Malaysia’s tax system operates on a territorial basis, meaning only income that arises from within Malaysia is generally subject to income tax. Foreign-sourced income (FSI) such as overseas salaries, dividends, rental income, and profits from foreign businesses is typically not taxed, even when brought into Malaysia. However, due to international pressure to improve transparency, Malaysia made changes to this treatment starting in 2022. Here’s what you need to know:
What Counts as Foreign-Sourced Income?
- Salary or freelance income earned overseas
- Business profits from operations outside Malaysia
- Dividends from foreign company shares
- Rental income from foreign properties
- Interest earned from overseas bank accounts
Current Tax Treatment (2022–2026)
For resident individuals:
- FSI is exempt from Malaysian income tax, even if remitted to Malaysia
- Applies automatically—no special approval needed
For resident companies, partnerships, and trusts:
- FSI may be taxed if remitted to Malaysia
- Exceptions may apply (e.g., for foreign dividends under certain conditions)
Timeline for Exemption
- Effective period: January 1, 2022 – December 31, 2026
- After 2026: FSI may become taxable if remitted, pending government policy updates
Key Reminders for Taxpayers
- “Remitted” means the income is physically brought into Malaysia (e.g., transferred to a local bank)
- Keep documentation showing the income source is overseas
- If in doubt, consult a licensed tax agent or the Inland Revenue Board (LHDN)
To know more, refer here.