Tax Avoidance In Malaysia

In malaysia income tax act contains general and specific anti avoidance provision which empowers the director general to disregard schemes that are not commercially justified or are merely set up to avoid tax despite their legal form.

Tax avoidance in malaysia. From the perspective of revenue authorities it is equally important to counter tax avoidance. Malaysia s progressive personal income tax system involves the tax rate increasing as an individual s income increases starting at 0 for up to rm5 000 earned to a maximum of 28 for annual income of over. It discusses the decision of the court of appeal in a recent tax case and the questions on the parameter of legitimate tax planning. The text of this agreement signed on 26 december 1968 and is shown in annex a.

Pwc alert issue 116. In malaysia by virtue of s 140 1 the dgir is entitled to disregard or vary any transaction that is created merely for the purposes of tax avoidance. If you are working in malaysia for more than 182 days a year the government considers you to be a tax resident and you will pay progressive tax rates and be eligible for tax deductions. Businesses avoid taxes by taking all legitimate deductions and tax credits and by sheltering income from taxes by setting up employee retirement plans and other means all legal and under the internal revenue code or state tax codes.

Income tax in malaysia is imposed on income accruing in or derived from malaysia resident and business. The australian position is similar to malaysia. Singapore and the government of malaysia for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income. Tax avoidance is the legitimate minimizing of taxes and maximize after tax income using methods included in the tax code.

If the dominant purpose of a transaction has no commercial purpose then that transaction will be disregarded or varied as being for the purpose of tax avoidance by tax authority there. Although tax avoidance is acceptable in the eyes of law in malaysia the tax authority taken an extreme change of stance since 2010 and triggered section 140 of the malaysia income tax act more often that it does historically. Thus in most tax jurisdictions anti avoidance provisions are included in the tax laws to defeat or pre empt anticipated avoidance schemes mischief or to plug loopholes that have come to light. One thing worth mentioning is malaysia has an extensive number of double tax treaties available for the avoidance of double taxation.

However this particular section is far from perfect to deal with tax avoidance issue. Section 140 of the act is indeed an anchor provision concerning tax avoidance.