Double Tax Agreements (DTAs) are bilateral agreements between two countries that are designed to prevent double taxation of income earned by taxpayers in both countries. These agreements also promote trade and investment by removing tax barriers to cross-border transactions.
One such DTA is the agreement between Malaysia and Germany, which was signed on 5th October 2012 and came into force on 1st January 2014. This agreement is aimed at providing relief from double taxation for individuals and businesses operating in both countries.
The agreement provides that income earned by a resident of either country will be taxed only in that country, subject to certain conditions. This ensures that taxpayers are not subject to double taxation on the same income in both countries.
Under the agreement, the following types of income are covered:
1. Business profits: Profits earned by a resident in one country from carrying on a business in the other country will be taxed only in the country of residence, except in situations where the resident has a permanent establishment in the other country.
2. Dividends: Dividends paid by a resident of one country to a resident of the other country will be taxed at a maximum rate of 15%.
3. Interest: Interest paid by a resident of one country to a resident of the other country will be taxed at a maximum rate of 10%.
4. Royalties: Royalties paid by a resident of one country to a resident of the other country will be taxed at a maximum rate of 10%.
The agreement also provides for the exchange of information between the tax authorities of the two countries to prevent tax evasion and ensure compliance with the DTA.
In conclusion, the DTA between Malaysia and Germany is an important agreement that promotes trade and investment between the two countries by providing relief from double taxation. It provides clarity on the tax treatment of income earned by taxpayers in both countries and ensures that taxpayers are not subject to double taxation on the same income. The agreement also helps to prevent tax evasion and promotes compliance with tax laws in both countries.