Taxed from 2022
THIS is certainly a hot topic as many taxpayers were surprised by the Budget 2022 measure to tax foreign sourced income received by Malaysian individuals and corporate residents. Malaysia only taxes income that arises in Malaysia.
Taxation of foreign source income is not new to Malaysia. Such income was taxed prior to the year of assessment 1995. Malaysia adopts a territorial principle of taxation in that only income accruing in or derived from or received in Malaysia from outside Malaysia is subject to income tax in Malaysia pursuant to Section 3 of the Income Tax Act, 1967 (“ITA”).
Understanding the type of income received – income received must be classified into one of the categories such as business income, employment income, dividend income, and other categories specified in the Income Tax Act 1967. All types of income will be taxable – including dividend income, interest income, rental income, pension income, employment income, & annuities – some of these types of income will not be taxable in Malaysia if the income had arisen in Malaysia.
The reason for classifying the income, is due to the different tax treatment given to each class of income.
Just for example, if you are receiving income from a business source, then such income can be used to offset against losses from another Malaysian business source.
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