Profit Repatriation in Malaysia

What is profit repatriation?

Profit repatriation refers to the process by which foreign companies or investors transfer earnings generated within Malaysia back to their home country or another jurisdiction. This practice enables parent companies to access returns on their overseas investments, redistribute capital across global operations, and fulfill obligations to shareholders and creditors.

Contributing Advisor

Quinn Lu

Senior Associate, International Business Advisory

For multinational corporations, profit repatriation serves multiple strategic purposes.

• It allows headquarters to consolidate global earnings;
• Redeploy capital to higher-yielding opportunities;
• Service debt obligations; and,
• Distribute dividends to ultimate shareholders.

Many multinational enterprises maintain complex treasury management systems that rely on predictable and efficient repatriation channels to optimize their global cash positions.

Malaysia has contributed significantly to the country's success in attracting over RM 106.8 billion in approved foreign investments during the first half of 2025.

Businesses commonly transfer profits from Malaysia through several channels:

• Dividend distributions to shareholders;
• Royalty payments for intellectual property usage;
• Management and technical service fees compensating parent companies for support services;
• Interest payments on inter-company loans; and,
• Rental income for leased equipment or property.

Each method carries distinct tax implications and documentation requirements.

Profit repatriation vs remittance

While the terms are sometimes used interchangeably, repatriation and remittance have distinct meanings in financial terminology.

Repatriation specifically refers to the transfer of investment returns, business profits, or capital by corporate entities or investors from the host country back to the home jurisdiction. It typically involves structured transactions between related corporate entities and is subject to corporate tax frameworks.

Remittance, by contrast, generally describes personal money transfers sent by individuals—particularly migrant workers—to family members or personal accounts in their home countries. These transactions are typically smaller in value, more frequent, and subject to different regulatory treatment. Malaysia received approximately US$ 1.7 billion in personal remittances in 2023, while remittance outflows reached several billion dollars, reflecting the country's substantial expatriate workforce.

Malaysia's legal and regulatory framework

Foreign exchange policy by Bank Negara Malaysia

Bank Negara Malaysia is the principal authority regulating foreign exchange transactions under the Foreign Exchange Administration Rules issued pursuant to the Financial Services Act 2013 and Islamic Financial Services Act 2013, with the current Foreign Exchange Policy Notices effective from June 1, 2022 governing cross-border transactions by residents and non-residents.

Malaysia maintains a liberal foreign exchange regime with no quantitative restrictions on the repatriation of capital, profits, dividends, royalties, rental income, or interest, and non-residents may generally remit funds abroad in any foreign currency without prior BNM approval, subject to documentation and reporting requirements. Payments and receipts in foreign currency are broadly permitted under FEP Notice 4, except for limited restricted activities, and most foreign exchange transactions are conducted through licensed onshore banks acting as authorized dealers.

Companies Act 2016 requirements

The Companies Act 2016 governs corporate governance and dividend distributions, requiring under Section 131 that dividends be paid only out of profits and that the company remain solvent immediately after distribution.

Directors must conduct a solvency assessment, including evaluating whether the company can meet its debts within 12 months, typically supported by financial forecasts and ratio analysis. Directors may incur personal liability if dividends are approved without reasonable grounds for solvency, and shareholders are entitled to equal treatment in dividend distributions unless otherwise provided by the company’s constitution or share terms.

Inland Revenue Board and tax compliance

The Inland Revenue Board of Malaysia (LHDN) administers the Income Tax Act 1967 and ensures that all applicable corporate tax obligations are satisfied prior to profit repatriation. Section 109 imposes withholding tax requirements on specified payments to non-residents, including dividends, interest, royalties, and technical fees, requiring tax to be deducted at source. In certain situations, such as business cessation or expatriate departure, tax clearance certificates may be required to confirm that all outstanding tax liabilities have been settled.

Anti-Money Laundering compliance

The Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001 (AMLA) imposes strict due diligence, reporting, and record-keeping obligations on entities involved in cross-border transactions, with Bank Negara Malaysia as the primary enforcement authority. Key requirements include customer due diligence to verify identity and beneficial ownership, suspicious transaction reporting, and retention of transaction records. Financial institutions closely scrutinize profit repatriation transactions to ensure they are supported by legitimate commercial purposes and do not involve money laundering, terrorist financing, or other unlawful activities.

