CHAPTER 2

DOUBLE TAXATION RELIEF

Dr Aryati Juliana Sulaiman 1

 CONCEPT & DEFINITION

• Double taxation- levying of tax by two or more jurisdictions

• Wef 2004, individual, trust, co-operative society, club or trade association will be
tax-exempt on foreign source income received in Malaysia from outside Malaysia
• Foreign incomes received in Malaysia are only taxable for resident companies
engaging in insurance, banking and shipping and air transportation industries.
• Wef. 1 January 2022 , existing tax exemption on foreign-sourced income to be
removed. Malaysian residents will be subject to tax on foreign income remitted
into Malaysia.

Dr Aryati Juliana Sulaiman 2

 • The objectives of DTA are as follows:
1. To alleviate the burden of double taxation on
the same income derived by the taxpayer –
by providing bilateral credit.
DOUBLE 2. To facilitate world trade - increase
TAXATION international business and investment.
3. To promote technology transfer – encourages
AGREEMENT transfer of technology and scientific
knowledge to/from foreign countries.
4. To prevent tax avoidance and tax evasion.

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 • By providing an exemption in the country of
origin on income arising there from to a
resident of the other country.

DTR • By granting a tax credit against a person’s tax in

his home country of residence for tax suffered
METHODS on that income in the other country.
• By granting a tax deduction against total income
in the home country.

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 • if a DTA has been concluded with the other
country
• section 132 of the ITA 1967
BILATERAL • the lower of tax payable in the foreign country
and Malaysian tax payable on foreign income
CREDIT • The definition of ‘foreign income’ in relation to
bilateral credit has been amended. WEF YA
2007, foreign income includes income derived
from Malaysia that has suffered foreign tax

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BILATERAL CREDIT
The lower of:

Foreign Income (Statutory Income) X Malaysian Tax Payable

Total Income

OR

Foreign Tax (charged in respect of the foreign income includes income

derived from Malaysia and charged to foreign tax)

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BILATERAL CREDIT- Example 1
The income of Fikka Sdn Bhd for the purpose of computing bilateral relief is as follows:
RM
Gross business income from China (withholding tax in China 10%) 75,000
Gross business income from Malaysia 500,000
Rental income [paragraph 4(d) of the ITA 1967] 25,000
Allowable business expenses 80,000

Computation of tax payable:

RM
Gross business income from China 75,000
Gross business income from Malaysia 500,000
Gross business income 575,000
Less: Allowable expenses 80,000
Statutory income from business 495,000
Add:
Rental income 25,000
Total income 520,000
Income tax charged (24%) 124,800
Withholding tax in China (10%) 7,500

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Steps to determine bilateral credit:
(i) Computation of the proportion of statutory income in respect of foreign income:

Foreign income (gross)

____________________________ X Statutory income in respect
Foreign (gross) and Malaysian of the same source
income (gross) in respect of the
same source1
=
RM75,000 / 575,000 x RM495,000
= RM64,565
1
Note:
• In this case, Fikka Sdn Bhd received foreign income and Malaysian income from business
sources. As such, both incomes are from the same source.

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(i) Computation of bilateral credit
Foreign Income (statutory income)
____________________________ X Malaysian tax payable
Total Income before bilateral /unilateral
credit
OR

Foreign Tax

= RM64,565 / 520,000 x 124,800

= RM15,495.59
OR
RM7,500
Whichever is lower.
Therefore, the bilateral credit allowed is RM7,500.

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BILATERAL CREDIT- Example 2
Percayalah Insurance Bhd, a Malaysian resident company, carries on a general insurance
business. The company’s annual accounts closes on 31 December and the information extracted
from the accounts for the year ended 31 December of current year are as follows:

RM
Net premiums 140,000,000
Allowable expenses 100,000,000
Investment income:
Rental 34,000,000
Dividend 28,000,000
Interest (Malaysia) 9,000,000
Interest (UK – statutory income) 1,000,000
Total income 112,000,000
Income tax charged (24%) 26,880,000
Withholding Tax In UK (10%) 100,000

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Computation of bilateral credit:

Foreign Income (Statutory Income) X Malaysian tax payable before

Total Income bilateral /unilateral credit

= RM1,000,000/112,000,000 x 26,880,000
= RM239,998 OR
RM100,000
Whichever is lower
Therefore, the bilateral credit allowed is RM100,000.

