Malaysia: foreign income exempt until 2036

Malaysia has historically applied a territorial system: foreign-source income received by a resident is in principle outside the scope of Malaysian tax.

This principle has undergone successive adjustments for certain categories of income, with exemptions subject to conditions and dates.

We do not publish the exact scope of these adjustments, the categories concerned or the expiry dates of the exemptions: they have been amended several times and we have not been able to verify the version in force in an official Malaysian source.

This caveat is essential. An exemption announced until a distant date says nothing about its scope or the conditions attached to it — and it is these that determine whether a given income benefits from it.

Classification must therefore be done category by category, with a Malaysian adviser, and not on the basis of a general announcement.

Two notions that marketing language conflates must be distinguished: territoriality under the ordinary rules, which structures a tax system, and a temporary exemption, which is a one-off measure with an expiry date.

The first is stable by nature, because changing it requires an overhaul of the system. The second expires, is extended or is narrowed as finance acts come and go — and an announcement referring to a distant date belongs to the second category, not the first.

The Malaysian scale runs from 0%¹ on its first band to 30%² at its top marginal rate.

Tax resident status is assessed notably by presence of 182 days³ during the year. A non-resident is subject to separate rules, which are generally less favourable for employment income.

Dividends received by individuals are now taxed at 2%⁴ above a dividend income threshold, ending the previous full exemption.

This last change is instructive: it shows that a long-standing exemption can be called into question, and that the announced stability of a scheme does not bind the legislature.

Finally, corporate income tax stands at 24%⁵ at the standard rate.

The Malaysian long-stay residence scheme is based on a fixed deposit, with amounts ranging from $150,000⁶ to $1,000,000⁷ depending on the category.

Participants must acquire a residence with a minimum value of MYR 600,000⁸, an amount that varies by Malaysian state, as land policy is partly a matter for the federated states.

An age threshold of more than 50 years⁹ separates the categories of applicants, with different conditions on either side.

The permit does not confer the right to work for a Malaysian employer: it is a residence status, not a work permit.

The programme has also been suspended, then reopened with stricter conditions, before being restructured into tiers. This instability is its main characteristic.

Participants admitted under the earlier conditions have also faced the question of whether their rights would be maintained on renewal, which sets an uncomfortable precedent for a scheme presented as durable.

1. Have each category of income classified in light of the adjustments in force.
2. Check the conditions of the residence scheme with the Malaysian authority, not with an intermediary.
3. Cost the tying-up of the fixed deposit, which is not a productive investment.
4. Check the minimum property price applicable in the target state.
5. Deal with the departure from France according to its own criteria and the France–Malaysia tax treaty.

The trade-off is clear. Malaysia offers a very favourable cost of living, a good-quality private healthcare system, widespread use of English and a convenient location in South-East Asia. What it does not offer is predictability — neither in its residence scheme nor in its territoriality, whose scope has been adjusted several times in just a few years.