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Double taxation agreement with Malaysia

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An agreement between Australia and Malaysia to avoid double

The agreement is further evidence of the close and friendly links which Australia has with Malaysia. It is Australia's third such agreement with an ASEAN country, the others being with Singapore and the Philippines.

The provisions of the agreement will not be effective until ·

it has been given the force of law in both countries . · In Australia's case this will require legislation arid a Bill for that purpose will be introduced into Parliament as soon as practicable.

The agreement contains provisions for the avoidance of. double taxation and the prevention of fiscal evasion in relation to

all forms of income flowing between Australia and Malaysia.

It accords in important practical respects with other modern double taxation agreements that Australia has concluded. '

In general, the agreement limits the tax which may be levied by the country of source on dividends, interest and royalties to which a resident of the other country is beneficially entitled. The limit is 15 per cent of the gross amount of the income

concerned. As is customary, however, the limit will not apply to income that is effectively connected with a permanent establishment that a resident of the other country maintains

in the country of source.

taxation was signed in Canberra today.

At present Malaysia taxes the profits, of its companies but not

the dividends paid out.of these:profits. The agreement provides, however, that should Malaysia impose a tax on dividends, in

future, the tax on dividends paid by Malaysian companies to

Australian residents will be limited to. 15 per cent of the gross amount.

The limit of 15 per cent on the tax of the country of source in respect of interest derived by a resident of one country from a source in the other will not affect Australia's interest withholding tax. This is payable at the rate of 10 per cent only. Nor will the limit affect interest paid from Malaysia on

approved loans or long-term loans, as defined for the purpose of Malaysian investment incentive measures. The agreement specifies that this interest is to be exempt from Malaysian tax.

Similarly, the tax by the country of source of royalties as /

provided for in the agreement will not apply to "approved industrial royalties" paid from Malaysia and certified as promoting Malaysian industrial development. This income is also to be exempt from Malaysian tax.

The agreement contains "tax sparing" provisions which are much like those included in Australia's agreements with Singapore

and the Philippines. Under these provisions, Australia will

tax an Australian recipient of interest and royalties on which Malaysia - as an incentive measure - has forgone its tax as if Malaysian tax of an amount equal to 10 per cent of the interest or royalties had been paid. Credit will be allowed for the

notional Malaysian tax against the Australian tax ori the sum of the interest or royalties received and the notional tax.

The agreement provides for certain types of income to be taxed in full by the country in which the income has its source.

Income dealt with in this manner includes income from land

(including income from the exploitation of natural resources)

and income derived by public entertainers. Except in relation to some visits of short duration, income from personal services may be taxed'in full by the country in which the services are

performed. Business profits are taxable in the country of source

3 .

if they are attributable to a "permanent establishment" (i.e ., a

substantial business presence) which the recipient has in that country.

Other types of income may be taxed only by the country of residence of the recipient. Items falling within this category include most pensions and annuities (other than government pensions) and remuneration derived by professors and teachers during visits

of up to two years to the other country.

Other provisions in the agreement deal with such matters as exchange of information, consultations between the taxation

authorities of the two countries and procedures for the relief of double taxation arising where income may, under the agreement, be taxed by both countries. As is customary, the credit system of double tax relief will be used in Australia in respect

of interest and royalties taxed at a' reduced rate in Malaysia or subject to the "tax sparing" provisions of the agreement.

The enabling legislation will contain the usual provisions to

prevent any disadvantage arising from this in respect of income derived up to the date of signature. _

When given the force of law, the agreement will have effect in ,

Australia from 1 July 1979 and in Malaysia from 1 January 1980.

Copies of the agreement will be available to interested persons at Taxation Offices in the capital cities.


20 August 1980