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 • no DTA with the other country
• section 133 of the ITA 1967
• an employee who is charged Malaysian tax and
foreign tax in respect of the same income from
an employment exercised outside Malaysia,
UNILATERAL irrespective of whether or not he/she was
resident for the basis year for the year of
CREDIT assessment
• half of foreign tax or portion of Malaysian tax
on the income, whichever is lower.
• foreign income means income derived from
outside Malaysia only

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UNILATERAL CREDIT

The lower of:

Foreign Income (gross) Malaysian Tax Payable

X
Total Income

OR

½ x Foreign Tax

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UNILATERAL CREDIT- Example 1
Equanimity Shipping Berhad is a Malaysian resident company established in the year 2004.
The following incomes are reported by the company for the year 2019:

Income RM
Malaysia:
Adjusted business income 725,000
Rental income 80,000
Royalty income 58,000
Dividend income from Saujana Berhad 15,000

New Zealand:
Dividend income 25,000
Commission income 20,000

Lesotho:
Interest income 38,000
Consultancy fees 30,000

Additional information:
1. Capital allowance for 2019 was RM85,000.
2. Malaysia has a double taxation agreement with New Zealand but not with Lesotho.
3. Taxes paid on the dividend income and commission income from New Zealand were
RM5,000 and RM3,000 respectively.
4. Taxes paid on the interest income and consultancy fees from Lesotho were RM6,800
and RM5,500 respectively.

REQUIRED:

Compute the tax liability for Equanimity Shipping Berhad for the year of assessment 2019
after considering the qualified relief available under the Income Tax Act 1967.

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 Equanimity Shipping Berhad, YA 2019
RM
S4(a)
Business – Malaysia 725,000
Less: Capital Allowance 85,000
640,000
S4(c)
Dividend – Malaysia Exempted
Dividend – New Zealand 25,000
Interest – Lesotho 38,000

S4(d)
Rental – Malaysia 80,000
Royalty – Malaysia 58,000
S4(f)
Commission – New Zealand 20,000
Consultancy fees – Lesotho 30,000
Total income 891,000
Malaysian tax (24%) 213,840
Less:
Bilateral relief (New Zealand)
(45,000/891,000 x 213,840) = 10,800
Or (3,000 + 5,000) = 8,000 (8,000)
Unilateral relief (Lesotho)
(68,000/891,000 x 213,840) = 16,320
Or ½ x (6,800 + 5,500) = 6,150 (6,150)
Tax payable 199,690

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TransOcean Shipping Berhad reported the following income for the year 2019:
RM
Malaysia:
Statutory business income 30,000,000
Dividend income (net) from TTT Berhad – single tier system 550,000

Nigeria:
Commission income 920,000
Rental income 550,000
Technical service fee 132,000

Kenya:
Interest income 500,000
Royalty income 900,000
Additional information:
1. Malaysia has a double taxation agreement with Nigeria but not with Kenya.
2. All incomes from Nigeria are in net amount. The tax rate for Nigeria is 20%.
3. Taxes paid on the interest income and royalty income from Kenya were RM120,000
and RM216,000 respectively.
4. All incomes from overseas were remitted to Malaysia except for RM200,000 of
royalty income from Kenya.

REQUIRED:

Compute the tax liability for TransOcean Shipping Berhad for the year of assessment 2019
after considering the qualified reliefs available under the Income Tax Act 1967.

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 TransOcean Shipping Berhad, YA 2019
RM
S4(a) Business – Malaysia 30,000,000
S4(c) Dividend – Malaysia (TTT Bhd) -
Interest – Kenya 500,000
S4(d) Rental – Nigeria (550,000/0.8) 687,500
Royalty – Kenya 700,000
S4(f) Commission – Nigeria (920,000/0.8) 1,150,000
Technical service fee – Nigeria (132,000/0.8) 165,000
Total income 33,202,500
Malaysian tax (24%) 7,968,600
Less:
Bilateral relief (Nigeria)
(2,002,500/33,202,500 x 7,968,600) = 480,600 OR
20% x 2,002,500 = 400,500 (400,500)
Unilateral relief (Kenya)
(1,200,000/33,202,500 x 7,968,600) = 288,000 OR
½ x [120,000 + (216,000x700/900)] = 144,000 (144,000)
Tax payable 7,424,100

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