Taxation of Foreign Source Income - Termination of Special Income Remittance Programme (PKPP)
Under the proposal in 2022 Budget, the exemption of foreign source income received in Malaysia by a resident person (other than a resident company carrying on the business of banking, insurance, sea and air transport) provided under Paragraph 28, Schedule 6 of the Income Tax Act 1967 has been removed with effect from 1 January 2022 following the gazette of the Finance Act 2021.
Following the above proposal, the PKPP initially announced by the Inland Revenue Board (IRB) on 16 November 2021 for remittance of foreign source income for the period 1 January 2022 to 30 June 2022 (PKPP period) to be treated as follows:
- Income remitted in the PKPP period is taxed at 3% (gross); and
- Income remitted during the PKPP period will be accepted by IRB in good faith i.e. will not be subject to tax audit/investigation and penalties.
However, the Ministry of Finance (MOF) has announced on 30 December 2021 that the following foreign source income received in Malaysia from 1 January 2022 to 31 December 2026 will be exempted from Malaysian income tax:
- All types of income received by resident individuals except resident individuals carry on business through a partnership; and
- Dividend income received by resident companies and limited liability partnership.
The above exemption and qualifying conditions will be set out in a gazette order to be issued in due course.
Following the above announcement by the MOF, the IRB has announced on 11 March 2022 that the PKPP has been terminated with effect from 11 March 2022. In addition, the IRB has stated the following:
- Foreign source income not exempted and remitted to Malaysia from 1 January 2022 is subject to Malaysian tax and is to be reported in the income tax return form; and
- Foreign source income remitted in the period 1 January 2022 to 30 June 2022 is taxed at 3% (gross) while prevailing income tax rates will be applicable for income remitted after 30 June 2022.
For further details on the IRB’s Media Release - Termination of Special Income Remittance Programme dated 11 March 2022, please click this link
Should you require any clarification or further assistance, please do not hesitate to contact our Tax team in our respective offices.