The previous announcement that foreign-sourced income would soon be taxed had been met with considerable dismay, making the about-face welcome news indeed.

In a surprise change of plans, the government announced they would not be taxing foreign sourced income (FSI) remitted to Malaysia, at least for the next five years.

Ever since news broke of the plan to start taxing inward remittances to Malaysia during the annual budget presentation, those expats receiving pensions or other income from abroad became very concerned. Many considered it would negatively affect interest in the Malaysia My Second Home (MM2H) programme even among those already living here with the visa.

A key attraction of the MM2H is that income from overseas would be tax-free in Malaysia (unless income was derived from investments in the country). For expats to be told they would now be taxed on their remittances was very upsetting, and we were inundated with emails from concerned visa holders. The news had also caused considerable despair among individuals and companies with significant investments abroad.

One expat who receives a reasonably generous but fixed monthly pension from an American multinational was facing a sizeable tax bill if the new tax was imposed. “I am very thankful that the government has decided not to impose the tax for the time being,” the expat told us. “The fact is we have created a lifestyle in Malaysia which is based on receiving the full amount each month, and although inflation has taken a little out of our spending, tax would have been a major hit which would have certainly affected our lives in Malaysia. When some surrounding countries do not charge tax on pensions, it makes them look more attractive as a place to live.” 

The exemption on FSI has been in place since 1998 for companies and since 2004 for individuals, with the idea that these exemptions would encourage the remittance of such income.

In a statement, the Ministry of Finance said the government will exempt all types of foreign incomes of individuals from tax, and has also extended the exemption to dividend incomes earned by limited liability companies and partnerships.

“For individual taxpayers, the government provides exemption to all individuals except those who conduct business partnership in Malaysia, which will be subject to tax on foreign-sourced income (FSI) received. Non-resident categories (individuals, companies, etc) remain eligible for income tax exemption,” the statement said.

“At the same time, we are pleased to announce that FSI received in the year of assessment 2022 is exempt from tax calculation for the purpose of Cukai Makmur,” said the ministry.

The statement went on to say that the exemption would be effective January 1, 2022 and last until December 31, 2026.

To say that this was welcome news for expats at the cusp of the new year would be an understatement!