MM2Hresident

I can't post links or paste the articles, so Google Ernst & Young Malaysia Foreign-sourced income (FSI) exemption orders gazetted July 2022.

The most worrisome point is that the tax exemption on foreign-sourced income is on condition that the foreign-sourced income has been subjected to tax “of a similar character to income tax” under the laws of the foreign jurisdiction where the income arose.

According to another source (Skrine), this is deemed to have effect from 1 January 2022 until 31 December 2026, suggesting this is now in effect.

Google Skrine Malaysia Exemption Orders for Tax Exemption of Foreign Sourced Income Gazetted July 2022 to read that article.

And Skrine also confirms that this tax exemption does not apply to foreign-sourced income that has not been subjected to tax similar to income tax in the source jurisdiction;



This all suggests that currently all foreign sourced income remitted to Malaysia that has not been taxed at the source is NOT exempted until 2026 like they announced in December 2021 and therefore Malaysian income taxes will need to be paid on all such income effective immediately.



QUESTION: Does this apply to and affect MM2H holders (specifically those who have been living 100% tax-free in Malaysia with a foreign-source income remitted to Malaysia that has not been taxed at the source), yes or no?

If yes, then presumably every MM2H holder with such income who decided to stay in Malaysia this year because of the Malaysian Government's previous flip-flop at the very end of December 2021 announcing that the elimination of the foreign-source income tax exemption was postponed from 2022 until 2026 has been swindled into now owing taxes on all their 2022 foreign-sourced income remitted to Malaysia that has not been taxed at the source since this latest flip-flop was gazetted after the 182nd day of the year which is when one becomes a Malaysia tax resident for that year and therefore liable for such taxes in Malaysia.

mikemike

All income is subject to tax, NET of any allowances/deductions/exemptions

SushiFan

This is how PwC reported the changed law:
https://www.pwc.com/my/en/publicatio...y-issue13.html
https://www.pwc.com/my/en/assets/pub...vy-13-2022.pdf

My understanding is that the tax percentage on foreign income remitted to Malaysia is zero percent. So even if it were to be taxed in Malaysia you still would not pay anything.
MM2H holders are considered tax resident in Malaysia if they fulfill the requirements. For example: if you live 181 days of a calendar year in Malaysia you are considered tax resident for that calendar year.

MM2Hresident

This understanding is not correct.

The PwC report you mentioned doesn't mention anything about "zero percent".

What this PwC report does mention is that the Exemption Period is from 1 January 2022 to 31 December 2026 for "Qualifying FSI".

What is "Qualifying FSI"?

They clarify that on the 2nd page:

"FSI received in Malaysia shall have been subject to foreign tax".

In other words, this PwC report confirms what my other sources mentioned, which is that foreign-sourced income which has NOT been subject to tax overseas is NOT exempted until December 2026 and therefore such income remitted to Malaysia will be taxed effective immediately since the order is valid from January of this year.

All of these clarifications by the large Accounting Firms are taken directly from the Government Order (which can be found by Googling "PERINTAH CUKAI PENDAPATAN (PENGECUALIAN) (NO. 5) 2022"with quotes and clicking the first link in the results) which confirms the same thing.

This would confirm that every MM2H holder that has been living in Malaysia with untaxed foreign-source income is now liable to pay taxes on any of that income that is remitted to Malaysia since the exemption that was granted until 2026 does not apply to such income as per all the reports mentioned in this thread.

My guess is that this new order that was snuck in impacts the majority of MM2H holders living in Malaysia effective immediately as I believe the majority do not pay any tax at the source on the foreign income they remit to Malaysia.

In other words, it is no longer possible to live tax-free in Malaysia. You will either have to pay taxes to the source country or to Malaysia. And everyone who stayed in Malaysia in 2022 thinking their tax-free incomes were exempt from Malaysia taxes until 2026 have been deceived.

Gunnar45

What if the income is legally tax exempt in the country of origin?
Like income from work in UAE, Qatar or Kuwait?
Or capital gains in certain countries overseas.
The income is declared and thus subject to taxation but the tax in the country it was earned is zero.

MM2Hresident

Such foreign-source income is NOT exempt from tax in Malaysia because it fails exemption criteria 2 in the order:
Tax-free income is not income that has been "subjected to tax of a similar character to income tax under the law of the territory where the income arises". Hence, such tax-free income is now taxable when remitted to Malaysia.

stepen

I'm not a tax lawyer but I'm not convinced that the tax free income is not still subject to a tax similar in nature. The nature can be similar even if the rate is 0.

MM2Hresident

The language in the order is clear. How can income that has not been subjected to income tax be deemed to have been subjected to income tax (or similar)? It can't because it wasn't. Hence, such foreign income is now taxable when remitted to Malaysia. Regardless, always consult with your Tax Lawyer.

Note that Capital Gains are not generally subject to tax in Malaysia, and this applies to foreign Capital Gains as well.

MM2Hresident

See also this article contributed by a Tax Consulting firm in Malaysia that specifically mentions:

stepen

You might be right, my point was that you need to be familiar with Malaysian laws and rulings to correctly interpret this. A "similar regime" might be the tax office in UAE etc, even if the tax rate is 0,.

MM2Hresident

Those are the words of the Tax Consulting firm. The actual words in the actual order are quite unambiguous as I outlined above. If every country including those that do not actually subject such income to income tax was considered a "similar regime" that "subjected to tax of a similar character to income tax", then which countries does the addition of that qualifier actually exclude? If your line of reason were correct, then there would be no need to add that qualifier to the order.

It is never a good idea to have a hopeful interpretation of tax law. A literal interpretation is always the safest best. Most importantly, one should always consult with their local Tax Lawyer to understand how a new tax law specifically affects them.

But the literal words of the actual order are quite unambiguous. Either income has been "subjected to tax" or it hasn't. It is binary and there is no in-between. If that foreign-source income has not been "subjected to tax", then the exemption until 2026 does not apply to it and Malaysia income tax is now due on it.

MM2Hresident

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.

Flyguy

I doubt the malicious interpretation - my impression of Malaysian governance is generally one of simple ineptitude and confusion. The previous tax flip-flop was an example of it. Big declaration! - then last minute reversal when the pushback came from ordinary Malaysians. And yes, the reversal was not the result of MM2H'ers complaints, but of the numerous Malaysian nationals who work overseas and remit money to the country to support families here. Also the warnings from Business leaders, and the King of Johor. They haven't gone away you know, so lets see how this pans out. But I will say this - I'm damn glad now I didn't go ahead with that property purchase in Penang! If they do indeed take the thick headed route and enforce this, an expensive apartment would have cost me another 30% or so in added taxes! Bullet dodged!

There'll be no more foreign property purchases in Malaysia from here on.
They keep shooting themselves in the foot.
Like I said.....total ineptitude.....

stepen

Lots of foreign property buyers are non tax residents, and then no tax when sending money to Malaysia. Also no tax if sending capital, not salary etc. I assume most buyers of properties doesn't take the funds from their salary, so it shouldn't be taxed either way.
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Flyguy

True enough. So only those actually living here will bear the brunt. Nice.