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AS announced in Budget 2022, the proposal to remove tax exemption on income derived from foreign sources (withdrawal of foreign- sourced income exemption, or FSIE) and received in Malaysia by Malaysian tax residents under Paragraph 28, Schedule 6, of the Income Tax Act 1967 will come into effect on Jan 1, 2022.
Under a Special Remittance Programme announced by the Inland Revenue Board, a tax rate of 3% will be imposed on foreign-sourced income brought in by a tax resident from Jan 1 to June 30 next year, and all income will be accepted in good faith without any review or investigation conducted by the authority. Any income brought in from July 1, 2022, would be subject to the prevailing tax rate.
For clarity, an individual who is in Malaysia for a period of 182 days or more in a calendar year is generally categorised as a tax resident, whereas a company is defined as a tax resident in Malaysia if the management and control of its business is in the country.
Here are some scenarios involving foreign-sourced income. The Edge asks tax experts to weigh in on these examples.
Scenario 3:
A Malaysian tax resident living in Johor Baru and working in Singapore who remits his employment income earned in Singapore to Malaysia.
Subject to Malaysian tax with effect from Jan 1, 2022: Yes
Veerinderjeet: In this case, the person will pay tax on employment income in Singapore. And because this person is staying in Malaysia, he will be a tax resident here as he will bring in the income earned in Singapore to Malaysia. Currently, he does not pay tax on his employment income from Singapore in Malaysia as he has paid tax in Singapore. But under the proposed provision, such income will be taxed by the authorities here when he brings the income back.
So now, the person would need to prove that tax was suffered in Singapore to be eligible to claim a tax credit against the Malaysian tax imposed, and that will involve more paperwork. And there is also the possibility that not all of his employment income will be brought into Malaysia — some of it might still be kept in Singapore, so Malaysia will only impose income tax on the portion of the income that was brought in. The tax credit would be only for that portion of the income brought into Malaysia.
Baker Tilly Malaysia director of tax services (technical) Murugan Anbanantham: For employment income that is earned in Malaysia, an individual pays tax on the income received and may have built up savings for the future. Such savings on which tax had already been paid previously will not be subject to future tax when withdrawals are made from such savings in Malaysia.
However, an employee who works overseas and has saved his or her employment income in foreign banks may now be worried if such savings withdrawn from foreign banks and remitted to Malaysia will be subject to tax. Also, the savings may have earned interest — again the issue of interest income for individuals being taxed on remittance back to Malaysia.
For Malaysian employees, their withdrawals from the Employees Provident Funds are obviously not taxable. However, such employees who may have worked overseas and contributed to a similar pension fund overseas may find themselves being questioned if and when they were to remit such funds back to Malaysia — let’s say, if they are planning to return to Malaysia after many years working overseas. There must be clear rules in place to alleviate such concerns on the part of such persons.
https://www.theedgemarkets.com/article/cover-story-how-fsie-withdrawal-might-affect-you
Under a Special Remittance Programme announced by the Inland Revenue Board, a tax rate of 3% will be imposed on foreign-sourced income brought in by a tax resident from Jan 1 to June 30 next year, and all income will be accepted in good faith without any review or investigation conducted by the authority. Any income brought in from July 1, 2022, would be subject to the prevailing tax rate.
For clarity, an individual who is in Malaysia for a period of 182 days or more in a calendar year is generally categorised as a tax resident, whereas a company is defined as a tax resident in Malaysia if the management and control of its business is in the country.
Here are some scenarios involving foreign-sourced income. The Edge asks tax experts to weigh in on these examples.
Scenario 3:
A Malaysian tax resident living in Johor Baru and working in Singapore who remits his employment income earned in Singapore to Malaysia.
Subject to Malaysian tax with effect from Jan 1, 2022: Yes
Veerinderjeet: In this case, the person will pay tax on employment income in Singapore. And because this person is staying in Malaysia, he will be a tax resident here as he will bring in the income earned in Singapore to Malaysia. Currently, he does not pay tax on his employment income from Singapore in Malaysia as he has paid tax in Singapore. But under the proposed provision, such income will be taxed by the authorities here when he brings the income back.
So now, the person would need to prove that tax was suffered in Singapore to be eligible to claim a tax credit against the Malaysian tax imposed, and that will involve more paperwork. And there is also the possibility that not all of his employment income will be brought into Malaysia — some of it might still be kept in Singapore, so Malaysia will only impose income tax on the portion of the income that was brought in. The tax credit would be only for that portion of the income brought into Malaysia.
Baker Tilly Malaysia director of tax services (technical) Murugan Anbanantham: For employment income that is earned in Malaysia, an individual pays tax on the income received and may have built up savings for the future. Such savings on which tax had already been paid previously will not be subject to future tax when withdrawals are made from such savings in Malaysia.
However, an employee who works overseas and has saved his or her employment income in foreign banks may now be worried if such savings withdrawn from foreign banks and remitted to Malaysia will be subject to tax. Also, the savings may have earned interest — again the issue of interest income for individuals being taxed on remittance back to Malaysia.
For Malaysian employees, their withdrawals from the Employees Provident Funds are obviously not taxable. However, such employees who may have worked overseas and contributed to a similar pension fund overseas may find themselves being questioned if and when they were to remit such funds back to Malaysia — let’s say, if they are planning to return to Malaysia after many years working overseas. There must be clear rules in place to alleviate such concerns on the part of such persons.
https://www.theedgemarkets.com/article/cover-story-how-fsie-withdrawal-might-affect-you