Reporting obligations and documentation

While Malaysia does not generally require prior approval for profit repatriation, reporting obligations apply to certain transactions. Large foreign currency transactions may need to be reported to BNM, with thresholds subject to periodic revision. Authorized dealer banks typically handle these reporting requirements on behalf of their clients.

Essential documentation for compliant repatriation includes:

• Audited financial statements demonstrating available profits;
• Board resolutions authorizing the distribution or payment;
• Tax compliance certificates showing withholding taxes have been properly deducted and remitted;
• Contracts or agreements substantiating the commercial basis for payments (particularly for royalties, management fees, and interest);
• Invoices and payment requests; and,
• Bank confirmation letters.

Maintaining comprehensive and contemporaneous documentation not only facilitates smooth processing by banks and regulatory authorities but also provides protection in the event of tax audits or transfer pricing examinations.

Methods of profit repatriation from Malaysia

Dividend payments

Dividend distribution represents the most common and straightforward method for repatriating profits from Malaysian subsidiaries to foreign parent companies or shareholders. Dividends are paid from a company's accumulated profits to its shareholders in proportion to their shareholdings, unless differential share rights apply.

Requirements and process

Under the Companies Act 2016, directors must authorize dividend payments after satisfying themselves that the company has sufficient distributable profits and will remain solvent following the distribution. Companies should prepare a formal board resolution documenting the dividend declaration, specifying the amount per share, payment date, and confirmation of solvency testing.

Since January 1, 2025, Malaysia has implemented a 2 percent dividend tax on individual shareholders receiving annual dividend income exceeding RM 100,000. This marks a departure from the previous single-tier system that fully exempted dividends from taxation. However, this tax applies only to individual shareholders; corporate shareholders, including foreign parent companies, continue to receive dividends without additional taxation at the shareholder level beyond the corporate income tax already paid by the distributing company.

Tax treatment

Dividends paid by Malaysian companies to foreign corporate shareholders are generally not subject to withholding tax, as dividends are considered "franked" income that has already borne corporate income tax at the company level. This single-tier system eliminates double taxation on distributed profits. The standard corporate income tax rate in Malaysia is 24 percent, though reduced rates apply to certain categories of businesses.

Foreign shareholders receiving dividends may need to report this income in their home jurisdiction, potentially benefiting from foreign tax credit mechanisms if double taxation agreements provide relief. Companies should consult their home country tax advisors to understand the full implications.

Management fees and service charges

Management and service fees compensate parent companies or affiliated entities for providing administrative, technical, or professional support to Malaysian operations. These may include strategic planning, financial management, human resources support, IT services, marketing guidance, or other shared services.

Transfer Pricing implications

Management fee arrangements between related parties are subject to Malaysia's transfer pricing rules, which require that such charges reflect the arm's length principle—the price that would be agreed upon by unrelated parties in comparable circumstances. The Malaysian Inland Revenue Board has intensified transfer pricing audits in recent years, particularly scrutinizing management fees, royalty payments, and intra-group financing arrangements.

Companies must prepare contemporaneous transfer pricing documentation to substantiate that management fees represent fair compensation for actual services rendered.

Documentation should include detailed descriptions of services provided, methodologies for allocating costs, benchmarking analysis demonstrating arm's length pricing, and evidence of actual service delivery (reports, meeting minutes, correspondence).

Required supporting documents

In addition to transfer pricing documentation, companies should maintain service agreements clearly defining the scope and pricing of services, monthly or quarterly service reports documenting activities performed, invoices detailing charges and allocation methodologies, and proof of actual value addition to the Malaysian entity.

Withholding Tax

Management fees paid to non-residents who do not have a permanent establishment in Malaysia are classified as "special classes of income" under Section 4A of the Income Tax Act and are subject to 10 percent withholding tax under Section 109B. This rate may be reduced under applicable double taxation agreements, with many treaties providing for rates of 5 percent or exemption for certain technical and management services.

Royalties and licensing fees

Under the Income Tax Act 1967, royalties encompass payments for the use of, or right to use, any intellectual property, including software licenses, media content, industrial or scientific equipment rights, and commercial information. Recent guidance from the Inland Revenue Board has clarified that software licensing arrangements—even when they involve limited distribution rights—generally constitute royalty payments rather than mere product purchases.

