The Double Taxation Relief (Taxes on Income) (Malaysia) Order 1997

Explanatory Note

(This note is not part of the Order)

The Agreement with Malaysia (which replaces the Agreement set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Malaysia) Order 1973 (S.I. 1973/1330) as amended by the Protocol set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Malaysia) Order 1987 (S.I. 1987/2056)) is set out in Part I of the Schedule to this Order.

The Agreement provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property and gains derived from the alienation of such property may be taxed in the country in which the property is situated (Articles 6 and 14).

International transport profits are generally to be taxed only in the country of residence of the operator (Article 8).

The Agreement includes rules for determining taxable profits when a company in one country is related to a company in the other country (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not, in general, exceed 5 per cent. of the gross amount if the recipient is a company controlling at least 10 per cent. of the voting power in the company paying the dividends; and 10 per cent. of the gross amount of the dividends in all other cases (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 10 per cent. of the gross amount flowing to the other country. Certain other interest (e.g. interest payable to the Government of the other country) is exempt from tax in the source state (Article 11).

The rate of tax imposed in the source country on royalties and technical fees is, in general, limited to 8 per cent. of the gross amount of the royalties or technical fees (Articles 12 and 13).

Gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, only to be taxed in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are performed (Article 18). Occupational pensions (other than those paid in respect of Government service) and annuities are to be taxed only in the recipient’s country of residence (Article 19). Government service remuneration and pensions are normally taxable only by the paying Government (Article 20). The remuneration of teachers and researchers and payments made to students and trainees are, subject to certain conditions, to be exempt from tax in the country visited (Articles 21 and 22). Other income not specified in the Agreement may be taxable in either country (Article 23).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in Malaysia includes, subject to time limits, credit for tax spared under certain provisions of Malaysian law. In the case of dividends, the United Kingdom will give credit for the underlying tax paid in Malaysia where the shareholder is a United Kingdom company which controls at least 10 per cent. of the voting power in the company paying the dividends (Article 24).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26) and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Exchange of Notes set out in Part II of the Schedule (in which there are minor differences of wording between the Note sent by the United Kingdom and its reproduction in the Malaysian Note) contains agreements between the United Kingdom and Malaysia in relation to Articles 7 and 25 of the Agreement.

The Agreement will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. The Agreement is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.