International Tax Malaysia

The above-mentioned countries and territories appear to be deliberately pursuing tax policies in a targeted manner to ensure that they remain attractive for investment, while taking into account other considerations such as the need to maintain a sound income tax base and the justifiability of the internationally controlled tax system. Similarly, in the era of globalization and increased international oversight of different countries` tax systems, the challenge for Malaysia would be to address international tax concerns with a targeted and measured approach to remain competitive on the global stage as an attractive jurisdiction for investment and business. A few days later, the Organisation for Economic Co-operation and Development (OECD) updated its two-pillar solution to address the tax challenges posed by the digitalisation of the economy (commonly known as BEPS 2.0), which promises to bring about the most significant changes to international tax rules in more than a century. Over the past 50 years, Malaysia has grown from a commodity exporter to a strong industrial base for foreign multinational electricity and electronics companies. As an oil and gas exporter, Malaysia has benefited from rising global energy prices, but the government recognizes the need to reduce its reliance on oil as its main source of revenue. Over the past decade, Malaysia has become an attractive regional hub for services in the industry`s value chain, including financial services, information and communication technologies (ICT) and logistics sectors. Malaysia is increasingly recognized as an innovative international Islamic financial center. It is also becoming a springboard or center of regional expansion in the Association of Southeast Asian Nations (ASEAN), given its strategic and central location and its multilingual „Truly Asian” mix of Malay, Chinese and Indian populations. REVOLUTIONARY changes in the international tax landscape are underway.

According to the 2022 Budget Speech, the reasons for the proposal to tax TFRs received in Malaysia by Malaysian residents are to ensure sustainable income for Malaysia and compliance with international best practices in the field of taxation. The EU guidelines suggest that the implementation of substance requirements may be sufficient. . Last day after seven months from the closing date of the accounts. To put things in context, on 5 October 2021, the Council of the European Union included Malaysia in its „grey list” as a jurisdiction that committed to changing its „harmful” exemption from the ISF by 31 December 2022. Other jurisdictions such as Hong Kong, Costa Rica, Qatar and Uruguay have also been added to the grey list on the same basis. Similarly, Malaysian groups with tax incentives or low overseas tax rates may be subject to an additional tax in Malaysia. If Malaysia applies GMT, any additional tax levied should be designed to make the country more investor-friendly.

In addition, large multinationals will be subject to a global minimum tax rate of at least 15% from 2023. Budget 2022 provides an opportunity for the Government to strengthen investor confidence by providing direction for businesses on the policy options currently under consideration. Once this obligation is fulfilled, Malaysia will be removed from the grey list. Although the effective date of the ISF exemption is fast approaching, there is still some uncertainty from both a technical and administrative point of view. From a practical point of view, it will be difficult for taxpayers to prove the nature of a receipt to the satisfaction of the Inland Revenue Board, especially if the revenue in Malaysia comes from funds that have been held outside Malaysia for an extended period of time. The second pillar introduces a global minimum tax (GMT), set at 15% for groups with a turnover of more than €750 million (.RM 3.6 billion). This is a significant deviation from current tax regulations, which generally only allow corporate profits to be taxed in places where a company has a physical presence. Unlike countries with smaller populations like Singapore and Hong Kong, Malaysia could increase its tax revenues through this proposal. In its first budget statement, Malaysia reaffirmed its commitment to the OECD`s BEPS 2.0 project, but did not provide information on the changes in our corporate tax and incentive systems that will inevitably be needed in response to these developments. PwC Malaysia has a team of over 2,000 employees in Kuala Lumpur, Pulau Pinang, Ipoh, Melaka, Johor Bahru and Labuan and has been instrumental in Malaysia`s growth and progress since 1900. Today, PwC Malaysia continues to work with many large multinationals, public sector companies and Malaysian companies, providing solutions to their complex business problems. PwC Malaysia provides industry-specific audit, tax and advisory services to public and private clients in four areas: Malaysian subsidiaries of large multinationals benefiting from tax incentives typically pay reduced tax rates well below 15% and can be affected by the GMT.

Revenue thresholds will be lowered to €10 billion (.RM 48 billion) by 2031. On 5 October 2021, the European Union (EU) approved the commitment of Malaysia and other countries to reform their Foreign Income Exemption Schemes (FSIFs). In general, capital gains on fixed assets are not subject to tax, with the exception of capital gains on the sale of real estate in Malaysia, which are subject to the TP RPGT (up to 30%). Simply put, under the second pillar, parent companies can expect an additional tax on the income of subsidiaries that are not subject to tax of at least 15%. TFRs obtained in Malaysia may have already been taxed elsewhere. In order to counteract the double taxation of the same income, the ITA provides for facilitation in the form of (i) bilateral tax credits if the foreign country in question where the taxes were paid has concluded a double taxation agreement (DTA) with Malaysia; or (ii) unilateral tax credits if the foreign country in question where the taxes were paid does not have a permanent contract with Malaysia. Under the Finance Act, FSI received in Malaysia between January. 1. From 2022 to June 30, 2022, all tax residents, including individuals and corporations, will be taxed at 3% gross.

The tax rate for ISPs received after this period corresponds to the tax rates applicable to resident individuals and corporations. The proposal in its current form covers all forms of income (e.B. Corporate or labour income, dividends, interest, royalties) and will affect all taxpayers resident in Malaysia, regardless of their size or sector. . On December 17, 2021, the Domestic Revenue Board published PKPP FAQs, which provide that taxpayers can report their participation in the PKPP in an online form via MyTax. The ISP tax only affects a receipt, which is „income”. Capital gains remain outside the scope of income tax under the ITA, even if they originate from abroad and are then received in Malaysia. This has also been confirmed by the Inland Revenue Board in the PKPP FAQ. Malaysia will need to rethink its approach to tax incentives and tax breaks in light of the GMT. The PKPP FAQ proposes that existing tax return forms be updated to include a new element allowing taxpayers to report the amount of ISF received in Malaysia for the 2022 assessment year.

Taxpayers should be on the lookout for evolving reporting requirements to ensure they comply with all the new rules. Currently, the ISP is exempt from income tax of any person received in Malaysia, with the exception of Malaysia-based companies operating in the banking, insurance, or air or sea transport sectors. .