Market Taxation Guide - Malaysia

31.03.2016

This Market Taxation Guide (Malaysia) provides the following details:

  • Reference information about all taxes applied at source, through Clearstream Banking and its local depositories, to securities deposited in Clearstream Banking; and
  • Instructions for obtaining relief at source or a refund of withholding tax, where these are available, through Clearstream Banking.

New and improved tax information and procedures that become available will be included on an ongoing basis.

Important note:
This Market Taxation Guide (including any attachments and other links) is for informational purposes only and is not intended and should not be considered to be legal advice on any subject matter. Readers of this Market Taxation Guide, whether customers or otherwise, should not act or refrain from acting on the basis of any information included in this Market Taxation Guide without seeking appropriate legal or other professional advice.

Types of securities eligible in Clearstream Banking

  • Securities listed on Bursa Malaysia Securities:
  • Equities;
  • Exchange Traded Funds (ETFs);
  • Warrants;
  • Loan stocks;
  • Listed corporate bonds.
  • Scripless Securities Depository System (SSDS)-eligible securities:
  • Government and central bank notes (Malaysian government securities, Bank Negara bills, Treasury bills, Bank Negara monetary notes);
  • Cagamas securities denominated in MYR and CNY (Mortgage-backed bonds: Cagamas bonds, Cagamas notes);
  • Medium-term notes;
  • Commercial Paper;
  • Sukuk Bonds (denominated in MYR).

Withholding tax

Debt securities (except convertible loan stocks)

Holding
restriction

Withholding
tax rate

Relief
at source

Quick
refund

Standard
refund

Yes

0%/15% a

Clearstream Banking does not provide tax Relief At Source, Quick or Standard Refund services for the Malaysia market.

No

No

No

Convertible loan stocks

Holding
restriction

Withholding
tax rate

Relief
at source

Quick
refund

Standard
refund

Yes

15%

Clearstream Banking does not provide tax Relief At Source, Quick or Standard Refund services for the Malaysia market.

No

No

No

Equities

Holding
restriction

Withholding
tax rate

Relief
at source

Quick
refund

Standard
refund

Yes

0%

No withholding tax is imposed on dividends paid on Malaysian Equities in Clearstream Banking.

N/A

N/A

N/A

REITS

Holding
restriction

Withholding
tax rate

Relief
at source

Quick
refund

Standard
refund

Yes

24-25%

Clearstream Banking does not provide tax Relief at source, Quick or Standard refund services for the Malaysia market.

No

No

No

a. The higher tax rate of 15% applies, upon request from the customer, if the interest is received by non-resident companies within the same group as the issuer in respect of:

  • Sukuk or debentures issued in Malaysian Ringgit (other than convertible loan stocks), approved or authorised by, or lodged with the Securities Commission (eligible in Clearstream Banking);
  • Sukuk originating from Malaysia (other than convertible loan stocks) issued in any currency other than Malaysian Ringgit, approved or authorised by, or lodged with, the Securities Commission, or approved by the Labuan Financial Services Authority (not eligible in Clearstream Banking).

Clearstream Banking does not provide tax Relief at source, Quick or Standard refund services for the Malaysia market. Customers are advised to engage a local tax agent for all tax related matters according to market practice.

Sukuk or debentures issued in Ringgit Malaysia, approved or authorised by, or lodged with the Securities Commission

Based on the Finance Act 2017 published by the Government of Malaysia on 16 January 2017, there are amendments to the exemption of interest income stated under paragraph 33B(1) and (2) Schedule 6 of Income Tax Act 1967. An exemption of withholding tax is no longer applicable to interest paid to non-resident companies within the same group as the issuer in respect of:

  • Sukuk or debentures issued in Malaysian Ringgit (other than convertible loan stocks), approved or authorised by, or lodged with the Securities Commission (eligible in Clearstream Banking);
  • Sukuk originating from Malaysia (other than convertible loan stocks) issued in any currency other than Malaysian Ringgit, approved or authorised by, or lodged with, the Securities Commission, or approved by the Labuan Financial Services Authority (not eligible in Clearstream Banking)

A company is considered to belong to the same group as the issuer for the purposes of Paragraph 4, Section 2 of the Malaysian Income Tax Act, 1967 (‘ITA’) where:
(a) two or more companies are related within the meaning of section 6 of the Companies Act, 1965 (currently Section 7 of the Companies Act, 2016); or
(b) a company is so related to another company which is itself so related to a third company; or
(c) the same persons hold more than 50 per cent of the shares in each of two or more companies; or
(d) each of two or more companies is so related to at least one of two or more companies to which paragraph (c) applies.

