Tax Exemption on Foreign-Sourced Income Until 2026

Individuals and businesses can breathe a sigh of relief as the government moves to exclude local taxpayers from paying tax on foreign-sourced income. According to Kenanga Research, this decision will help generate profits upside for large publicly traded firms with considerable foreign-sourced revenue.

Axiata Group Bhd, which generates 70% of its revenue from outside Malaysia, Sime Darby Bhd (88%), and IHH Healthcare Bhd (75%) are among the companies that will benefit from this exemption.

Tax exemption

To enable seamless implementation of the tax plan, the government said it would exclude local taxpayers from paying tax on foreign-sourced income. This tax break will last from January 1, 2022, until December 31, 2026, and the standards and guidelines of the Inland Revenue Board apply.

Companies and limited liability partnerships will be exempt from income tax on dividends, while individuals will be exempt from all types of income.

Farah Rosley, president of the Chartered Tax Institute Malaysia, said local taxpayers who were concerned that their income from overseas would be taxed can now breathe a sigh of relief for at least the next five years.

She pointed out that the government proposed ending the tax exemption on foreign-sourced income received in Malaysia in Budget 2022, and that foreign-sourced income will be taxed beginning January 1, 2022. This caused an alarm among businesses and individuals, particularly those with major foreign assets.

Apart from foreign-sourced income tax exemptions, the Finance Ministry stated that foreign-sourced dividend earnings produced by limited liability companies and partnerships are also exempt.

Farah added that the exemption on dividend income produced by limited liability companies and partnerships is beneficial since it will encourage foreign-sourced dividend revenue to be transferred into Malaysia, which will boost investment. It will also keep Malaysia appealing as a destination for regional offices

Stamp cap duty

Apart from that, Kenanga sees the government's decision to reintroduce the RM1,000 stamp duty cap with a 0.15% rate on contract notes for shares transactions listed on Bursa Malaysia as "market positive."

From January 1, 2022 through December 31, 2026, both the stamp duty cap and the foreign-sourced income tax exemption will be in effect.

The Association of Stockbroking Companies Malaysia (ASCM) praised the Finance Ministry and Bursa Malaysia for their ongoing efforts to keep the Malaysian stock market resilient and competitive.

It recognised Bursa Malaysia's potential as a major pillar of the national economy and a funding conduit for our local firms, resulting in a thriving destination for domestic and global investors to invest in.

ASCM stated that it has been involved in issues directly relevant to the development and progress of the securities industry and capital market over the years.

The association also collaborated with the Securities Commission, Bursa Malaysia, and the Ministry of Finance to improve the securities and capital market industry as a whole.

The Malaysian Investment Banking Association (MIBA) has stated that the government's move to reintroduce the stamp duty cap on contract notes for stock trading recognises the need for more revenue.

MIBA said the move is also to balance out and guarantee that the local stock market stays competitive and lively. It also praised the Finance Ministry’s measured approach, which took into account industry feedback on the idea to eliminate the stamp duty cap.

Source: The Star