Revised Guidelines on the tax treatment of Foreign Sourced Income

On 29 December 2022, the Inland Revenue Board of Malaysia (IRB) issued a revised guideline on the tax treatment of income received from abroad (i.e. Foreign Sourced Income), imposing an additional condition, i.e. economic substance requirement, for qualifying taxpayers (i.e. Malaysian residents) to be eligible for the tax exemption on foreign sourced dividend income received in Malaysia from outside Malaysia. 
The revised guidelines should be read together with the guidelines issued by the IRB on 29 September 2022, explaining the tax treatment of Foreign Sourced Income received in Malaysia, as well as with the Gazette Orders issued by the Minister of Finance (Income Tax (Exemption) (No. 5) Order 2022 (P.U.(A) 234/2022 and Income Tax (Exemption) (No. 6) Order 2022 (P.U.(A) 235/2022). 
Apart from fulfilling the additional qualifying condition, i.e. the economic substance requirement, foreign sourced dividend income received by a Malaysian resident in Malaysia is exempted from tax in Malaysia if the other two conditions, i.e. the foreign sourced dividend income having been subject to tax in the country of origin, and the headline tax rate in the country of origin not being less than 15 percent, are also met. 
In other words, all three conditions must be met in order to avail the tax exemption on foreign sourced dividend income. 
This additional condition has been imposed to reflect Malaysia’s commitment towards compliance with international tax standards. 

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