Customers having beneficial owners that are non-resident companies within the same group as the issuer are responsible for ensuring the appropriate tax rate is applied to interests paid to these types of beneficial owners by sending the required documentation to Clearstream Banking.

Description of the process

Upon request from the depository, HSBC Malaysia, Clearstream Banking will release a SWIFT notification to its customers to request the beneficial owner’s details.

Customers having beneficial owners that are non-resident companies within the same group as the issuer should submit to Clearstream Banking the following documentation:

  • A breakdown of holdings (via MT599 attention “SIT, Tax Services Singapore”) giving the following details:
    • Account number;
    • Isin code;
    • Payment date;
    • Total holding;
    • Full name of the final beneficial owner(s);
    • Full address of the final beneficial owner(s) for tax purposes;
    • Tax identification number or registration number of the final beneficial owner(s) (when available);
    • Holding per final beneficial owner(s);
    • Tax rate to be applied (that is, 15%).
  • Any other tax documentation required from time to time.

Based on the above documentation, 15% withholding tax will be applied to the beneficial owners that are non-resident companies within the same group as the issuer.

Deadlines for receipt of documents

The above documents must be received by Clearstream Banking by the deadline stated in the SWIFT notification

Important

If the final beneficial owner is subject to the above-mentioned taxation, then, on request from the customer, 15% withholding tax should be applied. It is the responsibility of the customer to ensure that final beneficial owners are eligible for the tax rates applied for (that is, 15%) including the Clearstream Banking default rate (that is, 0%). Neither Clearstream Banking nor its local depository has any direct or indirect liability towards the Malaysian authorities in this regard.

Customers are responsible for ensuring compliance with the above and agree to indemnify and hold harmless, Clearstream Banking, for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by Clearstream Banking arising out of or resulting from such non-compliance.

Capital gains tax

There is no capital gains tax withheld through Clearstream Banking on securities held in Clearstream Banking. Capital gains tax may however be payable on specific gains. Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

Stamp Duty

The following stamp duties may be payable on specific transactions in the Malaysian market.

Contract stamp duty

Contract stamp duty amounts to MYR 1 per MYR 1000 (or part thereof) of the underlying value of a Bursa Securities-listed security transaction. This amount is paid both by the buyer and by the seller.

The duty is chargeable on the contract note that is executed in Malaysia between the local broker and the investor in accordance with the Stamp Act, 1949. It is standard market practice for the broker to charge such stamp duty on behalf of the Malaysian Inland Revenue Department by including it in the settlement countervalue.

Accordingly, as the counterparties to a trade are directly liable to the Malaysian Inland Revenue Department for the payment of such duty, Clearstream Banking requires no specific information on payment in the customer's settlement instruction and does not assist in this regard.

No contract stamp duty is payable on:

  • Portfolio transfers involving No Change of Beneficial Ownership (NCBO transfers), since brokers are not involved in these transactions.
    Customers transferring securities to another custodian or agent are required to indicate the NCBO status in the transfer instructions submitted to Clearstream Banking.
  • SSTS-eligible (Scripless Securities Trading System) debt securities, for which no proof is required that an NCBO transfer has been effected.

Transfer stamp duty

For Bursa Securities-listed securities, no transfer stamp duty is payable on book-entry transactions in the BMD (Bursa Malaysia Depository Sdn Berhad), as the securities remain in the nominee name of the BMD.

No transfer stamp duty is payable on SSTS-eligible debt securities.

Revenue stamp duty

Revenue stamp duty may be payable on certain corporate actions.

Clearstream Banking does not assist in this regard. Please consult your tax advisor for further information.

Holding restriction

Malaysian securities may not be held in Clearstream Banking on behalf of beneficial owners that are Malaysian nationals.

Clearstream Banking’s account is designated as a “foreign” account and no securities that are owned by Malaysian nationals and/or residents may be held in this account. Customers are responsible for ensuring compliance with these restrictions and agree to indemnify and hold harmless, Clearstream Banking, for any loss, expense, liability, damage or claims, whether direct or indirect, against or incurred by Clearstream Banking arising out of or resulting from such non-compliance.

Please refer to the Other services – Malaysia  section of the Creation Link Guide - Malaysia for further information.