Double Tax Agreement in Malaysia

Double Tax Agreements in Malaysia: Understanding the Basics

Double Tax Agreements (DTAs) are agreements between countries to avoid double taxation of income earned in both countries. These agreements are crucial for businesses that operate in multiple countries, ensuring that they only pay taxes once on their income. Malaysia has DTAs with over 70 countries, making it an essential hub for international business.

What is Double Taxation?

Double taxation occurs when the same income is taxed twice, once in the country where it is earned and once in the country where it is received. This can happen when two countries tax the same income based on different rules or when tax authorities in one country do not recognize a foreign tax credit. Double taxation can reduce the profitability of a business and discourage foreign investment.

How does a Double Tax Agreement Work?

A Double Tax Agreement works by allocating taxing rights between two countries. The agreement typically provides for a set of rules on how to tax cross-border income. The most common approach is to give the taxing rights to the country where the income is earned or where the business is located.

For example, suppose a Malaysian company operates in Singapore and earns income from Singapore. In that case, the DTA between Singapore and Malaysia will determine which country has the right to tax that income. If the DTA gives the taxing rights to Singapore, then Malaysia will not tax the income. Instead, the company will pay tax only in Singapore, where the income was earned.

Benefits of a Double Tax Agreement

A DTA has many benefits for businesses, including:

1. Avoidance of double taxation: A DTA ensures that businesses do not pay taxes on the same income twice, reducing the cost of doing business.

2. Clarity and certainty: A DTA provides clear rules on how to tax cross-border income, reducing ambiguity and uncertainty.

3. Attraction of foreign investment: A DTA makes it easier for foreign investors to invest in Malaysia, as it provides clarity on how their income will be taxed.

DTA in Malaysia

Malaysia has signed DTAs with over 70 countries, including Australia, China, Japan, Singapore, and the United States. The agreements cover a wide range of income, including business profits, royalties, dividends, interest, and capital gains.

Each DTA is unique and should be read carefully to understand its terms. However, in general, the DTAs with Malaysia follow the Organisation for Economic Co-operation and Development (OECD) model convention, which provides a standard set of rules for taxing cross-border income.


Double Tax Agreements are essential for businesses that operate globally, as they provide clarity, certainty, and cost savings. Malaysia has DTAs with over 70 countries, making it an attractive destination for foreign investment. As a business owner or investor, it is essential to understand the DTA with Malaysia and take advantage of its benefits.