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Double taxation agreements provide for
the avoidance of incidences of double taxation on
international income, such as business profits, dividends,
interests and royalties, derived in one country and remitted
to another country. This removes the "tax barrier"
to international trade and investment. The agreements also
provide for the exchange of information on relevant income
and this is useful to prevent evasion of taxes on income.
Under double taxation agreements,
business profits are taxed only in the country in which the
enterprise is situated. Where the enterprise carries on
business through a permanent establishment situated in the
other contracting country, tax is levied in the other
country on profits attributable to or derived by the
permanent establishment in the country where it is situated.
Under most double taxation agreements,
profits from shipping and air transport operations in
international traffic are taxed only in the country where
the management and control of the enterprise are exercised.
In most double taxation agreements
which Malaysia has entered into, countries of residence
accord tax sparing credit. A tax sparing credit is a credit
given if no tax or a lower rate of tax is paid in the host
country. In case of dividends paid by companies exempted
from tax under the Promotion of Investments Act 1986, the
recipients are also exempted from Malaysian income tax on
such dividends. If the recipients are also taxed in their
country of residence on the dividends, then the country of
residence will give credits as if Malaysian tax has been
paid.
Under most of the agreements, interest
son approved loans and approved industrial or technical
royalties derived from Malaysia by residents of other
countries are exempted from tax in Malaysia. In addition,
there is a provision for credit to be given by the country
of residence of the tax spared by Malaysia in respect of
such income.
To date, 52 countries have double
taxation agreements with Malaysia, namely:
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General Section
