Double Taxation Agreement Malaysia and Japan: What You Need to Know
If you are a tax resident in both Malaysia and Japan, you may be worried about being taxed twice on your income. Double taxation is a common problem faced by individuals and businesses with cross-border activities. Fortunately, the double taxation agreement (DTA) between Malaysia and Japan can provide relief to those who are affected.
What is a Double Taxation Agreement?
A DTA is a treaty between two countries that aims to prevent double taxation and promote cross-border trade and investment. It sets out the rules for dividing the taxing rights of each country on various types of income. DTAs typically cover income tax, corporate tax, and capital gains tax.
How Does the DTA Between Malaysia and Japan Work?
The DTA between Malaysia and Japan was signed in 1968 and has been amended several times since then. The latest amendment was made in 2013 and came into force in 2015. The agreement covers various types of income, including:
– Income from employment
– Business profits
– Dividends, interest, and royalties
– Capital gains
Under the DTA, each country agrees to provide relief from double taxation in the following ways:
– Exemption method: The country of residence exempts the income from taxation, and the country of source does not tax the income.
– Credit method: The country of residence taxes the income, but allows a credit for the tax paid in the country of source.
For example, if you are a Malaysian resident working in Japan and earning income there, you will be taxed in Japan. However, you can claim a credit for the tax paid in Japan when filing your Malaysian tax return. This way, you will not be taxed twice on the same income.
What are the Benefits of the DTA?
The DTA between Malaysia and Japan provides several benefits, including:
– Preventing double taxation: With the DTA in place, taxpayers can avoid being taxed twice on the same income.
– Reducing tax rates: The DTA allows for lower withholding tax rates on dividends, interest, and royalties, which can reduce the tax burden for taxpayers.
– Promoting trade and investment: The DTA can encourage cross-border trade and investment by providing certainty and predictability in the tax treatment of income.
Conclusion
The DTA between Malaysia and Japan is an important treaty for individuals and businesses engaged in cross-border activities between the two countries. By providing relief from double taxation and reducing tax rates, the DTA can help to promote trade and investment. If you are affected by double taxation, it is crucial to seek advice from a tax professional who is experienced in dealing with DTAs.
