SushiFan

Can you please explain this sentence? My understanding is that all remittances into Malaysia will be taxed by Malaysia unless the monies were already subjected to tax in the source country.

stepen

There hasn't been released much detailed guidelines. The tax should be similar to if the money was earned in Malaysia. That means for example that dividends are not taxed as they are not taxed in Malaysia (however they could make a rule that foreign dividends will be taxed). Thailand for example has a similar system and they tax money that is remitted to Thailand the same year as it was earned only. Not sure if this will be followed by Malaysia. But it would be very aggressive if they wanted to tax previous years salary, from before the new rules started.
Capital gains are not taxed in Malaysia, so if you have a big brokerage account that has grown then the profit should not be taxed when remitted to Malaysia. Same with proceeds from selling a house etc.

Then there is the issue of how to prove where the money came from, is it salary, dividends etc. You might have to show where it came from if audited. However there should be no need to file a tax return if you don't remit untaxed salary. Also the tax office doesn't necessarily know who (of foreigners) are tax resident in Malaysia.

If I was working overseas with 0% tax rate then I'd make sure not receive the payment directly to a Malaysian bank account. And maybe remit savings from another account to Malaysia instead. At least until more details are known.

Flyguy

Good point Stepen - much of my retirement savings were accumulated in Hong Kong as taxed salary. So in theory I can remit it all with no further tax exposure here. But it's clear that this whole thing will become so messy and complex that it could require deep forensic study of any individuals finances to assess their exposure. My experience of the tax offices in Malaysia is they don't have the resources or patience for such minutiae. You'd probably have to do something stupid or blatantly obvious to raise their interest in pursuing this.
Another rule on the Malaysian Statute Books that may well be largely ignored.

SushiFan

Thank you for your clarification Stepen. You are precisely addressing the points I'm concerned about. I tend to remit money to Malaysia for general spending (rent, food, etc), from a savings account abroad. That money is the mixture of savings from past salaries, plus investment profits achieved with those savings. I have no clue as to how the Malaysian tax office will view such remittances and how they will determine what (if any) tax is to be levied.

Pilki

The following Order was gazetted on 19 July 2022 and is effective from 1 January 2022 to 31 December 2026:

• Income Tax (Exemption) (No. 5) Order 2022 [P.U.(A) 234]

Key points of Income Tax (Exemption) (No. 5) Order 2022, which applies to all sources of income of individuals

The Order exempts a qualifying Individual(*1) from the payment of income tax in respect of gross income from all sources of income under Section 4(*2) of the ITA (excluding income from a partnership business in Malaysia) which is received in Malaysia from outside Malaysia.

The exemption is on condition that the FSI has been subjected to tax “of a similar character to income tax” under the laws of the foreign jurisdiction where the income arose. To satisfy this condition, the qualifying individual is required to comply with conditions imposed by the MoF, which will be specified in guidelines to be issued in due course by the Inland Revenue Board (IRB).

1. “Qualifying individual” means an individual resident in Malaysia who has income received in Malaysia from outside Malaysia.
2. The sources of income under Section 4 of the ITA refer to:

(a) Gains or profits from a business, for whatever period of time carried on

(b) Gains or profits from an employment

(c) Dividends, interest or discounts

(d) Rents, royalties or premiums

(e) Pensions, annuities or other periodical payments not falling under any of those listed above

(f) Gains or profits not falling under any of those listed above

Flyguy

Still researching, but I have found the following extract from the new rules :" A flat income tax rate of 3% would apply on the gross amount of FSI received in Malaysia from 1 January 2022 to 30 June 2022. From 1 July 2022 onwards, the prevailing tax rate of the taxpayer would apply."
The reference can be found here: https://www.ey.com/en_my/tax-alerts/...rders-gazetted

So if this is correct they have given the 'concession' of only hitting us for 3% on remittances in the first 6 months of 2022. Afterward the full rate applies.

stepen

It still refers to taxable income, not necessarily all remittances.

