The new income tax treaty between Malaysia and Poland entered into force on 12 January 2023. The treaty, signed 8 July 2013, replaces the 1977 tax treaty between the two countries.

Taxes Covered

The treaty covers Malaysian income tax and petroleum income tax, and covers Polish personal income tax and corporate income tax.

Withholding Tax Rates

• Dividends - 5%
• Interest - 10%
• Royalties - 8%
• Fees for Technical Services (technical, managerial, or consultancy) - 8%

Limitation on Benefits

Articles 10 (Dividends), 11 (Interest), 12 (Royalties), and 13 (Fees for Technical Services) include the provision that the benefits of the respective Article will not apply if the main purpose or one of the main purposes of any person concerned with the creation or assignment of the shares, debt-claims, rights, or services in respect of which the income is paid is to take advantage of the respective Article by means of that creation or assignment.

Note that this treaty is impacted by the BEPS MLI, including that the above limitation on benefits provisions are replaced by the MLI principal purpose test. This provides that a benefit under the treaty shall not be granted in respect of an item of income or capital if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit, unless it is established that granting that benefit in these circumstances would be in accordance with the object and purpose of the relevant provisions of the treaty.

Capital Gains

The following capital gains derived by a resident of one Contracting State may be taxed by the other State:

• Gains from the alienation of immovable property situated in the other State;
• Gains from the alienation of movable property forming part of the business property of a permanent establishment in the other State; and
• Gains from the alienation of shares deriving more than 50% of their value directly or indirectly from immovable property situated in the other State.

Gains from the alienation of other property by a resident of a Contracting State may only be taxed by that State.

Double Taxation Relief

Both countries apply the credit method for the elimination of double taxation.

Effective Date

The treaty generally applies from 1 January 2024. However, Article 25 (Mutual Agreement Procedure) and Article 26 (Exchange of Information) are effective from the date of the treaty's entry into force, without regard to the taxable period to which the matter relates.

The 1977 treaty between the two countries ceases to have effect and is terminated from the date the new treaty is effective.