Malaysia withdraws tax exemption on foreign-sourced income remitted to Malaysia and introduces a one-off ‘prosperity tax’

During the tabling of the Malaysian Budget 2022 on 29 October 2021, the Malaysian Government announced the withdrawal of tax exemption on foreign-sourced income received in Malaysia under Paragraph 28, Schedule 6 of the Income Tax Act 1967. A one-off ‘prosperity tax’ was also introduced.

Foreign-sourced income is chargeable to tax under Section 3 of the Income Tax Act 1967. It has been given a tax exemption since YA 2004. With the withdrawal of the tax exemption, beginning 1 January 2022, foreign-sourced income received in Malaysia by any Malaysian resident person will be subject to tax.

In line with the withdrawal of the tax exemption for foreign-sourced income, the Inland Revenue Board of Malaysia (IRBM) is offering a Special Income Remittance Programme to residents in Malaysia who have income kept abroad from 1 January 2022 to 30 June 2022. During this period, IRBM will not carry out any audit review, investigation or impose a penalty on the income remitted into the country.  

After the expiration period of the programme, IRBM will continue to review and scrutinise all available information including the CRS information to determine if any income still kept abroad originates from Malaysia. If based on the review, it is found that such income has not been declared for tax purposes in Malaysia, additional assessment can be raised along with penalties under the Income Tax Act 1967.  

To encourage Malaysian tax residents to participate in the Special Income Remittance Programme, the income declared will be accepted in good faith and a gross tax rate of only 3% will be imposed on the income repatriated during the Special Income Remittance Programme period. 

The Budget proposal has also announced a one-off ‘prosperity tax’ for YA 2022 on companies other than micro, small and medium enterprises (MSMEs) generating high income during the COVID-19 pandemic period. This one-off prosperity tax is imposed on companies that have chargeable income in excess of RM100 million. The first RM100 million of the chargeable income will still be subject to the standard rate of 24%. However, any excess will be taxed at 33%. A company with paid-up capital not exceeding RM2.5 million and an annual sale of not more than RM50 million is categorised as MSMEs and subject to income tax rate of 17% on chargeable income up to RM600,000. The remaining chargeable income is taxed at 24%. For companies other than the above categories, will be taxed at 24%. The prosperity tax is aimed at supporting the Malaysian Government’s initiative in assisting the parties affected by the COVID-19 pandemic.