Double Taxation Treaties in Malaysia

Updated on Friday 23rd July 2021

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A foreign businessman who wants to do commerce in Malaysia and comes from a state that Malaysia has signed the double tax pact with can profit from the avoidance of the double taxationOur Malaysian lawyers can provide you proper information and guidance to find out if your business meets the requirements in order to benefit from the double tax treaty. Moreover, legal advice and counseling are offered to international entrepreneurs wanting to start activities in this country.
 

The meaning of double tax treaty in Malaysia


When residents, individuals, or enterprises of any two given states trade or manage commercially with each other, it gives rise to global trade or cross-border dealings. Double taxation treaties are signed by a large number of states, including Malaysia, and they authorize an external financier to pay taxes in only one state and not in both. The main condition is that a double tax pact is accepted and signed by the two states. Double taxation agreements in Malaysia cover the earnings and the corporate taxes imposed in the contracting countries, as well as diverse types of income, like:
 
  •     capital gains;
  •     income resulting from maritime and air transportation;
  •     revenues from the employment of residents of one country in the other state;
  •     earnings from fixed property.
 
Our attorneys in Malaysia can offer you more information about income taxation under the state’s double tax treaties. We invite you to watch the following video on the double tax treaties signed by Malaysia


  

Treaties signed by Malaysia

The double taxation treaties were signed by Malaysia and the following states: Austria, Albania, Australia, Argentina, Brunei, Bangladesh, Belgium, Bahrain, Czech Republic, Canada, China, Chile, Croatia, Denmark, Egypt, France, Finland, Fiji, Germany, Hungary, Iran, Italy, Indonesia, India, Ireland, Jordan, Japan, Kazakhstan, Kuwait, Korea Republic, Kyrgyzstan, Luxembourg, Laos, Lebanon, Mongolia, Malta, Morocco, Mauritius, Myanmar, Norway, Netherlands, Namibia, New Zealand, Poland, Papua New Guinea, Pakistan, Philippines, Qatar, Russia, Romania, Spain, San Marino, Seychelles, South Africa, Saudi Arabia, Singapore, Syria, Sri Lanka, Switzerland, Sudan, Sweden, Turkmenistan, Thailand, Taiwan, Turkey,  United States of America, Uzbekistan, United Arab Emirates, United Kingdom, Vietnam, Venezuela, Zimbabwe.

Malaysia is likely to sign double tax treaties with other states also, so if your country is not listed above you can check if a pact was approved in the meantime.
 

The withholding tax mentioned by DTTs signed by Malaysia


Non-residents in Malaysia need to align with the taxation regime of this country. The double taxation agreements in Malaysia provide protection against fiscal evasion and payment of taxes twice. 
The withholding tax is mentioned by the treaties signed by Malaysia with countries worldwide and it applies to interests and royalties, while dividends are exempt. In the case of royalties, the withholding tax is set at 10% while for interests is a 15% rate.

The contract payments are services provided in Malaysia and are subject to a 10% withholding tax rate. Special classes of incomes like rental of movable properties are also subject to the same withholding tax rate.

If you need more details on this topic, please feel free to get in touch with our lawyers in Malaysia. One of our experts can tell you more about the double taxation agreements in Malaysia.
 

Short facts about permanent establishments


A fixed business location is referred to as a permanent establishment. This definition is stipulated by the double taxation treaties signed by Malaysia and is linked to the operating companies in this country for the purpose of taxation. Incomes earned in Malaysia are levied in accordance with the local legislation and also the double taxation agreements signed with countries worldwide. 
 

The purposes of double taxation agreement in Malaysia


Malaysia signed a series of double tax treaties with countries worldwide to avoid double taxation and to simplify the financial activities, the international investment flow, and trade, in large lines. Any tax residency impediment is avoided with the help of double tax treaties signed by Malaysia, as specific requirements need to be respected in business collaboration and more. One should note that a double taxation agreement in Malaysia can be terminated if the parties involved consent in this sense and present a notification. Otherwise, such a treaty is made for an indefinite period. 

You can discuss further details on this topic with one of our specialists. The formalities and regulations of starting a business in Malaysia can be entirely explained by one of our Malaysian lawyers.
 

FAQ about DTTs in Malaysia


1. What types of incomes are subject to the double taxation agreements in Malaysia?
Capital gains, revenues from fixed properties, corporate taxes, incomes of residents working in Malaysia are subject to the double taxation treaties signed by this country. The tax structure in Malaysia can be explained by our experts in the field.

2. What is a permanent establishment according to the tax treaties signed by Malaysia?
A permanent establishment is the place of business of companies registered in Malaysia. Such enterprises are seen as taxpayers in Malaysia and need to align with the regulations imposed.

3. What is the withholding tax for royalties, as stated by the DTTs signed by Malaysia?
10% is the withholding tax imposed on royalties, but it might differ depending on the agreement made with the contracting state. 

4. Are personal incomes protected by the double taxation agreement in Malaysia?
Yes, the incomes of foreign citizens working in Malaysia are protected against double taxation. Therefore, revenues earned in Malaysia will be levied only in this country, eliminating double taxation.

5. Is the corporate tax mentioned by the double taxation agreement in Malaysia?
Yes, foreign companies that pay the corporate tax in Malaysia do not need to pay such tax in the country of origin too. The agreements signed by Malaysia with countries all over the world facilitate, in large lines, business collaborations and transactions.
 

Making investments in Malaysia


If you decide on Malaysia to open and develop a business, then you will enjoy several advantages offered by this country. Top investors from abroad already benefit from a stable and highly appreciated business environment, with access to important international business markets. The business possibilities in Malaysia are multiple, large foreign companies already having headquarters established in this country, where an experienced workforce, a stable economy, optimal business environment, and quality infrastructure are essential advantages. Here are some statistics about Malaysia's economic direction:
  1. Almost USD 169 billion represented the total FDI stock in Malaysia in 2019.
  2. Malaysia ranked 12 out of 190 worldwide economies in terms of simplified business formalities, according to the 2020 Doing Business report.
  3. Hong Kong, the Netherlands, Singapore, and Japan are the main investors in Malaysia.
 
Please feel free to contact our team of lawyers in Malaysia for guidance and proper information regarding the double taxation agreements in Malaysia, plus instructions about how you can benefit from the minimization of the fees you need to pay.