Flyguy

I'm not much bothered how they work it out for these big corporations - they should be paying more for sure, and they always seem to find ways to avoid it. I'm quite sure that whatever the headline rate is, they won't pay it.
Taxes are for the little people, like us.

RedApe

TAXABLE VS. NON-TAXABLE PENSION IN MALAYSIA

RE. concern about Malaysia Budget 2022 having a provision about taxing foreign income "remitted in Malaysia".

The Director of HASIL (the inland revenue of Malaysia...with an ironic name for the taxman) has stated that the provision is such that it is intended to only impact those using Malaysia for tax avoidance and they have no intent to "double-tax".

Still I thought that it might be useful to include this description about what is considered a taxable vs. non-taxable Pension in Malaysia for those who have opted for the "proof of pension" option on Sarawak MM2H.

[Note...I'm "taxed at source" on my US originated pension and have tried to see if it's possible to take advantage of this liberal option...to no luck. Perhaps your home countries are different if you are a tax resident elsewhere.]

So if Malaysia applies the same exclusion rule to 1) foreign-sourced pensions as they do for domestic pensions and
2) your home nation/nation that provided the pension does not mind expatriation of the Pension without taxing it...
then you may benefit highly STILL...

I'm awaiting further more certain details from HASIL on their application of the new rules re. pensions and exemptions on other types of earnings.

https://phl.hasil.gov.my/pdf/pdfam/RISALAH_R9_BI_15.pdf

MM2Hresident

It has happened. The order has been gazetted and all foreign-source income remitted to Malaysia that has not been taxed by the source country will now be taxed by Malaysia effective immediately.

See the other thread titled "August 2022: Malaysia now taxes foreign-sourced income not taxed at source"

In other words, it is no longer possible to live a tax-free life in Malaysia.

RedApe

No...that is incorrect. You'll notice the last date on that thread was 28 November 2021.

Despite earlier proposals to the effect that a tax on remittances on foreign earned income would be tabled, there was general and widespread concern expressed on how it would be enforced and the impact on the economy as it would impact remission of funds critical to development and the recovery of the economy. It would also drive investors, including those already established in Malaysia, out of the country.

The Ministry of Finance walked away from that proposal on December 30, 2021. According to their official Press Release:

"Further Development on Amendments Proposed in Finance Bill 2021The Finance Bill 2021 has been passed by both houses of Parliament, but pending for the gazetting of the Finance Act 2021. Nevertheless, the Ministry of Finance (“MOF”) has, on 30 December 2021, issued a media release to announce the following:

a) Certain exemptions be given on foreign source income received by resident persons in Malaysia effective 1 January 2022
Subject to conditions, which will be detailed out in the guidelines from the Malaysian Inland Revenue Board (“MIRB”), the following foreign source income received in Malaysia from 1 January 2022 to 31 December 2026 will remain exempt from Malaysian income tax:

Category of Resident Taxpayers ~Type of Foreign Income Exempted

Companies / Limited Liability Partnerships ~ Dividend income

Individuals (except for individuals which carry on business through a partnership) ~ All classes of income

b) Exclusion of foreign source income received in Malaysia in the year of assessment (“YA”) 2022 from the computation of tax for the purpose of Cukai Makmur
c) Remission of stamp duty on contract notes for transfer of shares listed on Bursa Malaysia

In the Finance Bill 2021, the stamp duty rate on contract notes for transfers of listed shares is proposed to be increased from 0.1% to 0.15% (RM1.50 for every RM1,000 or fractional part of RM1,000) and the stamp duty cap of RM200 is to be removed, effective from 1 January 2022.

The MOF will reinstate the stamp duty cap but at a higher cap of RM1,000. Stamp duty payable from 1 January 2022 to 31 December 2026 in respect of transfers of shares listed on Bursa Malaysia, which is in excess of RM1,000 will be remitted. This is subject to gazetting of the relevant statutory order."
https://home.kpmg/my/en/home/insight...January%202022

https://assets.kpmg/content/dam/kpmg...2021-12-30.pdf

So for individual remittances there is no income tax to be paid except for one category (individuals which carry on business through a partnership). The rule for foreign earned income has remained the same as it was over the last several years. No change.

stepen

Have a look at this EY publication.
https://www.ey.com/en_my/tax-alerts/...rders-gazetted

They added a requirement to get the exemption they announced on Dec 30th.

