What changes are coming for Malaysian tax residents regarding foreign income?

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Changes to Foreign Income Taxation for Malaysian Tax Residents

Effective from January 1, 2022, Malaysian tax residents will be subject to taxation on income derived from sources outside Malaysia and subsequently remitted into the country. This marks a significant shift from the previous exemption that applied to such income. The new tax framework, announced as part of the Malaysian 2022 Budget on October 29, 2021, will introduce a phased approach to taxing this foreign-sourced income (FSI).
Graduated Tax Rates for Remitted Foreign Income

Initially, from January 1, 2022, to June 30, 2022, a tax rate of 3% will be applied to the gross amount of foreign income remitted into Malaysia. Following this period, from July 1, 2022, onwards, the prevailing standard tax rates applicable to individuals will be imposed on any foreign income remitted into Malaysia. This change specifically targets Malaysian tax residents, meaning that FSI received by non-residents will continue to be exempt from Malaysian taxation.
Impact on Specific Income Types and Tax Credits

The introduction of this tax on FSI is anticipated to affect Malaysian tax resident individuals who, for instance, earn employment income abroad and remit it to Malaysia, or those who own properties outside Malaysia and receive rental income, subsequently remitting it. While the prospect of paying tax on previously exempt income may have a significant impact, individuals will be able to claim any foreign tax already paid on the remitted income as a foreign tax credit against their Malaysian tax liability. This provision aims to mitigate double taxation on the same income.
Recommendation for Remittance Before Year-End

Given the impending changes, it is advisable for Malaysian tax residents to consider remitting any foreign-sourced income into Malaysia before December 31, 2021. This proactive measure would allow individuals to benefit from the existing exemption and avoid the application of the new tax regime, which commences on January 1, 2022. This strategic timing can help manage the tax implications of foreign income for the upcoming tax year.

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What changes are coming for Malaysian tax residents regarding foreign income?

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