MALAYSIA: How Foreign Investors Can Use Malaysia’s Double Taxation Agreements

Malaysia’s extensive network of Double Taxation Agreements (DTAs) is a central feature of its attractiveness as an investment destination. These treaties provide certainty in the treatment of cross-border income, reduce the risk of double taxation, and establish clear rules for when and how foreign-sourced income will be taxed in Malaysia.

For foreign investors, leveraging Malaysia’s DTAs can mean meaningful tax savings and more efficient business structuring.

Malaysia’s treaty network and its strategic importance
Malaysia has signed 73 comprehensive DTAs with jurisdictions across Asia, Europe, the Middle East, and the Americas, along with several limited agreements that cover specific income types or sectors. These treaties set out mutually agreed-upon rules for the taxation of business profits, dividends, interest, royalties, and other forms of income, ensuring consistent treatment between partner countries.

The network also strengthens Malaysia’s position as a regional base for multinational operations by aligning with international tax standards and reducing tax uncertainty for cross-border transactions.

Snapshot: Key DTA partners and treaty-reduced withholding rates

Rates shown are common treaty outcomes; specific provisions vary by agreement and transaction type.

Key tax benefits available under Malaysia’s DTAs
DTAs often lower Malaysia’s domestic withholding tax rates, which otherwise stand at 15 percent for interest and 10 percent for royalties. Depending on the treaty, these rates can be reduced to as little as five percent. DTAs also define when a foreign company is considered to have a taxable presence, known as a permanent establishment, in Malaysia. Importantly, they prevent the same income from being taxed twice by providing either a tax credit or an exemption in the investor’s home country. These mechanisms make DTAs a powerful tool for improving post-tax returns.

How to apply for DTA benefits in Malaysia
Foreign investors seeking treaty benefits must follow the Inland Revenue Board of Malaysia’s (IRB) formal process. This begins with confirming the existence of a relevant DTA between Malaysia and the investor’s home country. The investor must then obtain a certificate of residence from their home-country tax authority and submit it, along with Malaysia’s prescribed DTA forms, to the IRB.

Submissions should be made before the taxable payment is due, or within the IRB’s stipulated time frame, to ensure the treaty rate applies at source. Late or incomplete submissions will generally result in the default domestic rate being applied.

How DTAs work in practice for foreign investors
Once the IRB approves the application, the treaty rate is applied directly to the relevant payment.

For example, under the Malaysia–Japan DTA, a Japanese investor receiving dividends from a Malaysian subsidiary may see the withholding tax reduced from 10 percent to five percent.
The payment is made net of Malaysian tax, and the investor’s home country then grants a tax credit for the Malaysian tax paid, ensuring the income is not taxed twice.

Case study:
A Singapore-based holding company owns 100 percent of a Malaysian manufacturing subsidiary.

Without a DTA, dividend payments to Singapore would be taxed at 10 percent in Malaysia. However, under the Malaysia–Singapore DTA, the withholding rate drops to five percent. On an annual dividend of 5 million ringgit, this saves 250,000 ringgit in Malaysian tax — savings that go directly to the holding company’s bottom line.

Strategic use of DTAs for cross-border structuring
Investors can use treaty provisions strategically to reduce tax leakage across their corporate structures. A holding company located in a jurisdiction with a favorable treaty may secure reduced dividend withholding rates, while intercompany loans routed through a treaty partner can lower interest withholding.

Similarly, intellectual property licensing arrangements can be designed to benefit from preferential royalty provisions. To maintain compliance, these strategies must align fully with treaty terms and anti-abuse provisions.

Staying current amid evolving treaty standards
Malaysia’s DTAs are periodically updated to reflect new economic relationships and developments in global tax policy. The OECD’s Base Erosion and Profit Shifting (BEPS) framework, for example, has influenced treaty interpretation, particularly in areas such as beneficial ownership and the prevention of treaty abuse. Investors who do not stay informed risk structuring their affairs on outdated provisions, potentially losing access to favorable rates or facing unexpected tax liabilities.

Turning treaty opportunities into investor advantages
Malaysia’s Double Taxation Agreements can deliver substantial tax savings and certainty for foreign investors, but only if they are applied correctly and kept up to date. Complex or high-value arrangements, particularly those involving multiple jurisdictions, financing structures, or intellectual property, require expert oversight to fully unlock treaty benefits.