Epicurious

There still seems to be some ambiguity between income "received in" and "remitted to" Malaysia.

MM2Hresident

You clearly did not read the August 2022 thread about the new order gazetted on July 19, 2022. You information is out-of-date.

What ambiguity? Received and remitted are two sides of the same coin. Anything remitted to Malaysia is then received in Malaysia. So they are not limiting it to foreign-source income directly "paid to" Malaysia (otherwise they would have used those words). Tax law require literal interpretation, not hopeful interpretations, and ones specific case should always be consulted with their local Tax Lawyer to understand how a new tax law impacts them.

The literal interpretation of the order is quite unambiguous.

If you still have doubts, then this previous article from Skrine about a previous order with that exact wording should eliminate any doubt:

Conclusion: Any tax-free income earned overseas that is remitted to Malaysia by Malaysian tax residents (anyone living 182 days or longer in Malaysia) is now taxable in Malaysia, and anyone who stayed in Malaysia in 2022 thinking they would be able to live tax-free has been caught in a bait-and-switch scam by the Government since it is now more than 181 days since the start of this year.

RedApe

This is the translation of the Order you have posted.

"IN exercise of the powers conferred by paragraph 127(3)(b) of the Income Tax Act 1967 [Act 53], the Minister makes the following order:
Name and effective date
1. (1) This order may be called the Income Tax (Exemption) Order (No. 5) 2022.
(2) This order is deemed to have come into effect from 1 January 2022 to 31 December 2026.
Interpretation
2. In this Order—
"eligible individual" means an individual who is resident in Malaysia and has income received in Malaysia from outside Malaysia;
"income received in Malaysia from outside Malaysia" means income arising from outside Malaysia that is brought into Malaysia.Exceptions
3. (1) The Minister exempts an eligible individual from the payment of income tax in respect of gross income from all sources of income under section 4 of the Act, excluding sources of income from a partnership business in Malaysia, received in Malaysia from outside Malaysia during a base period for an assessment year.

(2) The income exempted under sub-paragraph (1) shall have been subject to a tax of the same nature as income tax under the laws of the province where the income is derived.
2
P.U. (A) 234
(3) For the purposes of sub-paragraph (2), income is taken into account as having been subject to a tax of the same nature as income tax if the income received in Malaysia by the eligible individual complies with the conditions imposed by the Minister as stated in the tax treatment guidelines in relation to with income received from abroad issued by the Malaysian Inland Revenue Board.

(4) Any deduction in respect of income exempted under this paragraph shall not be taken into account for the purpose of determining the taxable income of the eligible individual.

(5) Nothing in sub-paragraph (1) shall relieve or be deemed to have relieved the eligible individual from complying with any requirement to submit any statement or statement of account or provide any other information under the provisions of the Act.

Made July 18, 2022
[Prov. MOF.TAX(S)700-1/1/3; LHDN.AY.A.600-12/1/7(29)-221; PN(PU2)80/VOL. 107]
TENGKU DATUK SERI Utama ZAFRUL BIN TENGKU ABDUL AZIZ
Ministry of Finance"

I'm not a tax lawyer but it seems quite clear to me, by the plain meaning of the highlighted words, that with the exception of partnership business in Malaysia, that gross income of an individual who is resident in Malaysia and has income received in Malaysia from outside Malaysia will NOT be subject to tax if it is received in Malaysia from outside Malaysia during a base period for an assessment year.

Exempt means "not subject to" doesn't it?

Now...there is an exception to that gross income.
"(2) The income exempted under sub-paragraph (1) shall have been subject to a tax of the same nature as income tax under the laws of the province where the income is derived".

