A company is tax resident in Malaysia in a basis year (normally the financial year) if, at any time during the basis year, the management and control of its affairs are exercised in Malaysia. Generally, a company is regarded as resident in Malaysia if, at any time during the basis period for a year of assessment, at least one meeting of the Board of Directors is held in Malaysia concerning the management and control of the company.
Permanent establishment (PE)
Under the tax treaties Malaysia has with its treaty partners, a non-resident of a treaty partner which derives business profits from Malaysia is generally subject to Malaysian income tax only if the non-resident has a PE in Malaysia. Under tax treaty arrangements, PE is determined in accordance with the provisions of the tax treaty.
Generally, under a tax treaty, a non-resident entity is regarded as having a PE in Malaysia if it has a fixed place of business in Malaysia, where the business of the entity is wholly or partly carried on. A non-resident company may also be deemed to have a PE in Malaysia under certain circumstances, such as the following:
- It is represented by a person acting on its behalf in Malaysia who has the authority to conclude contracts on its behalf and habitually does so, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification, or who has repeatedly exercised that authority, or who maintains a stock of goods in a place in Malaysia from which such person delivers goods, or regularly fills orders on its behalf.
- It carries on supervisory activities in Malaysia in connection with a construction, installation, or assembly project.
Where there is no tax treaty, the business profits of a non-resident which is attributable to a place of business in Malaysia, as defined under the domestic law, will be subject to Malaysian income tax. The definition of place of business under the domestic law is largely based on the PE definition under the tax treaties, but written more liberally and is therefore wider than the scope of the PE definition in tax treaties.