The Double Taxation Relief (Taxes on Income) (Malaysia) Order 1997

Made: 17th December 1997

At the Court at Buckingham Palace, the 17th day of December 1997 Present, The Queen’s Most Excellent Majesty in Council

Now, therefore, Her Majesty, in exercise of the powers conferred upon Her by section 788 of the said Act, and of all other powers enabling Her in that behalf, is pleased, by and with the advice of Her Privy Council, to order, and it is hereby ordered, as follows:—

1

This Order may be cited as the Double Taxation Relief (Taxes on Income) (Malaysia) Order 1997.

2

It is hereby declared—

• (a) that the arrangements specified in the Agreement set out in Part I of the Schedule to this Order and in the Exchange of Notes constituting an Agreement set out in Part II of that Schedule have been made with the Government of Malaysia with a view to affording relief from double taxation in relation to income tax, corporation tax or capital gains tax and taxes of a similar character imposed by the laws of Malaysia;

• (b) that those arrangements include provisions with respect to the exchange of information necessary for carrying out the domestic laws of the United Kingdom and the laws of Malaysia concerning taxes covered by the arrangements including, in particular, provisions about the prevention of fiscal evasion with respect to those taxes; and

• (c) that it is expedient that those arrangements should have effect.

SCHEDULE

PART I — AGREEMENT BETWEEN THE GOVERNMENT OF THE UNITED KINGDOM OF GREAT BRITAIN AND NORTHERN IRELAND AND THE GOVERNMENT OF MALAYSIA FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL EVASION WITH RESPECT TO TAXES ON INCOME

The Government of the United Kingdom of Great Britain and Northern Ireland; and the Government of Malaysia;

Desiring to conclude an Agreement for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income;

Have agreed as follows:

ARTICLE 1 — Personal scope

This Agreement shall apply to persons who are residents of one or both of the Contracting States.

ARTICLE 2 — Taxes covered

ARTICLE 3 — General definitions

ARTICLE 4 — Residence

ARTICLE 5 — Permanent establishment

ARTICLE 6 — Income from immovable property

ARTICLE 7 — Business profits

ARTICLE 8 — Shipping and air transport

ARTICLE 9 — Associated enterprises

ARTICLE 10 — Dividends

ARTICLE 11 — Interest

ARTICLE 12 — Royalties

ARTICLE 13 — Technical fees

ARTICLE 14 — Capital gains

ARTICLE 15 — Independent personal services

ARTICLE 16 — Dependent personal services

ARTICLE 17 — Directors' fees

Directors' fees and similar payments derived by a resident of a Contracting State in his capacity as a member of the board of directors of a company which is a resident of the other Contracting State may be taxed in that other State.

ARTICLE 18 — Artistes and sportsmen

ARTICLE 19 — Pensions and annuities

ARTICLE 20 — Government service

ARTICLE 21 — Teachers and researchers

ARTICLE 22 — Students and trainees

An individual who is or was a resident of a Contracting State immediately before making a visit to the other Contracting State and is temporarily present in the other State solely:

• (a) as a student at a recognised university, college, school or other similar recognised educational institution in that other State;

• (b) as a business or technical apprentice; or

• (c) as a recipient of a grant, allowance or award for the primary purpose of study, research or training from the Government of either State or from a scientific, educational, religious or charitable organisation or under a technical assistance programme entered into by the Government of either State,

shall be exempt from tax in that other State on:

• (i) all remittances from abroad for the purposes of his maintenance, education, study, research or training;

• (ii) the amount of that grant, allowance or award; and

• (iii) any remuneration not exceeding RM 8,000 or the equivalent in pounds sterling per annum in respect of services in that other State provided the services are performed in connection with his study, research or training or are necessary for the purposes of his maintenance.

