Non-resident businesses are taxed on revenues generated in Malaysia or from Malaysia if they have stable establishments in Malaysia. Recent changes to Section 12 of the ITA have changed the ITA`s definition of “place of activity” to meet the definition of stable establishment that is customary in all double taxation agreements (DBA) 27 1 For frequently asked questions on international tax issues related to COVID-19, see lampiran1.hasil.gov.my/pdf/pdfam/FAQ_on_International_Tax_Issues.pdf (PDF 175 KB). The Double Taxation Convention (DBA) is an agreement between two countries that aims to avoid double taxation by establishing each country`s tax duties on cross-border income streams and by providing tax credits or exemptions to eliminate double taxation. Malaysia continues to participate in negotiations on free trade agreements in the areas of trade in goods, rules of origin and investment. To date, Malaysia has concluded a bilateral free trade agreement with Japan, Paksitan, New Zealand and India, as well as asean regional agreements with China, Japan, Korea, Australia/New Zealand and India. Import duties between non-partner partners are subject to specific reduction and cancellation plans under these agreements. Therefore, companies should consider factors such as where an agreement is reached and the jurisdiction in which staff engage in business activities as part of the structuring of their business relationships. For more information, please visit www.hasil.gov.my or email to [email protected] In Ensco Gerudi,81 taxpayers have had offshore drilling services for the oil industry in Malaysia for 18 years. However, the taxpayer does not have a drilling facility. It would enter into a rental agreement on a bare-hull charter basis with a Rig owner within the Ensco group. One of Rig`s owners then decided to join a Labuan business to make the taxpayer easier. In accordance with the authorizations of the Labuan Offshore Financial Services Authority and Bank Negara Malaysia, the taxpayer has entered into an agreement with Labuan for the leasing of drilling rigs. Unlike previous transactions by the taxpayer for the lease of drilling facilities, no withholding tax was levied on payments made in Labuan.
The IRB argued, in the imposition of Section 140 ITA, that Labuan had no economic or commercial substance, among other things, and that the transaction was intended to benefit from the tax incentives granted.