So that just means that the income has gone through the prior tax process. Presumably income from, say Australia, has already been subject to income tax if derivative from Australia. Maybe the tax was not as severe as in Malaysia...but it has still been subject to personal income tax. One hasn't somehow sheltered or hidden that income from the Australian Inland Revenue. One has reported it. Let's say one lived in a country called Geriatrica. Geriatrica doesn't tax pension income. But it would still be reported as income, it just would be a line excluded from the income tax.

It was subject to tax, but exempt, in Geriatrica.

Now Malaysia doesn't tax pensions either. So even if one was required to report the income remitted, one could argue it was an exempt category in Malaysia as well.

And as reported in the media in January 2022 that order will hold from 1 January 2022 until December 31, 2026.

Now lastly, Savings is not INCOME. Savings is not subject to Income Tax as a result. So the issue related to remitted INCOME. If that INCOME was not subject to INCOME TAX the country from which it originated then it may be subject to tax under the laws of Malaysia.

I don't think that many people on MM2H would be impacted by this at all. Most of their INCOME has been previous reported and subject to tax.

MM2Hresident

Read the paragraph directly below the one in the Order that you highlighted in bold. If it's still not clear, then read the reports from the big Accounting Firms listed in the "August 2022" thread as they are even clearer.

RedApe

Do you not pay taxes in the source country on your remitted INCOME streams from abroad? Not savings, INCOME.

MM2Hresident

No, and many MM2H holders do not for various reasons.

With this sudden Order, it is no longer possible to live a tax-free life in Malaysia which was one of the biggest selling points of the MM2H visa. Now everyone will either have to pay tax at the source or to Malaysia. Or leave Malaysia.

Pilki

I think most MM2Hers have not paid tax on their income remitted to Malaysia either (i) because it is below the tax threshold in the souce country or (ii) they have delared they are no longer resident there or (iii) they have availed themselves of the benefits of a double taxation agreement.

The gazetted order amending the Finance Act may be badly drafted or it may be cunningly drafted but either way it states quite clearly that foreign income remitted to Malaysia will be taxed if it has not been subjected to at least a 15% tax in the source country.

So unfortunately MM2Hresident is perfectly correct in his/her conclusions.

stepen

The 15% minimum tax refers to corporate and partnership income, its not required for personal income.

MM2Hresident

The actual rate to be paid to Malaysia for untaxed foreign-source income remitted to Malaysia is the personal income tax rates in Malaysia since such foreign-source income is no longer exempted and is therefore now treated as income in Malaysia. All MM2H holders will now need to keep tight records of all their foreign-source income, including those who do pay taxes on it at the source since they will have to prove that in order to benefit from the current exemption. Again, one must consult their Tax Lawyer for their individual situation.

But what is clear is that the era of easy and worry-free tax-free living in Malaysia for MM2H holders is over and a new era of taxes and bureaucracy has begun.

RedApe

Hmm...so if the source of the remitted income is pension and neither the source country nor Malaysia taxes pensions...one will be taxed on the pension? Or if the source of the income is interest from a savings account...and Malaysia does not tax savings accounts. Is it still taxed?

How do they parse between the use of remiitances from a savings account that existed long previous to residence in Malaysia (savings is not INCOME) and remittances from Income that is then placed in a bank account? Could one not simply place any income from this calender year in a different account. And draw remittances from the saving accounts accrued from previous years? One would not be, or had previously been, subject to tax on that "previous" account. The more recently accruing account would be taxed in the originating country or exempt under the home countries tax laws. I presume that one reports it to Inland Revenue, though. Some of the income might be taxed at some low rate say~ 1%. My tax rates on some aspects of my income varies depending upon how much general income I make. My Social Security might vary between 0% and 15% (half of the SS is taxed at the tax bracket one falls within). So if one is getting zero will Malaysia tax the remittances but if it is 5% or 15% they will not?

Frankly reading the law made me dizzy. It was if it was a word salad drawn up by Sir Humphrey of "Yes, Minister!"