Chapter 2 DTR.pdf - Chapter 2 DOUBLE TAXATION RELIEF Zaimah...

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Chapter 2 DOUBLE TAXATION RELIEF Zaimah BKAT 3023 A 191 1
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DOUBLE TAXATION Double taxation occurs where income derived by a person from a source is brought to charge in more than one jurisdiction. It is a result of connecting factors between the taxation laws of two relevant countries. The factors could be: The residence, domicile or nationality of the taxpayer The income real or deemed income The property usually its location, character and sometimes its source. 2 Zaimah BKAT 3023 A 191
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DOUBLE TAXATION AGREEMENT (DTA) Many countries have entered into DTA to mitigate the effects of double taxation Malaysia has signed a total of 76 treaty arrangements with various countries. International juridical double taxation can arise where: A person is subject to tax on his worldwide income or capital in both contracting states. A person resident in one contracting state derives income from, or owns capital in, the other contracting state and both states impose tax on that income or capital. A person who has permanent establishment in one contracting state through which he derives income from the other contracting state. 3 Zaimah BKAT 3023 A 191
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Objectives of DTA 1. To alleviate the burden of double taxation on the same income derived by the taxpayer - entitled to double taxation relief. 2. To facilitate world trade - To facilitate and to increase international business and investment. 3. To promote technology transfer encourages transfer of technology and scientific knowledge. 4. To prevent tax avoidance and tax evasion. 4 Zaimah BKAT 3023 A 191
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DOUBLE TAXATION RELIEF Double taxation relief is implemented in three ways/methods by the relevant country : a) By providing an exemption in the country of origin on income arising there from to a resident of the other country. b) By granting a tax credit against a person’s tax in his home country of residence for tax suffered on that income in the other country. c) By granting a tax deduction against total income in the home country. 5 Zaimah BKAT 3023 A 191
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DTR in Malaysia W.e.f. YA 2004, individual, trust, co-operative society, club or trade association will be tax- exempt on foreign source income received in Malaysia from outside Malaysia. Thus, w.e.f. YA 2004, only resident companies in the business of banking, insurance, shipping and air transport are entitled to DTR. 6 Zaimah BKAT 3023 A 191
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DTR in Malaysia With DTA : Foreign tax payable is allowed a bilateral credit relief (section 132, ITA) No DTA : A unilateral credit relief from Malaysian tax is provided (section 133, ITA) 7 Zaimah BKAT 3023 A 191
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