Income Tax Law: Foreign Source Income

Continuation from the previous post, and from the definition of Income Tax, that states that money that received in Malaysia but came from outside Malaysia are subjected to tax. The outside Malaysia term will fit in 'Foreign Source Income'. With effect from year 2004, individuals (again resident or non-resident) are assessable only on income accrued in and derived from Malaysia. This was an amendment made that any income that is made outside Malaysia is tax-free. But wait a minute? Is that possible. From the definition, and from Paragrah 28,Schedule 6 of ITA 1967, foreign source income is exempted from income tax.

However, with the term clearly defined, it still remain ambiguous at some point. The reason why as I put a scenario for you guys to think.

Mr J is a businessman from Malaysia and have been a Far-East representative for a company in US namely H. As a Far-East representative, his responsibility to do inspection and make report to the company H, via his expertise and experience in the industry. He is the only one in Malaysia that is working for H, and it had been going on since 2001 until now. All his money are paid from US and sent to Malaysia. With 2004 amendments on Foreign Source Income and by definition, he should be waived off from the tax.

But this remain untrue, as based on the true story and advise from accountants that audit his Income Tax stuffs, he is still entitled for the tax. And this may be the UGLY TRUTH, but I'm going to state to you guys. The reason is that, although the source is from Foreign, and it is subjected Mr J had to stay in US, just like if you are a Malaysian, have to stay for a certain period of time, only the income are not subject to tax.

This may seem funny, but I truly hope it can be debatable, but most auditors for Mr J had told the same thing. And this is a true story! Bite it and go!