Can foreign assets be legally taxed as Malaysian income?

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High Court Rules Foreign Assets Not Taxable as Malaysian Income Under Current Law

The High Court has ruled that foreign assets, by virtue of their ownership alone, cannot be legally taxed as Malaysian income under the existing Income Tax Act 1967. The court found that the Inland Revenue Board (IRB) acted beyond its jurisdiction when issuing an additional tax assessment notice for foreign-sourced assets, as the Act primarily governs income earned within Malaysia or foreign-sourced income remitted into the country. The assets in question were Na’imah’s properties located abroad and were not considered income received in Malaysia.
Foreign-Sourced Income Remittance is Key

The Income Tax Act 1967 specifically addresses the taxation of foreign-sourced income when it is remitted into Malaysia. This means that income earned outside of Malaysia is generally not subject to Malaysian tax unless it is brought into the country. The High Court's decision clarified that ownership of assets located overseas does not automatically equate to taxable income in Malaysia, as such a provision is not stipulated within the Income Tax Act 1967.
Market Value of Foreign Assets Not Taxable Income

The court determined that the market value of assets held abroad cannot be unilaterally treated as taxable income simply because an individual owns them. The absence of a specific provision within the Income Tax Act 1967 to this effect was a critical factor in the ruling. If the IRB believed that undeclared income was involved at the time these assets were acquired in the 1990s, the assessment should have been raised for that particular period, not for a subsequent assessment year like 2018.
Double Taxation and Record Keeping Provisions

Furthermore, the High Court found that the IRB's action in issuing the additional assessment notice resulted in double taxation, which is contrary to the principles of the Income Tax Act 1967. The judge also pointed out that the Act mandates taxpayers to retain records for seven years, making it unreasonable for the IRB to demand documents for assets acquired over 20 years ago. The failure to provide records that are no longer legally required to be kept cannot justify the issuance of an additional tax assessment.

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Can foreign assets be legally taxed as Malaysian income?

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