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Foreign sourced income for Malaysians

The Finance Act 2021, which was gazetted in December 2021 outlines the removal of foreign source income tax exemption previously enjoyed by tax residents. Effectively, tax will be imposed on resident persons in Malaysia for their income derived from foreign sources and received in Malaysia with effect from 1 January 2022.

At the same time, due to concerns by various parties, the Ministry of Finance has announced for an exemption to the foreign source income tax and the concession is for a period of 5 years from 1 January 2022 to 21 December 2026.

The following subsidiary legislations give effect to the exemptions and was gazetted on 19 July 2022 –

Generally, the exemptions above cater for qualifying individuals which receives employment income outside of Malaysia and qualifying companies/limited liability ownerships/individuals that receives dividend income outside of Malaysia.

Along with these exemptions, there are eligibility criteria to be met such as the income derived overseas must be subjected to some form of tax under the jurisdiction where the income arises.

For corporate tax residents in Malaysia which receives foreign sourced income not outlined in the exemptions, their income is subject to income tax and will be treated equally as income accruing in or derived from Malaysia.

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