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Countries and taxpayers are eligible to tax exemption and relief under a double taxation agreement between Malaysia and a contracting state. This guide will walk you through topics concerning the double tax agreement in Malaysia.
Let’s learn more.
What is a double tax agreement?
A double tax agreement is an agreement between two countries to reduce or eliminate double taxation on the same income.
Double taxation occurs when a Malaysian taxpayer engages in international or cross-border business transactions within another country.
Tax determination of dual resident individuals
If an individual is a resident of two contracting states, the following rules are applied to determine the individual’s residency status:
- Which contracting state is the individual’s permanent home located?
- If the individual has a permanent home in both states, where is the person’s centre of vital interests (the state to which the person’s personal and economic relations are closest)?
- If the centre of vital interests cannot be determined or does not have a permanent home in either contracting states, where is the individual’s habitual abode?
- If both contracting state are the habitual abode or neither of them, which state is the person a national?
- If the individual is a national of both contracting states or neither of them, the competent authorities will settle the residency by mutual agreement.
What is a permanent establishment in Malaysia?
A permanent establishment under the tax agreement in Malaysia is:
- A place of management
- A branch
- An office
- A factory
- A workshop
- A mine, oil or gas well, quarry or any other place of extraction of natural resources
- A farm, plantation or other places where agricultural, forestry, plantation or other related activities are carried on
- A building site or construction, installation or assembly project which has existed for more than six months
A permanent establishment does not include the following:
- Use of facilities for storage or display of goods
- Maintenance of stock of goods or merchandise belonging to the enterprise for storage or display
- Maintenance of stock of goods or merchandise belonging to the enterprise for processing by another enterprise
- Maintenance of a fixed place of business for purchasing goods or merchandise or collecting information for the enterprise
- Maintenance of a fixed place for carrying on any other activity of a preparatory or auxiliary character
What taxes are covered by the double tax agreement?
The types of taxes that are covered by the double tax agreement are:
- Income tax
- Petroleum income tax
Types of income covered
The types of income that are covered by the double tax agreement include:
- Income from immovable property
- Business profit
- Shipping and air transport
- Technical fees
- Gains from the alienation of property
- Personal services
- Director’s fees
- Artistes and athletes
- Pensions and annuities
- Government services
Mutual agreement procedure
What is the mutual agreement procedure?
According to the Mutual Agreement Procedure Guidelines, the mutual agreement procedure (MAP) is a process that the Malaysian Competent Authority (CA) and a contracting state CA discuss to resolve double taxation disputes.
When must the request be submitted?
The timeframe for presenting the case is specified in the double tax agreement, which is three years from the first notification of the action resulting in taxation not in accordance with the agreement.
Mutual agreement procedure application
The request should include the following information:
- Name, address and income tax reference number of the Malaysian taxpayer
- Name address and income tax reference number of the contracting state taxpayer involved
- The tax agreement article(s) which the taxpayer claims to not be correctly applied by Malaysia or the contracting state
- Taxation years or periods involved, the amount of income and tax in dispute
- a statement indicating whether the taxpayer has filed a notice of objection or a notice of appeal
- a signed statement that the representative is authorised to act for the taxpayer in making the request
- a copy of any settlement or agreement reached with the contracting state administration which may affect the MAP process
The request should be signed by the taxpayer or authorised representative to confirm that the information in the request is accurate and complete.
All requests for MAP should be made in writing and submitted to the following address:
The Competent Authority, Tax Division, Ministry of Finance
6th floor, Centre Block, Precinct 2, Federal Administration Centre
62592 Putrajaya, Malaysia
A copy of the MAP request should also be submitted to:
The Competent Authority, Department of International Taxation, Inland Revenue Board of Malaysia Headquarters
Level 12, Menara Hasil, Peraran Rimba Permai, Cyber 8, 63600 Cyberjaya, Selangor, Malaysia
Which countries have a double tax agreement with Malaysia?
The following countries have a double tax agreement with Malaysia:
|Australia||Hong Kong||Myanmar||Slovak Republic|
|Brunei||Italy||Papua New Guinea||Thailand|
|Croatia||Kyrgyz||Russia||United States of America|
|Czech Republic||Laos||San Marino||Uzbekistan|
The double tax agreements in Malaysia provide a variety of benefits to its resident taxpayers and contracting states who gain income from both countries. If you have any further questions on double tax agreements, feel free to contract Acclime.
Acclime is Asia’s premier tech-enabled professional services firm. We provide formation, accounting, tax, HR and advisory services, focusing on delivering high-quality outsourcing and consulting services to our local and international clients in Malaysia and beyond.