Income Tax Law: Part I

Basis of Taxation

Income tax is generally imposed on a territorial basis in that only income accruing in or derived from Malaysia is liable to tax. However, resident individuals and other non-corporate entities are also taxed on foreign-sourced income remitted into Malaysia. Foreign-sourced income received by resident companies are not subject to tax even if such income is remitted to Malaysia.

Income derived by tax residents from businesses of banking, insurance and air/sea transport operations are assessable on a world income scope.

Relief from double taxation of foreign-sourced income is available by means of bilateral credit if there is a tax treaty or unilateral relief if there is no tax treaty. The relief is restricted to the lower of Malaysian tax payable on the foreign-sourced income or foreign tax paid if there is a treaty or one-half of the foreign tax paid there is no treaty.

Sources of Income Liable to Tax

Sources of income which are liable to income tax are as follows:

* Gains and profits from trade, profession and business
* Salaries, remunerations, gains and profits from an employment
* Dividends, interests or discounts
* Rents, royalties or premiums
* Pensions, annuities or other periodic payments/li>
* Other gains or profits of an income nature not mentioned above.

Chargeable income is arrived at after adjusting for expenses incurred wholly and exclusively in the production of the income. Specific provisions or reserves for anticipated losses or contingent liabilities are not tax deductible. No deduction for book depreciation is allowed although capital allowances are granted. Unabsorbed losses may be carried forward indefinitely to offset against future income.

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Knowledge Base ID :   1337
Last Reviewed :   May 31, 2001

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