How many comprehensive double-tax treaties does Malaysia have in force?

Malaysia has exactly 75 comprehensive DTAs in force as of 2026, according to the LHDN official treaty list. Partners span all ASEAN members, major OECD economies including the UK, Germany, France, Japan, Australia, and Canada, plus Gulf states, African nations, and Central Asian jurisdictions. The US is a notable absence -- no comprehensive Malaysia-US DTA exists; cross-border positions rely on domestic law.

Does Malaysia withhold tax on dividends paid to non-residents?

No. Under the single-tier dividend system in force since 2008, Malaysian companies pay corporate income tax at entity level (standard rate 24%). Dividends distributed to any shareholder -- resident or non-resident -- carry zero withholding tax. This domestic zero-WHT position means the dividend article in Malaysia's DTAs has limited practical effect for most investors.

What is the difference between the bilateral credit under section 132 and the unilateral credit under section 133?

Section 132 applies where Malaysia has a DTA with the income source country: a resident may credit the full foreign tax against Malaysian tax, capped at the lower of foreign tax paid or Malaysian tax on that income. Section 133 covers non-treaty countries but limits the credit to the lower of one-half of the foreign tax or the Malaysian tax on that income. Both credits must be claimed within two years of the relevant year of assessment.

How do I apply for a Certificate of Residence (COR) from LHDN to claim treaty-reduced rates abroad?

Apply through the e-Residence portal on hasil.gov.my -- mandatory since 1 February 2023. There is no fee. Individuals submit a full passport copy; companies submit board minutes or a director's letter confirming Malaysian management and control. Processing takes up to 10 working days. The COR confirms Malaysian tax residency so the foreign withholding agent can apply the treaty-reduced rate at source rather than deducting at the domestic rate.

When does the foreign-sourced income (FSI) exemption expire and what conditions must be met?

Under Budget 2026 gazette orders, the FSI exemption for resident individuals was extended to 31 December 2036. For companies, LLPs, cooperatives, and trusts, the exemption on foreign-sourced dividends and capital gains runs to 31 December 2030. In both cases the income must have been subjected to tax of a similar character to income tax in the source country, and for companies the source-country tax rate must be at least 15%.

Tax Treaty Relief in Malaysia — Rates, Rules & Filing

Malaysia maintains one of South-East Asia's most extensive double-taxation-agreement networks. As of 2026, Lembaga Hasil Dalam Negeri Malaysia (LHDN) lists exactly 75 comprehensive DTAs in force, covering all ASEAN members, major OECD economies, and key Gulf, African, and Central Asian partners. Each treaty allocates taxing rights between Malaysia and the partner state, sets reduced withholding-tax (WHT) rates for passive income, and provides a framework for resolving disputes through Mutual Agreement Procedure (MAP). Understanding how those treaties layer on top of Malaysia's domestic Income Tax Act 1967 (ITA 1967) is essential for residents, non-resident payees, and cross-border investors.

How does Malaysia prevent double taxation under its credit method?

The ITA 1967 provides two distinct credit mechanisms. Section 132 (bilateral credit) applies where Malaysia has a DTA with the source country: a Malaysian tax resident who pays foreign tax on income also assessable in Malaysia may set that foreign tax against the Malaysian tax on the same income. The credit is capped at the lower of (a) the foreign tax actually paid, or (b) the Malaysian tax attributable to that same income. Section 133 (unilateral credit) covers income from non-treaty countries: the credit is capped at the lower of (a) one-half of the foreign tax paid, or (b) the Malaysian tax on that income. LHDN updated the formula for the unilateral credit in Public Ruling No. 3/2026 (issued 22 May 2026), revising the numerator in the apportionment formula from "foreign income (gross)" to "foreign income (statutory income)" to align it with the bilateral methodology. Claims for both credits must be made within two years after the end of the year of assessment in which the foreign tax was paid or assessed. [1]

What withholding-tax rates apply under Malaysia's treaties?

Under the single-tier dividend system (fully effective from 2008, Section 108 accounts exhausted by 2014), Malaysian companies pay corporate income tax at the entity level and then distribute after-tax profits as dividends that are wholly exempt from tax in shareholders' hands. This means Malaysia imposes zero domestic WHT on outbound dividends -- a feature that distinguishes it from most ASEAN peers. Every one of Malaysia's 75 DTAs confirms a NIL dividend rate, reflecting the domestic zero-WHT position rather than a treaty concession.

