The Inland Revenue Board of Malaysia (“IRBM”) has issued FAQs on 14 May 2020 to provide additional clarifications on international tax issues arising from travel restrictions imposed due to the global COVID-19 pandemic.
Some of the key salient points are as follow:-
1. I am currently outside of Malaysia because of COVID- 19 travel restrictions. How would my absence from Malaysia affect my residence status in Malaysia?
It will not affect your residence status in Malaysia. The period of temporary absence from Malaysia because of COVID-19 travel restrictions is considered as part of your period or periods in Malaysia for the purpose of tax residence. However, relevant documentations and records (e.g. travel documents, local authority travel restrictions guideline etc.) should be kept upon request from the IRBM.
2. My company is unable to convene a meeting of the Board of Directors (BOD) in Malaysia because of COVID- 19 travel restrictions. Will this have an effect on the company’s residence status in Malaysia?
If your company is not able to convene its Board of Directors’ meeting in Malaysia due to COVID-19 travel restrictions, the company will be considered as a Malaysian resident provided that all the conditions below are met:
- the company is a resident in the immediate previous year of assessment;
- there are no changes to the economic circumstance of the company; and
- the directors of the company have to attend the BOD meeting held outside Malaysia (either physical meeting or via electronic means) due to COVID 19 travel
Relevant documentations and records (e.g. board minutes stating the reason of directors were attending board meetings from their respective locations) should be kept upon request from the IRBM.
3. My company is not resident in Malaysia. Does the temporary presence of my employees or personnel in Malaysia due to COVID-19 travel restrictions lead to the creation of a permanent establishment in Malaysia?
Temporary presence of employees or personnel does not result in the creation of a permanent establishment in Malaysia, provided the criteria below are met:
- your company does not have a permanent establishment in Malaysia before the existence of COVID-19 travel restrictions;
- there are no other changes to the economic circumstances of the company;
- the temporary presence of the employees in Malaysia is solely due to travel restrictions relating to COVID-19; and
- the activities performed by the employees during their temporary presence would not have been performed in Malaysia if not for the COVID-19 travel
Relevant documentations and records should be kept upon request from the IRBM.
4. Before the MCO, I commute daily to Singapore from my home in Johor Bahru for work. Due to the MCO, I am temporarily working from home in Johor Bahru. Is my income taxable in Malaysia?
Your employment income from your employment exercised in Malaysia due to COVID-19 travel restrictions will be considered as not derived from Malaysia if the criteria below are met:
- there is no change in the contractual terms governing your employment overseas before and after your return to Malaysia; and
- this is a temporary work arrangement due to COVID-19 travel restrictions.
If any of the conditions are not met, normal tax rules will be applied to determine the taxability of your employment income for work done in Malaysia.
5. I am currently temporarily working from overseas due to COVID-19 travel restrictions. Is my income taxable in the current location?
If you would normally exercise your employment in Malaysia and is forced to work temporarily outside of Malaysia because of COVID-19 travel restrictions, you are regarded to be exercising your employment in Malaysia. The income is deemed derived from Malaysia and therefore, the income is still taxable in Malaysia.
You may be subject to taxation in the locality where you are temporarily present if no special tax measures for COVID-19 are provided by that locality’s tax authority. If you are in a state that has a tax treaty with Malaysia, you will not be taxable if you are present for less than 183 days.
6. I am a non-resident individual and currently working from Malaysia because of COVID- 19 travel restrictions.
You will be considered as not exercising an employment in Malaysia for the period of your temporary presence due to COVID-19 travel restrictions and have been working remotely from Malaysia for your overseas employer during your temporary presence in Malaysia if the conditions below are met:
- the period of your temporary presence is for a period of not more than 60 days; and
- the work you have done during your temporary presence is not connected to your assignment in Malaysia and would have been performed overseas if not for COVID-19 travel restrictions.
How we can help
As a committed tax advisor to our clients, we welcome any opportunity to discuss the relevance of International Tax Issues that your business may be facing. Find out more on our tax advisory services for more information.
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