What is the new tax exemption on foreign source income?

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Government Approves Tax Exemption on Foreign Source Income for Resident Taxpayers

The Malaysian government has agreed to implement a tax exemption on foreign source income (FSI) for resident taxpayers, a measure effective from January 1, 2022, through December 31, 2026. This exemption applies broadly to individuals, with specific conditions for those in business partnerships, while non-resident taxpayers continue to be exempt from income tax. Furthermore, FSI received in the 2022 assessment year is also exempted from calculations for prosperity tax purposes.
Exemption Period and Scope

The tax exemption on foreign source income for resident taxpayers is established for a defined period, commencing on January 1, 2022, and concluding on December 31, 2026. This initiative aims to facilitate the smooth application of tax regulations concerning FSI.
Individual Taxpayer Provisions

For individual taxpayers, the exemption covers all types of foreign source income. However, a notable exception exists for individuals who are part of a business partnership established in Malaysia; these individuals will remain subject to taxation on their FSI.
Non-Resident Taxpayer Status

Non-resident taxpayers, encompassing individuals, companies, and other entities, will continue to benefit from their existing exemption from income tax. This means their foreign-sourced income will not be subject to Malaysian income tax.
Prosperity Tax Consideration

The Ministry of Finance has also clarified that any foreign source income received during the 2022 year of assessment will be excluded from tax calculations pertaining to the prosperity tax. This provision further alleviates the tax burden on FSI for the specified period.

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What is the new tax exemption on foreign source income?

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