KUALA LUMPUR, Nov 13 — Audit firm Deloitte Malaysia remains hopeful that certain income such as foreign-sourced dividends, foreign branch profits and foreign-sourced service income will continue to be exempted.
In its Highlights of Budget 2022 – Part II Finance Bill 2021 Tax Espresso (Special Edition) report, the firm said many countries do not tax inbound dividends under their participation exemption rules.
It said if alignment with best international practice is key, the focus should be placed on passive income that created tax arbitrage such as interest and royalty.
“On the enhancement of tax collection, a wide inclusion of all types of foreign-sourced income (FSI) may work in the short run but the long-term implication on Malaysia’s competitiveness needs to be considered,” it said.
It said an immediate course of action would be to identify any FSI, which might not have been given much attention before this, the timing of their receipt and quantum of any incremental tax liability after factoring in the availability of any tax credits.
The audit firm said this is especially important for companies with a December 31 financial year-end since the deadline for submitting their estimate of tax payable for the year of assessment 2022 is close.
“Moving forward, businesses would also have to consider the potential tax impact when planning the timing of repatriation of their FSI to meet their commercial requirements locally,” it said.
Under Budget 2022, the government has proposed to impose income tax on incomes derived from foreign sources and received in Malaysia starting Jan 1, 2022.
Currently, Malaysia adopts a territorial-based taxation system where only income accruing in or derived from Malaysia would be subject to Malaysian income tax while income derived from sources outside Malaysia and received in Malaysia is exempted from tax with the exceptions of resident companies in the business of banking, insurance or sea or air transport which are taxed on worldwide income.