For other passive income, the domestic rates and typical treaty floors are:

Income type	Domestic rate	Lowest treaty rate	Common treaty rate
Dividends	0% (single-tier)	0%	0%
Interest	15%	5% (Bahrain, Qatar, Saudi Arabia, UAE)	10%
Royalties	10%	5% (Namibia, South Africa, Spain)	10%
Technical/service fees	10%	5% (Chile, Hong Kong, Singapore, Slovak Republic, Spain)	10%

Rates represent the lower of the DTA rate or the domestic rate. To apply a reduced treaty rate at source, the non-resident payee must provide a valid Certificate of Residence (COR) issued by their home tax authority. Without the COR, the Malaysian withholding agent must default to the full domestic rate. [2]

How does a Malaysian resident obtain a Certificate of Residence (COR)?

A COR issued by LHDN confirms that the applicant is a Malaysian tax resident and enables them to claim reduced WHT rates in the partner state. Since 1 February 2023, all COR applications must be submitted through the e-Residence portal on hasil.gov.my. There is no application fee. Processing takes up to 10 working days once all required documents are uploaded.

Documentation varies by applicant type. Individuals must supply a copy of their full passport and, where applicable, travel-movement records from Malaysia's Immigration Department. Companies must provide board-meeting minutes or a director's letter confirming Malaysia-based management and control, plus Companies Commission of Malaysia (CCM) director-particulars filings. Residency for individuals is determined under Section 7 ITA 1967, primarily through the 182-day physical-presence test (Section 7(1)(a)), with a linking provision (Section 7(1)(b)) covering periods spanning two consecutive years and a 90-day multi-year test (Section 7(1)(c)) for longer-term residents. [3]

How do treaty tie-breaker rules resolve dual-residency conflicts?

Where a person qualifies as tax resident under both Malaysian domestic law and the domestic law of a treaty partner, OECD-Model Article 4 tie-breaker provisions apply sequentially. For individuals, the hierarchy is: (1) permanent home; (2) centre of vital interests (personal and economic ties); (3) habitual abode; (4) nationality; (5) mutual competent-authority agreement. For companies and entities, dual residency is resolved by the place of effective management -- the location where key management and commercial decisions are made. Post-MLI, Malaysian treaties include updated dual-resident-entity provisions requiring mandatory competent-authority agreement for ambiguous cases, removing automatic place-of-effective-management resolution for complex holding structures.

MLI ratification matters here: Malaysia deposited its instrument of ratification on 18 February 2021, with the Multilateral Instrument entering into force on 1 June 2021. The MLI modifies 56 of Malaysia's treaties (January 2026 position) through synthesised-text mechanics, adding the Principal Purpose Test (PPT) anti-abuse rule to most covered agreements, updating preamble language, and adjusting permanent-establishment provisions. Malaysia did not adopt mandatory binding arbitration, so MAP remains the terminal dispute-resolution route. LHDN publishes synthesised texts for MLI-modified treaties on hasil.gov.my. [4]

What changed when Malaysia re-imposed taxation on foreign-sourced income from 2022?

Prior to 1 January 2022, all foreign-sourced income (FSI) received in Malaysia by residents was exempt from Malaysian income tax under paragraph 28 of Schedule 6 ITA 1967. The Finance Act 2021 removed the blanket exemption, making remitted FSI taxable from 2022. Two exemption orders gazetted in July 2022 then restored a conditional exemption for a transitional period:

Individuals: All FSI is exempt provided the income was already subjected to tax of a similar character to income tax in the source country.
Companies, LLPs, cooperatives, and trusts: Only foreign-sourced dividends (and from 1 January 2024, capital gains on overseas asset disposals) are exempt; the same source-country-tax condition applies, and the foreign headline tax rate in the source country must be at least 15%.
Banking, insurance, and transport companies remain ineligible for the FSI exemption regardless of income type.

Budget 2026 extended the exemption period significantly: for individuals the exemption now runs to 31 December 2036; for companies and LLPs the dividend and capital-gains exemption runs to 31 December 2030. Section 132 and 133 credits remain available where FSI is taxable in Malaysia and foreign tax has been paid, but where the FSI exemption applies the credit is redundant because no Malaysian tax liability arises on that income. [5]

For a broader overview of Malaysia's tax obligations, see the Malaysia country overview. Taxpayers with cross-border income positions should also review related coverage on Malaysia dividend and investment tax.

The interaction between treaty positions, the FSI exemption, and the credit mechanism is fact-specific and depends on the source country involved, the type of income, and residency status. Consult a qualified tax professional before acting on any cross-border tax position.

Tax Treaty Relief in Malaysia

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