Double taxation can be a bane for businesses and individuals when it comes to cross-border transactions. In order to avoid being taxed twice on the same income in two different countries, governments enter into Double Tax Agreements (DTAs). One such DTA is between Australia and Malaysia.
The Double Tax Agreement Australia Malaysia was signed on 22nd October 2014 and came into force on 1st January 2016. This DTA aims to eliminate double taxation on income arising in one jurisdiction and paid to residents of the other jurisdiction. The agreement applies to taxes on income, which includes individual income tax, company tax, and withholding tax.
Under the Australia-Malaysia DTA, the term “resident” refers to a person who is a resident of either Australia or Malaysia as per their domestic laws for taxation purposes. The DTA takes into account various types of income, including business profits, dividends, interest, royalties, and capital gains.
One of the key features of this DTA is that it provides for reduced withholding tax rates on certain types of income. For example, withholding tax on dividends is reduced to 15% from the usual rate of 30% for non-resident shareholders. Similarly, withholding tax on interest income is also reduced to 10% from the usual rate of 15%.
The Australia-Malaysia DTA also has provisions to avoid double taxation on capital gains. If a resident of one country sells an asset located in the other country, they will only be taxed in their country of residence. For example, if an Australian resident sells a property in Malaysia, they will only be taxed in Australia, and not in Malaysia.
In addition, this DTA also provides for the exchange of information between the two countries` tax authorities. This is to ensure that taxpayers do not evade taxes by hiding their income or assets in a foreign country.
In conclusion, the Double Tax Agreement Australia Malaysia is a significant initiative that facilitates cross-border trade and investment between the two countries. It eliminates double taxation on income, provides for reduced withholding tax rates, and has provisions to avoid double taxation on capital gains. It also promotes transparency by allowing the exchange of information between the two countries` tax authorities. Businesses and individuals engaged in cross-border transactions between Australia and Malaysia should be aware of this DTA and seek professional advice to optimize their tax position.