Exemption Orders for Tax Exemption of Foreign Sourced Income Gazetted
22 July 2022
Following the announcement by the Malaysian Government on 31 December 2021 of a 5-year deferment of income tax on foreign sourced dividend income brought into Malaysia by companies and limited liability partnerships and all types of foreign sourced income brought into Malaysia by individuals, the following subsidiary legislation to give effect to these exemptions were gazetted on 19 July 2022:
Both E.O.5/22 and E.O.6/22 are deemed to have effect from 1 January 2022 until 31 December 2026.
E.O.5/22
E.O.5/22 exempts a qualifying individual from the payment of income tax in respect of his gross income from all sources of income (excluding a source of income from a partnership business in Malaysia) received in Malaysia from outside Malaysia in a basis period for a year of assessment.
The exemption under E.O.5/22 is subject to the condition that the foreign sourced income has been subjected to tax of a similar character to income tax under the law of the territory where the income arises.
For the purposes of E.O.5/22:
- “qualifying individual” means an individual resident in Malaysia and has income received in Malaysia from outside Malaysia; and
- “income received in Malaysia from outside Malaysia” means income arising from outside Malaysia which is brought into Malaysia.
From the above, it is to be noted that the exemption under E.O.5/22 shall not apply to each of the following:
- foreign sourced income that has not been subjected to tax similar to income tax in the source jurisdiction; and
- foreign sourced income that is derived from a partnership business in Malaysia.
E.O.6/22
E.O.6/22 exempts a qualifying person from the payment of income tax in respect of the gross income of that qualifying person from dividend income received in Malaysia from outside Malaysia in a basis period for a year of assessment.
The exemption under E.O.6/22 is subject to the following conditions:
- the dividend income has been subjected to tax of a similar character to income tax under the law of the territory where the income arises; and
- the highest rate of tax of a similar character to income tax charged under the law of the territory where the income arises at that time is not less than 15%.
E.O.6/22 does not apply to a person carrying on the business of banking, insurance, or sea or air transport.
For the purposes of E.O.6/22:
- “qualifying person” means a person resident in Malaysia who is:
| (a) |
an individual who has dividend income received in Malaysia from outside Malaysia in relation to a partnership business in Malaysia; |
| (b) |
a limited liability partnership registered under the Limited Liability Partnerships Act 2012; or |
| (c) |
a company incorporated or registered under the Companies Act 2016; and |
- “dividend income received in Malaysia from outside Malaysia” means dividend income arising from outside Malaysia which is brought into Malaysia.
From the above, it is to be noted that the exemption under E.O.6/22 shall not apply to each of the following:
- a person carrying on the business of banking, insurance, or sea or air transport;
- foreign sourced dividend income that has not been subjected to tax similar to income tax in the source jurisdiction; and
- foreign sourced dividend income that has been subjected to tax similar to income tax in the source jurisdiction but the highest rate of such tax in the source jurisdiction is less than 15%.
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