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Malaysia maintains commendable sovereign credit rating scores across the major credit rating agencies, what has contributed to this?

Malaysia has implemented various measures to enhance its investment grade sovereign credit rating. Although ratings are subject to multiple influences, the Malaysian government has concentrated on policies that bolster economic resilience, manage debt levels and uphold macroeconomic stability through balanced monetary policies. Find more information on our CRA scores here

 What are the updates on Malaysia’s effort in consolidating the country’s fiscal position?

The Malaysian government is actively working to improve and consolidate the country's fiscal position, particularly focusing on reducing the fiscal deficit. A key initiative in this effort is the implementation of the Public Finance and Fiscal Responsibility Act (FRA), which sets out clear legislative reforms.

The FRA outlines four main benchmarks that Malaysia aims to achieve in the medium term:

  1. Federal Government Debt not exceeding 60% of the GDP.
  2. Fiscal deficit to be reduced to no more than 3% of the GDP
  3. Government guarantees capped at below 25% of the GDP
  4. Minimum spending on development expenditure of at least 3% of the GDP.

In addition to these benchmarks, the government is taking steps to broaden the revenue base by enhancing tax compliance and reducing reliance on oil revenues. It is also focused on reducing expenditure leakage through better governance and efficiency in public sector spending through initiatives such as e-procurement (e-Perolehan) for the public sector.

Another critical element in Malaysia’s fiscal consolidation strategy is the Medium-Term Fiscal Framework (MTFF), which provides a structured roadmap for reducing the fiscal deficit and managing public debt over several years. The MTFF ensures a gradual and sustainable approach to fiscal consolidation while supporting economic growth. Find more information on MTFF here.

 Are there any tax treaties that could affect taxation on investment income?

Malaysia has entered into Double Taxation Avoidance Agreements (DTAA) with various countries. These agreements aim to protect individuals and businesses from being subjected to being taxed twice on the same income in both Malaysia and the treaty partner country. Essentially DTAAs offer tax relief by distributing the taxing rights between Malaysia and the respective countries. Ensuring equitable treatment of transnational income.

For a comprehensive list of countries with which Malaysia has signed DTAAs, refer to the official source provided by the Inland Revenue Board of Malaysia (LHDN) here.

For countries not included in the DTAA, Malaysia applies withholding tax on income earned by non-residents. However, there are specific exemptions depending on the type of income, such as certain dividends or royalties. Find out more about Malaysia's withholding tax here. 

For further information, please refer to LHDN’s guidelines regarding international tax affairs, which offer detailed guidance on taxation issues related to cross-border income and non-resident taxation here.

 How are capital gains, dividends, and interest income taxed?

Capital gains, dividends and interest are subject to taxation under the new capital gains tax (CGT) regime introduced on January 1, 2024. This encompasses unlisted shares, convertible bonds and long-term borrowings that are equity-like in nature.

For additional details, please consult the resources page for the CGT legislation (Finance (No. 2) Act 2023) as well as other pertinent legislations, regulation and policies.

Given the case-by-case nature of tax obligations, it is advisable to seek guidance from a tax consultant regarding the specifics of your tax-related questions.
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