Malaysia and China signed a treaty for the avoidance of double taxation in November 1985. The agreement is applicable to the tax residents of both countries, who can be natural persons or legal entities. The double taxation agreement (DTA) covers a set of taxes concerning the income of such entities who are tax residents of a contracting state, performing taxable activities in the other contracting state.
The treaty provides the legal framework for the taxation of foreign companies operating as branches in Malaysia and China, as well as the tax requirements for the taxation of companies operating in the shipping and air transportation industries. Our team of specialists in company formation in Malaysia can provide in-depth assistance on the taxation of Chinese entities operating on this market.
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Taxes covered by the Malaysia – China DTA
As prescribed by the Article 2 of the agreement, the contracting states impose a set of taxes on income, which may vary in each country depending on the tax legislation available in a particular jurisdiction.
Under the provisions of the treaty, China imposes the following taxes:
• the individual income tax;
• the income tax related to joint ventures with Chinese and foreign investments, a tax which also includes the local income tax;
• the income tax applicable to foreign enterprises (local income tax included).
Article 2 of the agreement also establishes the Malaysian income taxes, as follows:
• the income tax and excess profit tax;
• the supplementary income taxes (comprised of tin profits tax, development tax and timber profits tax);
• the petroleum income tax.
Our team of consultants in company registration in Malaysia can advise Chinese businessmen on other local taxes.
Permanent establishment in Malaysia
Chinese investors who want to open a company in Malaysia should know that they can be taxed on the Malaysian territory if they develop their business operations through a permanent establishment, which can be one of the following (as prescribed by Article 5.2 of the agreement):
• a place of management;
• a branch;
• an office;
• a factory;
• a workshop;
• a mine or any other business that handles the extraction of natural resources;
• a farm or plantation.
Do you want to set up a business in Malaysia? We recommend the services offered by our local agents in this endeavor. They have the necessary experience to assist you in the preparation of documents and registration with the relevant authorities. We mention that USD 1 is needed as a minimum shareholder for a limited liability company. Also, an electronic signature is allowed, so there is no need to travel to sign the documents.
The term permanent establishment also takes into consideration other types of business premises and investors are invited to contact our team of representatives in company formation in Malaysia for in-depth advice on this matter.