Overview of the Double Taxation Avoidance Agreement
Rising Global Consultants
Overview of Malaysia's Double Taxation Avoidance Agreement
What is a Double Taxation Avoidance Agreement?
Tax treatment in cases of dual residency
A Double Taxation Avoidance Agreement (DTAA) is a bilateral agreement designed to prevent two countries from taxing the same income twice. When two countries sign a DTAA, income earned by residents engaged in cross-border trade or business activities between these two countries is taxed only in one of the countries
If you have residency in two countries, the tax treatment will be based on the following criteria:
- Residence: Determined by the permanent home in both countries and considering which country has closer economic and personal ties
- Habitual abode or nationality: If residency cannot be determined, habitual abode or nationality will be used
- Dual nationality: If you hold citizenship in two countries, both tax authorities will resolve the matter through bilateral negotiations
The Malaysian tax authorities can establish your tax obligations in Malaysia based on the following conditions:
- Owning a factory, branch, or office in Malaysia
- Holding a management position in Malaysia
- Having a workshop in Malaysia
- Engaging in construction, installation, or operational activities in Malaysia for more than six months
- Involvement in forestry, agriculture, or plantation activities
- Owning resource extraction sites such as oil wells, mines, or quarries
Income categories covered by the Double Taxation Avoidance Agreement
The following types of income are protected under the Double Taxation Avoidance Agreement (DTAA):
- Income tax
- Annuities and pensions
- Government service income
- Business profits
- Income from real estate
- Income from personal services
- Capital gains
- Directors’ fees
- Petroleum income tax
- Royalties, dividends, and interest
- Income from aviation and shipping
- Technical service fees
- Income of artists and athletes
Resolving double taxation disputes
In the event of a double taxation dispute, the Malaysian Competent Authority (CA) will resolve the issue through a mutual agreement procedure (MAP) in accordance with the guidelines.
Malaysia has signed Double Taxation Avoidance Agreements (DTAAs) with several countries, and a complete list of these agreements can be found on the official website of the Inland Revenue Board of Malaysia (LHDN).
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