Tax exemption orders in respect of foreign sourced income in force

30 August 2022

On 19 July 2022, the Income Tax (Exemption) (No. 5) Order 2022 (“Exemption Order No. 5”) and Income Tax (Exemption) (No. 6) Order 2022 (“Exemption Order No. 6”) (collectively, “Exemption Orders”) were gazetted.

The Exemption Orders are effective from 1 January 2022 to 31 December 2026.

Notwithstanding the exemptions introduced by the Exemption Orders, the qualifying individual is still required to comply with any requirement to submit any return or statement of accounts or to furnish any other information under the provisions of the Income Tax Act 1967.

Exemption Order No. 5

Under Exemption Order No. 5, a qualifying individual is exempt from payment of income tax in respect of gross income from all sources of income listed in section 4 of the Income Tax Act 1967, other than a source of income from a partnership business in Malaysia, which is received in Malaysia from outside Malaysia in the basis period for a year of assessment.

A “qualifying individual” is defined to mean an individual resident in Malaysia who has income received in Malaysia from outside Malaysia. The income exempted under Exemption Order No. 5 must have been subject to a tax of a similar character to income tax under the law of the territory from which such income arose.

Exemption Order No. 6

Under Exemption Order No. 6, a qualifying person is exempt 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 the basis period for a year of assessment. For the purposes of Exemption Order No. 6, a “qualifying person” refers to a person residing in Malaysia who is:

• an individual who has dividend income received in Malaysia from outside Malaysia in relation to a partnership business in Malaysia;

• a limited liability partnership which is registered under the Limited Liability Partnerships Act 2012; or

• a company which is incorporated or registered under the Companies Act 2016.

For dividend income to be exempted under Exemption Order No. 6, the dividend income must have been subject to tax of a similar character to income tax under the law of the territory from which such income arose and the highest rate of such tax charged at that time must not be less than 15%. The exemption under Exemption Order No. 6 is not applicable to a person carrying on the business of banking, insurance or sea or air transport.