As businesses and individuals navigate the complex world of international taxation, the LHDN double tax agreement serves as an important tool for avoiding the double taxation of income. In this article, we`ll take a closer look at what the LHDN double tax agreement is, how it works, and what it means for those operating in Malaysia.

The LHDN double tax agreement, also known as a double taxation treaty, is an agreement between two countries that specifies how taxes on income earned by residents of one country who also earn income in another country will be handled. The agreement is designed to avoid situations where an individual or company would be taxed twice on the same income by both countries involved.

In Malaysia, the LHDN double tax agreement applies to non-residents who earn income in the country. Non-residents are defined as individuals who are not citizens of Malaysia and who do not reside in the country for more than 182 days in a tax year. The agreement covers all types of income, including salaries, wages, dividends, and interest.

Under the LHDN double tax agreement, non-residents are generally only required to pay tax on income earned in Malaysia if they have a permanent establishment in the country, such as an office or warehouse. If they do have a permanent establishment, they will be subject to Malaysian taxes on all income earned in the country, regardless of whether it is earned by a Malaysian or non-Malaysian employee.

However, if a non-resident does not have a permanent establishment in Malaysia, they will only be taxed on income earned in the country if it is considered Malaysian-source income. This typically includes income earned from a Malaysian employer, as well as income earned from Malaysian investments or property.

In addition to avoiding double taxation, the LHDN double tax agreement is also designed to provide a framework for resolving disputes between the two countries involved. In the event that a dispute arises, the agreement provides for a process of consultation and negotiation to resolve the issue.

Overall, the LHDN double tax agreement serves as an important tool for businesses and individuals operating in Malaysia, helping to reduce the complexity and burden of international taxation. By understanding how the agreement works and how it applies to them, individuals and companies can ensure that they are complying with all applicable tax laws and avoiding potential issues with double taxation.