Double Tax Agreement

8/2/2019 Double Tax Agreement

1/8

Witholding Tax & Double Taxation Agreements TAX3

70

1) What is the meaning of double tax agreement?

Double Taxation Agreement

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 theenterprise 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.

1 | P a g e


2/8


70

The objectives of Malaysian DTA are as follows:

i. To create a favourable climate for both inbound and outbound investments;ii.

To make Malaysia's special tax incentives fully effective for taxpayers of capital exporting

countries;iii. To obtain a more effective relief from double taxation compared to relief gained under unilateral

measures; andiv. To prevent evasion and avoidance of tax

2) What country that have relationship DTA with Malaysia?DOUBLE TAXATION AGREEMENTS WITHHOLDING TAX RATES

2 | P a g e


3/8


70

EFFECTIVE DOUBLE TAXATION AGREEMENTS

No. Country Dividends Interest (%) Royalties (%)Fees for

TechnicalServices

1 Albania NIL 10 10 10

2 Australia NIL 15 10 NIL

3 Austria NIL 15 10 10

4 Bahrain NIL 5 8 10

5 Bangladesh NIL 15 10 10

6 Belgium NIL 10 10 10

7 Brunei NIL 10 10 10

8 Canada NIL 15 10 10

9 Chile NIL 15 10 5

10 China NIL 10 10 10

11 Croatia NIL 10 10 10

12 Czech Republic NIL 12 10 10

13 Denmark NIL 15 10 10

14 Egypt NIL 15 10 10

15 Fiji NIL 15 10 10

16 Finland NIL 15 10 10

17 France NIL 15 10 10

18 Germany NIL 10 7 7

19 Hungary NIL 15 10 10

20 India NIL 10 10 10

21 Indonesia NIL 10 10 10

22 Iran NIL 15 10 10

23 Ireland NIL 10 8 10

24 Italy NIL 15 10 10

25 Japan NIL 10 10 10

26 Jordan NIL 15 10 1027 Kazakhstan NIL 10 10 10

28 Kyrgyz Republic NIL 10 10 10

29 Kuwait NIL 10 10 10

30 Laos NIL 10 10 10

31 Lebanon NIL 10 8 10

32 Luxembourg NIL 10 8 8

33 Malta NIL 15 10 10

3 | P a g e


4/8


5/8


70

34 Mauritius NIL 15 10 10

35 Mongolia NIL 10 10 10

36 Morocco NIL 10 10 10

37 Myanmar NIL 10 10 10

38 Namibia NIL 10 5 5

39 Netherlands NIL 10 8 8

40 New Zealand NIL 15 10 10

41 Norway NIL 15 10 10

42 Pakistan NIL 15 10 10

43 Papua New Guinea NIL 15 10 10

44 Philippines NIL 15 10 10

45 Poland NIL 15 10 10

46 Qatar NIL 5 8 8

47 Romania NIL 15 10 10

48 Russia NIL 15 10 10

49 San Marino NIL 10 10 10

50 Saudi Arabia NIL 5 8 8

51 Seychelles NIL 10 10 10

52 Singapore NIL 10 8 5

53 South Africa NIL 10 5 5

54 South Korea NIL 15 10 10

55 Spain NIL 10 7 556 Sri Lanka NIL 10 10 10

57 Sudan NIL 10 10 10

58 Sweden NIL 10 8 8

59 Syria NIL 10 10 10

60 Switzerland NIL 10 10 10

61 Thailand NIL 15 10 10

62 Turkey NIL 15 10 10

63 Turkmenistan NIL 10 10 NIL

64United Arab

EmiratesNIL 5 10 10

65 United Kingdom NIL 10 8 8

66 Uzbekistan NIL 10 10 10

67 Venezuela NIL 15 10 10

68 Vietnam NIL 10 10 10

GAZETTE DOUBLE TAXATION AGREEMENTS

No. Country Dividends Interest (%) Royalties (%)

Fees for

TechnicalServices

5 | P a g e


6/8


70

1 Bosnia and Herzegovina NIL 10 8 10

2 Senegal NIL 10 10 10

3 Zimbabwe NIL 10 10 10

LIMITED AGREEMENTS


TechnicalServices

1 Argentina NIL 15* 10* 10*

2 United States of America NIL 15* 10* 10*

*The withholding tax rate on interest, royalties and fees for technical services is as provided in the ITA 1967.

INCOME TAX EXEMPTION ORDER


TechnicalServices

1 Taiwan NIL 10% 10% 7.50%

3) What is the Permanent Establishment?

For the purposes of this Agreement, the term "permanent establishment" means a fixed place of

business in which the business of the enterprise is wholly or partly carried on.

6 | P a g e


7/8


70

The term "permanent establishment" shall include especially:

(a) a place of management ;

(b)a branch ;

(c) an office ;

(d)a factory ;

(e)a workshop ;

(f) a mine, quarry, oil or gas well or other place of extraction of natural resources

including timber or other forest produce ;

(g) a farm or plantation ;

(h)a building site or construction, installation or assembly projectwhich exists for

more than six months.

The term "permanent establishment" shall not be deemed to include:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or

merchandise belonging to the enterprise ;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of storage, display or delivery;

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise

solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing

goods or merchandise, or for collecting information, for the enterprise;

(e) the maintenance of a fixed place of business solely for the purpose of advertising, for

the supply of information, for scientific research, or for similar activities which have a

preparatory or auxiliary character, for the enterprise.

An enterprise of a Contracting State shall be deemed to have a permanent establishment in the

other Contracting State if it carries on supervisory activities in that other Contracting State for

more than six months in connection with a construction, installation or assembly project which is

being undertaken in that other Contracting State.

A person (other than a broker, general commission agent or any other agent of an independent

status to whom paragraph 6 applies) acting in a Contracting State on behalf of an enterprise of

7 | P a g e


8/8


70

the other Contracting State shall be deemed to be a permanent establishment in the first-

mentioned Contracting State, if:

(a) he has, and habitually exercises in the first-mentioned Contracting State, an

authority to conclude contracts in the name of the enterprise, unless his

activities are limited to the purchase of goods or merchandise for the

enterprise ;

(b) he maintains in the first-mentioned Contracting State a stock of goods or

merchandise belonging to the enterprise from which he regularly fills orders on

behalf of the enterprise, or

(c) he secures orders in the first-mentioned State substantially for the enterprise

itself or for the enterprise and other enterprise which are controlled by it or

have a controlling interest in it.

The fact that company which is a resident of a Contracting State controls or is controlled by a

company which is a resident of the other Contracting State, or which carries on business in that

other Contracting State (whether through a permanent establishment or otherwise), shall not of

itself constitute either company a permanent establishment of the other.

8 | P a g e

Documents

Double Tax Agreement