Let’s face it. Like it or not, Malaysia’s taxation rules can be a little bit confusing. Perhaps it’s the lack of any formal education on the matter, or perhaps it’s purposely designed to be confusing for whatever reason.
Which is why there are always questions and misunderstandings on what type of income is taxable, and what is not.
Let’s picture a scenario; you and one of your friends start a business, and the business is growing. And as your next step, you decided to expand your business overseas.
So now just for the sake of this scenario, let’s imagine that your overseas expansion was a huge success. Business is booming, and you and your friends are making a lot of money overseas. Life is all fine and rosy.
However, this does raise the question; for your income from your local business, you know how the taxation rule works. But what about your overseas business? What happens with that income?
Is overseas income taxable in Malaysia? And with the deadline for you to file your tax returns slowly creeping in, perhaps you need the answer ASAP. Don’t worry, that is what we’re going to discuss in this article.
Is overseas income taxable in Malaysia?
The simple answer to this question is; yes it is. However, the long answer is a bit more complicated than that.
The Ministry of Finance has announced that the tax exemption on FSI will be given by concession for a period of five (5) years, from 1 January 2022 to 31 December 2026 on certain categories of FSI.
The categories of FSI that will enjoy this tax exemption is as follows;
- Individuals : All types of foreign sourced income received other than partnership income will be tax exempted.
- Companies : Foreign sourced dividend income is tax exempted.
So all in all, the answer to our main question, which is overseas income taxable or not, depends on what type of taxpayer you are.
To help you visualise and understand just which type of FSI are taxable and which are not, here are two example scenarios.
Ahmad, a graphic designer, recently received a job order to create a logo for a sports team from Thailand. Ali’s income from this job is non-taxable, as Ali is an individual and not a business entity, which makes all his overseas income exempt from taxation, provided that his income has been taxed in the income’s country of origin.
Company A owns a share of a company based in The United States of America. Any income from the dividend received from that company is exempt from tax, due to the fact that foreign sourced dividend income is exempt from tax.
Company B is a real estate and property company who owns several buildings and houses in Singapore. Any income from their properties are subject to income tax, as companies do not get to enjoy FSI tax exemptions.
How much do I have to pay in tax for my overseas income?
Now that you clearly understand which types of FSI is taxable, now we’ll get to the second most pressing question; which is what is the tax rate for FSI?
For this question, the answer is fairly straightforward.
From the 1st of July 2022, any FSI is taxed based on the prevailing income tax rate. Which means that for taxation purposes, your overseas income will be taxed at the same rate your local income is taxed.
What if you have filed your tax without declaring your overseas income?
If you just realised that you have forgotten to declare your overseas income in your tax filing this year, you can still fix this! Don’t panic, it is not the end of the world. There are still opportunities for you to amend the incorrect information.
Since all individual taxpayers will still enjoy tax exemptions until 2026, it will not affect your personal income tax filing if your overseas income has already been taxed in the country of origin. However, if you are running a business, do take note of this requirement as there is still time to fix it. The deadline for income tax filing for taxpayers operating a business is 30 June 2023.
Read More: I’ve Under-Reported My Income. Now What?
Although the tax rules in Malaysia might be a little confusing, with enough reading from the correct source, there will be no issues for you to figure out which are considered taxable income in Malaysia, even if it’s from a foreign source.
So, we hope that you get to file your tax returns in time, and with no issues at all thanks to this guide right here.
If you need step-by-step instruction to walk you through your e-filing, check out our guide here.