KUALA LUMPUR: The government's decision to exempt foreign-sourced income (FSI) of individuals resident taxpayers from tax will help investments in Malaysia, tax experts said.
The Chartered Tax Institute of Malaysia (CTIM) said the exemption of dividend incomes earned by limited liability companies and partnerships would continue to enhance investment by encouraging foreign-sourced dividend income to be remitted into Malaysia.
"This will also maintain the attractiveness of Malaysia as a location for regional offices," said CITM president Farah Rosley.
The Ministry of Finance (MoF) had on December 30 announced that the government agreed to exempt FSI of individuals resident taxpayers from tax.
The exemption is also extended to foreign sourced dividend incomes earned by limited liability companies and partnerships.
The FSI tax exemption will be effective from January 1, 2022 until December 31, 2026.
The MoF stated that, subject to the Inland Revenue Board criteria and guidelines, income tax exemption on foreign sourced dividends would be given to companies or limited liability partnerships while individuals would be tax exempted for all types of foreign sourced income.
For individual taxpayers, the FSI exemption will be given to all individuals except those in a partnership business in Malaysia.
For non-resident taxpayers (individuals, companies, and others), they remain exempted from income tax under Paragraph 28, Schedule 6 of the Income Tax Act,1967.
Farah said during the tabling of the 2022 Budget on October 29 ,the government had proposed the withdrawal of the tax exemption on FSI received in Malaysia and FSI would be taxed from January 1, 2022.
This had caused a stir among companies and individuals, especially those with significant investments overseas.
"Many Malaysian resident taxpayers who were earlier caught in a dilemma on the prospect of their hard-earned income from overseas will be taxed come January 2022 can now heave a big sigh of relief for at least the next five years," she added.
The MoF also announced that FSI received in the year of assessment 2022 was also exempted from tax calculation for the purpose of Prosperity Tax (Cukai Makmur).