Key Changes to the Malaysian Tax System Foreign Investors Should Take Note

Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz delivered the Malaysian Budget 2022 in Parliament on 29 October 2021.

The Malaysian Government has allocated RM332.1 billion in this Budget - RM233.5 billion for operating expenditure, RM 75.6 billion for development expenditure, and RM23 billion under the COVID-19 Fund.

As foreign investors, the following proposed tax changes to the Malaysian tax arising from this Budget may be of interest to you:

Corporate Income Tax?

Abolishment of the Foreign Source Income Exemption

Currently, foreign-sourced income received by certain Malaysian residents in Malaysia is exempt from Malaysian income tax.

However, in compliance with the international tax standards, it proposed that the above foreign-sourced income exemption rule will cease to be effective from 1 January 2022 onwards.

It is unclear whether Malaysia might adopt Singapore's modified territorial system approach in which to allow certain foreign-sourced income (e.g., dividend income) to be exempt from Malaysian income tax.

Currently, for Singapore tax purposes, specified foreign-source income such as dividends, branch's profits, and services income, received by Singapore tax residents can be exempted from Singapore income tax, provided that certain conditions are satisfied.

Will Malaysia adopt Singapore's modified territorial system of taxation to be as competitive as Singapore?

Introduction of a One-Off Prosperous Tax

Currently, the Malaysian corporate income tax is 24%. While this rate remains unchanged, it is proposed that companies will be subject to a one-off prosperous tax at 33% on their chargeable income exceeding RM100 million (approximately USD24.1 million).

It is understood that this is a means to allow an increase in the corporate tax collections from companies with extraordinary earnings to assist the communities affected by COVID-19.

Time Limit for Unabsorbed Trade Losses Carried Forward to be Extended

Currently, unabsorbed losses can be carried forward for a maximum of 7 consecutive years of assessments (YAs).

It is proposed that the time limit to allow these losses to be carried forward be extended to 10 consecutive YAs.

Trade losses for YA 2018 will thus be allowed to be carried forward until YA 2028. It is a means to provide further support to loss-making companies when they come out from the Pandemic.

Real Property Gains Tax (RPGT)

Currently, gains on disposal of real property or shares in a real property company (RPC) by an individual citizen, permanent resident, and person other than a company are subject to RPGT at the rate ranging from 6% to 30%, depending on the duration of the ownership of the real property.

It is proposed that from 1 January 2022 onwards, the RPGT on gains from the disposal of real property and shares in an RPC in the 6th year or thereafter that be reduced from 5% to 0%.

Stamp Duty on Contract Note for Trading Listed Stock

Currently, trading shares listed on Bursa Malaysia are subject to stamp duty on contract notes at 0.1%, subject to a cap of RM200 per contract note.

It is proposed that effective?from 1 January 2022, the stamp duty treatment for the trading of shares listed on Bursa Malaysia be reviewed as follows:

• The stamp duty rate on contract note be increased to 0.15%;
• The stamp duty limit to RM200 for each relevant contract note will be abolished.

Indirect Tax

Sales Tax on Imported Low-Value Goods

Currently, sales tax exemption is given on importing non-dutiable goods into Malaysia not exceeding RM500 by air.

Similar to Singapore, effective from 1 January 2023, it is proposed that this exemption be removed so that the sales tax treatment for taxable goods locally manufactured and imported goods will be aligned.

Local and overseas vendors who sell LVG to consumers in Malaysia are required to register for sales tax and account for it.

Further clarification regarding the implementation of these rules will need to be made by the relevant authorities. Take note that the Singapore tax authorities have issued a 62-page electronic tax guide to discuss how the features of the new tax regime, and the related tax registration and reporting rules.

As the new rule will be operative in about one year's time, it would be critical for local and overseas vendors to understand how the new rules work.

Service Tax Exemption on Brokerage Services Related to the Trading of Listed Shares

It is proposed that service tax exemption be given in respect of brokerage services related to trading shares listed on Bursa Malaysia?from 1 January 2022. This is to ensure that the stock market activity in Malaysia remains competitive.

We hope the above provides an easy-to-understand summary of the key tax changes in Malaysia to you.

A final note: always ensure you have a qualified Malaysian tax advisor with whom you can consult, and do not assume that the Malaysian tax law is the same as that in your home country.

Jack HM Wong

Taxpreneur | Accredited Tax Advisor | Associate Faculty of International Tax at Singapore University of Social Sciences