ARTICLE 23 — Other income

ARTICLE 24 — Elimination of double taxation

ARTICLE 25 — Limitation of relief

ARTICLE 26 — Non-discrimination

ARTICLE 27 — Mutual agreement procedure

ARTICLE 28 — Exchange of information

ARTICLE 29 — Members of diplomatic or permanent missions and consular posts

ARTICLE 30 — Entry into force

ARTICLE 31 — Termination

This Agreement shall remain in effect indefinitely, but either Contracting State may terminate the Agreement, through diplomatic channels, by giving to the other Contracting State written notice of termination on or before 30th June in any calendar year after the period of five years from the date on which this Agreement enters into force. In such an event the Agreement shall cease to have effect:

• (a) in the United Kingdom:

• (i) in respect of income tax and capital gains tax, for any year of assessment beginning on or after 6th April in the calendar year next following that in which the notice is given;

• (ii) in respect of corporation tax, for any financial year beginning on or after 1st April in the calendar year next following that in which the notice is given;

• (b) in Malaysia:

• (i) in respect of taxes withheld at source, to income derived on or after 1st January in the calendar year following the year in which the notice is given;

• (ii) in respect of other taxes on income, to taxes chargeable for any year of assessment beginning on or after 1st January of the second calendar year following the year in which the notice is given.

In witness whereof the undersigned, duly authorised thereto have signed this Agreement.

Done in duplicate at Kuala Lumpur this 10th day of December 1996 in the English and Bahasa Malaysia languages, both texts being equally authoritative. In the event of there being a dispute in the interpretation and the application of this Agreement, the English text shall prevail.

For the Government of the United Kingdom of Great Britain and Northern Ireland:

David Moss

For the Government of Malaysia:

Clifford Herbert

PART II — EXCHANGE OF NOTES

Excellency

• Kuala Lumpur

• 10th December 1996

I have the honour to refer to the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland that:

• (1) with reference to Article 7:

• (a) if the information available to the competent authority is inadequate to determine the profits to be attributed to the permanent establishment of an enterprise, it is understood that nothing in this Article shall affect the application of any law of that State relating to the determination of the tax liability of a person by the exercise of a discretion or the making of an estimate by the competent authority, provided that the law shall be applied, so far as the information available to the competent authority permits, in accordance with the principle of this Article.

• (b) insofar as it has been customary in a Contracting State to determine according to its law the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph (2) of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary, provided that:

• (i) the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles contained in this Article; and

• (ii) that the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

• (2) With reference to paragraph (2) of Article 25:

the provisions of this Agreement shall not apply to persons carrying on offshore business activity under the Labuan Offshore Business Activity Tax Act 1990 (as amended);

• “Offshore business activity” means an offshore business activity as defined under Section 2(1) of the Labuan Offshore Business Activity Tax Act 1990 (as amended).

If the foregoing proposals are acceptable to the Government of Malaysia, I have the honour to suggest that the present Note and Your Excellency’s reply to that effect should be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as the entry into force of this Agreement.

I avail myself of this opportunity to extend to your Excellency the assurance of my highest consideration.

David Moss

High Commissioner

Excellency

• Kuala Lumpur

• 10th December 1996

I have the honour to acknowledge receipt of Your Excellency’s Note of today which read as follows:

I have the honour to refer to the Agreement between the Government of the United Kingdom of Great Britain and Northern Ireland and the Government of Malaysia for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with respect to Taxes on Income which has been signed today and to propose on behalf of the Government of the United Kingdom of Great Britain and Northern Ireland that: (1) with reference to Article 7, it is understood that: (a) if the information available to the competent authority is inadequate to determine the profits to be attributed to the permanent establishment of an enterprise, it is understood that nothing in this Article affects the application of any law of that State relating to the determination of the tax liability of a person by the exercise of a discretion or the making of an estimate by the competent authority, provided that the law shall be applied, so far as the information available to the competent authority permits, in accordance with the principle of the Article: and (b) insofar as it has been customary in a Contracting State to determine according to its law the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph (2) of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be customary, provided that: (i) the method of apportionment adopted shall, however, be such that the result be in accordance with the principles contained in this Article; and (ii) that the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary. (2) With reference to paragraph (2) of Article 25: the provisions of this Agreement shall not apply to persons carrying on offshore business activity under the Labuan Offshore Business Activity Tax Act 1990 (as amended); - “Offshore business activity” means an offshore business activity as defined under Section 2(1) of the Labuan Offshore Business Activity Tax Act 1990 (as amended).

The foregoing proposals being acceptable to the Government of Malaysia, I have the honour to confirm that Your Excellency’s Note and this reply shall be regarded as constituting an agreement between the two Governments in this matter, which shall enter into force at the same time as entry into force of the Agreement.

