Chapter 1: Scope of Charge Cheat Sheet (DRAFT) by account

In Malaysia, the law governing income taxation is the Income Tax Act 1967 (Act 53/1967). A transa­ction must fall within the ambit of 'scope of charge' as provided in Section 3 of the Act to be liable to income tax. If it is not within the ambit of Section 3 of the Act, no income tax is due in respect of such transa­ction. In short, it is tax free.

Section 3 of the Act provides:

"­Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each YA upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malays­ia."­

Section 3 sets out two circum­stances where income tax liability arises­,na­mely:
(a) the transa­ction must be 'income' in nature and such income is accrued in or derived from Malaysia
(b) the transa­ction must be 'income' in nature and it is received in Malaysia from outside Malaysia (foreign source income).