Malaysia updates foreign-capital-gains guidance

The Income Tax Act 1967 charges income received in Malaysia from outside Malaysia and treats gains from the disposal of capital assets as a separate income source. Sections 65D and 65E apply the foreign-capital-gains rules to resident companies, limited liability partnerships, trust bodies and co-operative societies receiving relevant gains from 1 January 2024, with each disposal treated as a separate source and specified acquisition and incidental costs deductible.^[1][3]

The company exemption now runs to 2030

The principal exemption in P.U.(A) 75/2024 applies to qualifying foreign-capital-asset gains received in Malaysia by those resident entities, subject to Inland Revenue Board guidance and adequate Malaysian employees and operating expenditure. It preserves filing and information obligations, excludes gains attributable to intellectual-property rights and does not apply to entities carrying on banking, insurance, sea-transport or air-transport business.^[1]

P.U.(A) 275/2026 extends the exemption from its original 31 December 2026 expiry to 31 December 2030, with the extension taking effect on 1 January 2027. The amending order also corrects the principal order so that it refers to gains or profits “received in Malaysia from outside Malaysia”, rather than gains arising abroad and received in Malaysia.^[1][2]

Unit trusts have a separate route

A separate exemption applies to qualifying resident unit trusts under P.U.(A) 250/2024, excluding specified listed real-estate and property trusts. The revised guidance says a unit trust may qualify either through the foreign-tax test—requiring the relevant income to have been taxed abroad and the source jurisdiction’s headline rate to be at least 15%—or through adequate Malaysian employees and operating expenditure at its management company. P.U.(A) 270/2026 extends this exemption to 31 December 2030 from 1 January 2027.^[1]

Groups should distinguish the orders from the guidance: the orders establish and extend the exemptions, while the guidance explains the evidence and economic-substance conditions. The second edition also states that remitted foreign income is considered on a net basis and explains the two-year period for claiming applicable bilateral or unilateral foreign-tax credits.^[1][2]