I take this opportunity to renew to your Excellency the assurances of my highest consideration.

Clifford Herbert

Secretary General to the Treasury Malaysia

Signed

N. H. Nicholls — Clerk of the Privy Council

Explanatory note

(This note is not part of the Order)

The Agreement with Malaysia (which replaces the Agreement set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Malaysia) Order 1973 (S.I. 1973/1330) as amended by the Protocol set out in the Schedule to the Double Taxation Relief (Taxes on Income) (Malaysia) Order 1987 (S.I. 1987/2056)) is set out in Part I of the Schedule to this Order.

The Agreement provides for business profits not arising through a permanent establishment to be taxed only in the country of the taxpayer’s residence. Profits attributable to a permanent establishment may be taxed in the country in which the permanent establishment is situated (Articles 5 and 7).

Income from immovable property and gains derived from the alienation of such property may be taxed in the country in which the property is situated (Articles 6 and 14).

International transport profits are generally to be taxed only in the country of residence of the operator (Article 8).

The Agreement includes rules for determining taxable profits when a company in one country is related to a company in the other country (Article 9).

The rate of tax imposed in the country of source on dividends derived by a resident of the other country shall not, in general, exceed 5 per cent. of the gross amount if the recipient is a company controlling at least 10 per cent. of the voting power in the company paying the dividends; and 10 per cent. of the gross amount of the dividends in all other cases (Article 10).

The rate of tax imposed in the country of source on interest derived by a resident of the other country is, in general, not to exceed 10 per cent. of the gross amount flowing to the other country. Certain other interest (e.g. interest payable to the Government of the other country) is exempt from tax in the source state (Article 11).

The rate of tax imposed in the source country on royalties and technical fees is, in general, limited to 8 per cent. of the gross amount of the royalties or technical fees (Articles 12 and 13).

Gains arising from the disposal of movable property are normally to be taxed only in the country of the taxpayer’s residence. Gains arising from the disposal of assets of a permanent establishment or fixed base which the taxpayer has in the other country may be taxed in that other country (Article 14).

The earnings of temporary business visitors and some other individuals are, subject to certain conditions, only to be taxed in the country of the taxpayer’s residence (Articles 15 and 16). Fees received by a resident of one country in his capacity as a director of a company resident in the other country may be taxed in the latter country (Article 17). Income derived from the activities of artistes and sportsmen may be taxed in the country in which those activities are performed (Article 18). Occupational pensions (other than those paid in respect of Government service) and annuities are to be taxed only in the recipient’s country of residence (Article 19). Government service remuneration and pensions are normally taxable only by the paying Government (Article 20). The remuneration of teachers and researchers and payments made to students and trainees are, subject to certain conditions, to be exempt from tax in the country visited (Articles 21 and 22). Other income not specified in the Agreement may be taxable in either country (Article 23).

Where income continues to be taxable in both countries credit will be given in the taxpayer’s country of residence for tax imposed by the other country. The credit to be given in the United Kingdom for tax imposed in Malaysia includes, subject to time limits, credit for tax spared under certain provisions of Malaysian law. In the case of dividends, the United Kingdom will give credit for the underlying tax paid in Malaysia where the shareholder is a United Kingdom company which controls at least 10 per cent. of the voting power in the company paying the dividends (Article 24).

There are provisions safeguarding nationals and enterprises of one country against discriminatory taxation in the other country (Article 26) and for consultation (Article 27) and exchanges of information (Article 28) between the taxation authorities of the two countries.

The Exchange of Notes set out in Part II of the Schedule (in which there are minor differences of wording between the Note sent by the United Kingdom and its reproduction in the Malaysian Note) contains agreements between the United Kingdom and Malaysia in relation to Articles 7 and 25 of the Agreement.

The Agreement will enter into force on the date of the later of the notifications by each country of the completion of its legislative procedures. The Agreement is to take effect in the United Kingdom on or after 1st April in respect of corporation tax and on or after 6th April for income tax and capital gains tax in the calendar year next following that in which it enters into force. The date of entry into force will in due course be published in the London, Edinburgh and Belfast Gazettes.

Footnotes