Flyguy

Sure - on non exempt remittances you mean?

On another angle - what if you use a foreign credit card to pay for day to day expenses and the charges on the credit card are settled at the foreign Bank.
No remittance to Malaysia, so no tax, right?

Pilki

I think this link provides a balanced view of the current situation but there remain many unanswered questions:-

bernama.com/en/thoughts/news.php?id=2035540

Flyguy

Good article, thanks. Reading that just makes it more obvious that this is going to be a total mess, impossible to administer unless they get real and clarify the details.
Meanwhile the foreign Credit Card, and 'cash runs' to Singapore, will have to fill the gap.

RedApe

I'm still dubious about the claims that Malaysia is taxing foreign remittances on personal income. They appear to have made no effort to get data on them and haven't heard a peep from foreign businesses or employees that would be severely impacted by this. I guess we'll find out in December or January. If that happens they'll have massive capital flight.

Here are the Malaysian Double Tax Agreements.
https://www.hasil.gov.my/en/internat...ion-agreement/

Flyguy

I agree RedApe, it seems like a nightmarishly complex rule to enforce. But I guess for starters it means that we ALL now have to file an annual tax return in Malaysia, declaring remittances (if any), right? I haven't filed a tax return here in a decade. I have no local income to report.
But this new rule means that my remittances should be declared. And if you don't file a tax return they may come after you - then audit you. I guess that's how it starts.
Maybe you can lay low if you have indeed made no remittances, and claim no need to file. That might work until you want to sell a property and move money out of the State. Then they might start asking awkward questions about missing tax filings.
I'm speculating here - I don't know what way this will work, and as you say, there's no information being promulgated.

RedApe

I still am doubtful that Hasil is interpreting the revision/suspension in the broad manner that some are. There is no section to list foreign remittances in the tax form...maybe they'll release one with such a section, and instructions as which remittances to report. But a search of the Hasil site does not even mention foreign remittances re. individual taxpayers.

Also since MM2H and Malaysia domestically does not allow taxes of pension remittances perhaps one should shift all remittances into a direct pension transfer.That would seal the case for many people. Or one could set up a separate savings account for income in the home country for the current tax year, and only remit funds from prior savings.

Also how does this impact the Fixed Deposit components of things like MM2H (which no requires submission of a RM1million FD) or the Premier VIP Visa (which also requires a similar RM1 million FD). If the remission ( @ US$222.222) pushes one into the 30% tax range and remissions are not excludable then they'll face a US$66,000 remission tax. OUCH! I don't think very many applicants will "buy" in on such a program if MM2H/PVIP Fixed Deposit remissions are taxed.

Since the published revision I've only seen one posting on this in any financial tax advisor that suggested that interpretation. All other advisors seem to think that remissions are not taxable for at least another 4 years

Now another issue is just how all of this impacts things like the Elite MM2H and PVIP and their RM 1 million FD's. That would push the applicant into the 30% tax range just to apply for these retirement programs. They'd have no one biting those apples - even the most wealthy.

Pilki

We just won't know until the March 2023 tax returns and guidance notes are out, which will be too late for taking the right decisions during 2022.
I think remittances of the FD's are a red herring as these will be "pre-tax residence" events.

Flyguy

That's news to me! Good news if true! I have official confirmation that such is the case in Thailand, but I haven't seen that for Malaysia. Do you have a reference?

I have a feeling some 'advisors' aren't up to speed on the regulations. I attended a big expat event last weekend where some 'expat wealth advisors' had set up stalls. When I spoke to one of them I asked him for his take on the newly gazetted remittances law. He told me it had been deferred for 5 years, and was unaware of the recent reversal of government policy. Which was not encouraging, considering the cost impact such incorrect advice could have on a paying client.

Some years ago I was in touch with a tax advisor based in Labuan who told me you can set up a company on Labuan and pay yourself there almost tax free. I didn't take it any further because at the time there was no need. But I wonder if anyone else has heard of this wheeze?