Special Programme for Foreign Income Remittance Special Programme for Foreign Income Remittance Special Programme for Foreign Income Remittance

Following the proposal in 2022 Budget, amendment has been made in the Finance Bill 2021 to tax foreign source income received in Malaysia by any Malaysian resident person, effective from 1 January 2022.  A transitional tax rate of 3% is accorded on the gross amount remitted from 1 January 2022 to 30 June 2022.

Special Programme for Foreign Income Remittance

The Inland Revenue Board (“IRB”) has issued a media release to introduce a Special Programme for Foreign Income Remittance (“the Programme”) during the transitional period.  The Programme covers only the remittance of foreign income, i.e. excludes income which is derived or deemed derived from Malaysia but kept overseas, which is already subject to Malaysian income tax based on current legislation.  The IRB is ready to accept any disclosure / declaration made by taxpayers, without carrying out a tax audit or investigation.

Taxpayers who wish to participate in this Programme are required to make a declaration not later than 30 days after the end of programme, i.e. on or before 30 July 2022.  Any tax payment arising from such foreign income remittance will be due on the statutory or extended submission deadline of the tax return for the relevant YAs.

Once the Programme expires, the IRB has indicated that it will scrutinise information on funds kept overseas by Malaysian resident persons under the exchange of information agreement with the foreign countries.  Where taxpayers are subsequently found to be under-declaring their foreign sourced income remitted into Malaysia, or even not reporting Malaysian sourced income which was kept overseas, additional assessment together with the incorrect return penalties could be raised by the IRB.

The IRB is expected to issue its Frequently Asked Questions clarification and guidelines in relation to the Programme soon.  It is hoped that the IRB will provide further clarification on the meaning of “received in” for the purpose of taxing remitted foreign income and the eligibility of bilateral / unilateral relief.

Steps to be Taken in Anticipation of 1 January 2022

In view of the proposed change in legislation and implementation of the Programme from 1 January 2022, taxpayers should assess their potential tax impact by way of a diagnostic review to:-

• do a financial forecast to assess the need of remitting overseas funds into Malaysia.  If more funds are required to cover the investment / operation costs in Malaysia, taxpayers should consider remitting these funds before 1 January 2022.  If otherwise, the foreign source income can continue to be maintained abroad to minimize immediate Malaysian income tax exposure.
• get ready all the supporting documentations to substantiate the nature, i.e. capital or revenue, of the foreign funds.  This will be critical as it will be up to the taxpayers to substantiate the nature of the funds remitted to the satisfaction of the IRB.
• check if all funds maintained in overseas banks are foreign sourced or otherwise, and if some are Malaysian sourced, to ensure that such income has been fully reported in the prior years tax returns.  Where such income has been taxed in Malaysia previously, taxpayers should additionally ensure that the relevant documentation and evidence relating to such tax are fully retained for future reference.

A copy of the IRB’s media release can be accessed via the above link.

Should you wish to discuss the potential impact of the repeal of foreign income exemption, please do not hesitate to email or contact any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organization