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Witholding Tax & Double Taxation Agreements TAX3 70

1) What is the meaning of double tax agreement? Double Taxation Agreement Double taxation agreements provide for the avoidance of incidences of double taxation on international income, such as business profits, dividends, interests and royalties, derived in one country and remitted to another country. This removes the "tax barrier" to international trade and investment. The agreements also provide for the exchange of information on relevant income and this is useful to prevent evasion of taxes on income.

Under double taxation agreements, business profits are taxed only in the country in which the enterprise is situated. Where the enterprise carries on business through a permanent establishment situated in the other contracting country, tax is levied in the other country on profits attributable to or derived by the permanent establishment in the country where it is situated.

Under most double taxation agreements, profits from shipping and air transport operations in international traffic are taxed only in the country where the management and control of the enterprise are exercised.

In most double taxation agreements which Malaysia has entered into, countries of residence accord tax sparing credit. A tax sparing credit is a credit given if no tax or a lower rate of tax is paid in the host country. In case of dividends paid by companies exempted from tax under the Promotion of Investments Act 1986, the recipients are also exempted from Malaysian income tax on such dividends. If the recipients are also taxed in their country of residence on the dividends, then the country of residence will give credits as if Malaysian tax has been paid.

Under most of the agreements, interest son approved loans and approved industrial or technical royalties derived from Malaysia by residents of other countries are exempted from tax in Malaysia. In addition, there is a provision for credit to be given by the country of residence of the tax spared by Malaysia in respect of such income.

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The objectives of Malaysian DTA are as follows: i. ii. iii. iv. To create a favourable climate for both inbound and outbound investments; To make Malaysia's special tax incentives fully effective for taxpayers of capital exporting countries; To obtain a more effective relief from double taxation compared to relief gained under unilateral measures; and To prevent evasion and avoidance of tax

2) What country that have relationship DTA with Malaysia?


DOUBLE TAXATION AGREEMENTS WITHHOLDING TAX RATES

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EFFECTIVE DOUBLE TAXATION AGREEMENTS Fees for Technical Services 10 NIL 10 10 10 10 10 10 5 10 10 10 10 10 10 10 10 7 10 10 10 10 10 10 10 10 10 10 10 10 10 8 10

No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33

Country Albania Australia Austria Bahrain Bangladesh Belgium Brunei Canada Chile China Croatia Czech Republic Denmark Egypt Fiji Finland France Germany Hungary India Indonesia Iran Ireland Italy Japan Jordan Kazakhstan Kyrgyz Republic Kuwait Laos Lebanon Luxembourg Malta

Dividends NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL

Interest (%) 10 15 15 5 15 10 10 15 15 10 10 12 15 15 15 15 15 10 15 10 10 15 10 15 10 15 10 10 10 10 10 10 15

Royalties (%) 10 10 10 8 10 10 10 10 10 10 10 10 10 10 10 10 10 7 10 10 10 10 8 10 10 10 10 10 10 10 8 8 10

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No. Country Dividends Interest (%) Royalties (%) Fees for Technical Services

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34 35 36 37 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 53 54 55 56 57 58 59 60 61 62 63 64 65 66 67 68 Mauritius Mongolia Morocco Myanmar Namibia Netherlands New Zealand Norway Pakistan Papua New Guinea Philippines Poland Qatar Romania Russia San Marino Saudi Arabia Seychelles Singapore South Africa South Korea Spain Sri Lanka Sudan Sweden Syria Switzerland Thailand Turkey Turkmenistan United Arab Emirates United Kingdom Uzbekistan Venezuela Vietnam NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL NIL 15 10 10 10 10 10 15 15 15 15 15 15 5 15 15 10 5 10 10 10 15 10 10 10 10 10 10 15 15 10 5 10 10 15 10 10 10 10 10 5 8 10 10 10 10 10 10 8 10 10 10 8 10 8 5 10 7 10 10 8 10 10 10 10 10 10 8 10 10 10 10 10 10 10 5 8 10 10 10 10 10 10 8 10 10 10 8 10 5 5 10 5 10 10 8 10 10 10 10 NIL 10 8 10 10 10

GAZETTE DOUBLE TAXATION AGREEMENTS No. Country Dividends Interest (%) Royalties (%) Fees for Technical Services

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1 2 3 Bosnia and Herzegovina Senegal Zimbabwe NIL NIL NIL 10 10 10 8 10 10 10 10 10

LIMITED AGREEMENTS No. 1 2 * The withholding tax rate on interest, royalties and fees for technical services is as provided in the ITA 1967. Country Argentina United States of America Dividends NIL NIL Interest (%) 15* 15* Royalties (%) 10* 10* Fees for Technical Services 10* 10*

INCOME TAX EXEMPTION ORDER No. 1 Country Taiwan Dividends NIL Interest (%) 10% Royalties (%) 10% Fees for Technical Services 7.50%

3) What is the Permanent Establishment? For the purposes of this Agreement, the term "permanent establishment" means a fixed place of business in which the business of the enterprise is wholly or partly carried on. 6|Page

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The term "permanent establishment" shall include especially: (a) a place of management ; (b) a branch ; (c) an office ; (d) a factory ; (e) a workshop ; (f) a mine, quarry, oil or gas well or other place of extraction of natural resources including timber or other forest produce ; (g) a farm or plantation ; (h) a building site or construction, installation or assembly projectwhich exists for more than six months.

The term "permanent establishment" shall not be deemed to include: (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise ; (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or for collecting information, for the enterprise; (e) the maintenance of a fixed place of business solely for the purpose of advertising, for the supply of information, for scientific research, or for similar activities which have a preparatory or auxiliary character, for the enterprise. An enterprise of a Contracting State shall be deemed to have a permanent establishment in the other Contracting State if it carries on supervisory activities in that other Contracting State for more than six months in connection with a construction, installation or assembly project which is being undertaken in that other Contracting State. A person (other than a broker, general commission agent or any other agent of an independent status to whom paragraph 6 applies) acting in a Contracting State on behalf of an enterprise of 7|Page

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the other Contracting State shall be deemed to be a permanent establishment in the firstmentioned Contracting State, if:
(a) he has, and habitually exercises in the first-mentioned Contracting State, an

authority to conclude contracts in the name of the enterprise, unless his activities are limited to the purchase of goods or merchandise for the enterprise ; (b) he maintains in the first-mentioned Contracting State a stock of goods or merchandise belonging to the enterprise from which he regularly fills orders on behalf of the enterprise, or (c) he secures orders in the first-mentioned State substantially for the enterprise itself or for the enterprise and other enterprise which are controlled by it or have a controlling interest in it. The fact that company which is a resident of a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in that other Contracting State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

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