Double tax agreement or DTA is a treaty established between two countries to avoid or reduce the double taxation of people or companies who have income or investments in both countries. Malaysia`s Inland Revenue Board, or Lembaga Hasil Dalam Negeri (LHDN), has entered into several DTAs with other countries, including Australia, Canada, China, and the United States, among others.
The purpose of a DTA is to eliminate double taxation by determining the income that will be taxed in one country or the other. The agreement helps in promoting cross-border investments and strengthens economic ties between the countries involved. The double tax agreement provides relief in the form of tax credit, exemption, and a reduced rate of tax.
As a resident of Malaysia with business or income-generating activities in another country with which Malaysia has a DTA agreement, you may be eligible for relief from double taxation. The relief is usually in the form of a credit against the Malaysian tax payable. Accordingly, you will avoid being taxed twice on the same income or revenue on the same basis.
To determine the eligibility of a taxpayer to claim DTA relief, LHDN requires the taxpayer to provide proof of their status as a resident of Malaysia. The proof should include evidence of the taxpayer`s residential status in Malaysia and the foreign country. They may also be required to provide additional information on their income or revenue generated in the foreign country.
In the case where a taxpayer qualifies for the DTA relief, their tax liability will be reduced or in some cases, exempted. This relief applies to income from dividends, royalties, interests, and gains on the sale of assets depending on the stipulation of the particular DTA agreement.
In conclusion, the double tax agreement is a useful instrument for individuals and companies with business interests in multiple countries. LHDN has entered into several DTAs agreements aimed at reducing or avoiding double taxation. By claiming relief under the DTA agreement, taxpayers can avoid paying more than their fair share of taxes. It is essential to understand the scope of the DTA agreement thoroughly, and LHDN is committed to assisting taxpayers who want to claim relief under the DTA agreement.