Double Tax Treaty Malaysia – Australia

Updated on Wednesday 21st August 2019

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The double taxation agreement signed between Malaysia and Australia became applicable starting with 1981 (June, 26). From 1981 to 2010, this double tax treaty between Malaysia and Australia has been amended three times over issues concerning exchange of information and business profits.

Opening a company in Malaysia can be a very profitable decision, if you are familiar with the financial regulations of this country. Our team of consultants in company registration in Malaysia can provide an in-depth presentation on the provisions included in the double tax agreement signed between the two countries. 
 

What is the purpose of a double tax treaty? 
 

A double tax treaty is signed by a country with another contracting state with the purpose of avoiding the double taxation of the same income obtained by a tax resident (natural person or legal entity) during a given period of time. This regulation is available for similar taxes that are applied under the tax legislation of the two contracting states.
 
Double tax treaties were created with the purpose of avoiding the negative effects of the tax obligations that can appear when developing trading relations between two countries and they also take into consideration the movement of persons from a country to another. Businessmen who want to open a company in Malaysia must know that a double tax treaty takes into consideration the following system:
 
  • as a general rule, the double tax treaty will stipulate that the taxation of a tax resident of a given country will take place in the respective country;
  • the taxation refers to various types of incomes obtained by the tax resident, such as profits or gains;
  • however, a tax resident of a country can also be taxed in the other country;
  • this can happen when the person or the company obtains taxable income from economic activities developed in the other country;
  • a double tax treaty will also stipulate that each country has the right to tax its tax residents based on the provisions of the national tax legislation
 

What are the regulations for the taxation of income obtained from land? 


As we presented above, the taxation of a tax payer usually takes place in the country where the entity is a tax resident; however, when we refer to the income obtained from land, Article 6 of the treaty signed between Malaysia and Australia stipulates that the taxation will take place in the country where the respective land is situated. 

Australian businessmen who want to open a company in Malaysia must consider that the word “land” is defined by the national legislation where the respective territory is located; thus, if a foreign person or a business set up by a foreigner in Malaysia obtains taxable income from land, it will be taxed in this country. 

The definition of the word “land” has a wide scope and it refers to real estate properties or to sites that are created for the exploitation of natural resources, mineral deposits, forests and others. Our team of consultants in company registration in Malaysia can provide more information concerning other regulations related to the income obtained from land in this country. 
 

What should an investor know on shipping or air transportation rules? 


The double tax agreement signed between Malaysia and Australia also provides the legal background concerning the taxation of income obtained from shipping and air transportation activities. Such activities are to be taxed only in the country of residence of the entity which develops economic activities in these sectors, as stipulated by the Article 8. 

However, the taxation can also be done in the other contracting state as long as the shipping or air transportation activities are developed only on the territory of the other state. This refers to a wide range of shipping or air transportation services, such as the transportation of persons, goods, mail, livestock, merchandise and other products that can be delivered through these means of transportation. 
 
 

What are the provisions of the Malaysia – Australia double tax treaty?


The double tax treaty signed by Malaysia and Austria refer to a set of taxes. With regards to Malaysia, the double tax agreement refer to the following taxes: the income tax, the excess profit tax and the supplementary income taxes (which are divided in the next types of taxes: the petroleum income tax, the development tax and the timber profits). 

The stipulations of this agreement replace the existing taxes (similar or identical) imposed by the contracting states in regard to the above mentioned taxes. All corporations paying taxes in Malaysia are subject to this agreement. The taxes applicable in Australia are the Australian income tax and the supplementary tax upon the undistributed amount of the shared income of a private corporation.

The effects of this agreement will continue indefinitely, until the governments of the two countries, through diplomatic channels, address a notice of termination. There are certain regulations under which this double tax treaty ceases to be effective. When you set up a company in Malaysia, you should be aware of the existing double tax treaties and their requirements. Our consultants in company formation in Malaysia can provide you with the details regarding the enforcement of this agreement.
 

What are the traits of the Australian-Malaysian business relations? 
 

Malaysia and Australia have very good business relations. In 2012, the two countries have signed the Malaysia-Australia Free Trade Agreement (MAFTA), a document that became applicable starting with 2013. Australian investors can request for in-depth information on the benefits of this agreement from our team of specialists in company formation in Malaysia; when referring to trade, businessmen must know that the following apply: 
 
  • in 2018, the Australian exports to Malaysia accounted for $7,493 million;
  • the value of imports in Malaysia accounted for $13,034 million (in 2018);
  • according to the data presented by the Department of Foreign Affairs and Trade, the Australian exports of services to Malaysia accounted for $2,634 million;
  • the imports of services from Malaysia to Australia accounted for $1,020 million;
  • Australia represents the 10th most important export market for Malaysia;
  • Australia accounts for 3.4% of the total exports from Malaysia in 2018.  

Business profits under the Malaysia-Australia double tax treaty provisions


This agreement signed by the authorities of the two states addresses the profits gained by corporations in Malaysia and in Australia. The profits of a company in one of the contracting states are taxed in the country where the business is permanently established. When the profit of a permanently established company is assessed for taxation, the administrative and executive expenses are deducted.

Goods or merchandise purchased for the permanently established enterprise are not considered income or profits. The representatives of a company who are in charge with tax planning have to consider the provisions of this double tax treaty. Don't hesitate to contact our local team of specialists in company formation in Malaysia for professional help.