Approval requirements

While Malaysia does not generally require prior approval for royalty payments to non-residents, companies must ensure compliance with transfer pricing requirements and withholding tax obligations. Licensing agreements should be properly documented, demonstrating the commercial rationale for the arrangement and the value of the intellectual property to the Malaysian business.

Withholding Tax rates

Royalty payments to non-residents are subject to 10 percent withholding tax under domestic Malaysian law. However, double taxation agreements typically provide reduced rates, commonly ranging from 8 percent to 10 percent depending on the treaty partner and type of royalty. For example, the Malaysia-Singapore DTA provides for 8 percent withholding on royalties, while agreements with certain European countries may offer more favorable treatment.

Companies should carefully review the applicable DTA to determine eligibility for reduced rates and ensure proper documentation (such as tax residency certificates) is obtained from the non-resident payee to claim treaty benefits.

DTA benefits:

To benefit from reduced withholding rates under a double taxation agreement, the Malaysian payer must verify that the non-resident recipient is a tax resident of the treaty country and is the beneficial owner of the royalty income. This typically requires obtaining a tax residency certificate from the foreign tax authority and a beneficial ownership declaration.

Loan repayments and interest payments

Inter-company loans between foreign parent companies and Malaysian subsidiaries represent another channel for profit extraction, with interest payments serving as a mechanism for transferring value. 

Central Bank approval conditions

Under Bank Negara Malaysia's Foreign Exchange Policy, Malaysian resident entities may generally borrow foreign currency from non-residents without prior approval, subject to certain conditions and thresholds. Resident entities with domestic Ringgit borrowings exceeding RM1 million equivalent must obtain BNM approval for foreign currency borrowings from related parties.

For borrowings in foreign currency, resident entities should maintain proper documentation, including loan agreements specifying terms, interest rates, repayment schedules, and security arrangements. Banks processing interest payments to non-residents will typically require evidence that the underlying loan complies with foreign exchange regulations.

Thin capitalization and related-party loans

Malaysia introduced earnings stripping rules under Section 140C of the Income Tax Act to address excessive debt financing in related-party transactions. While full thin capitalization regulations have not been comprehensively implemented, the earnings stripping provisions restrict interest deductions where entities are excessively debt-funded by related parties.

Companies should carefully evaluate debt-to-equity ratios in their Malaysian entities, particularly when financing is provided by or guaranteed by related parties. Excessive leverage that lacks commercial justification may result in disallowance of interest deductions or challenges under transfer pricing rules.

Interest Withholding Tax:

Interest paid to non-residents is subject to 15 percent withholding tax under domestic law. However, double taxation agreements frequently provide significant relief, with many treaties reducing withholding tax on interest to 0 percent, 10 percent, or 15 percent depending on the recipient and circumstances.

Certain types of interest may qualify for exemptions, including interest on loans from foreign financial institutions for specific purposes and interest falling within the "portfolio interest" exemption in some jurisdictions.

Capital reduction or share buybacks

Capital repatriation through capital reduction or share buyback mechanisms allows foreign shareholders to extract value without characterizing the proceeds as dividends or business income. This approach is particularly relevant when winding down operations, adjusting capital structure, or returning surplus capital.

When it's allowed

The Companies Act 2016 permits companies to reduce share capital or repurchase their own shares, subject to solvency requirements and proper procedures. Capital reductions must be authorized by special resolution of shareholders and require the company to satisfy a solvency test.

Share buybacks can be conducted through selective reduction, where the company purchases shares from specific shareholders, or proportionate reduction, maintaining existing shareholding percentages. The commercial rationale and compliance with statutory procedures must be carefully documented.

Steps to complete capital repatriation

Implementing capital repatriation involves obtaining board and shareholder approval through appropriate resolutions, conducting solvency testing to confirm the company can meet obligations after the capital reduction, preparing and filing required notices with the Companies Commission of Malaysia, amending the company's constitution if necessary to reflect the reduced capital, processing payments to shareholders through authorized dealer banks with proper documentation, and maintaining records for tax and corporate compliance purposes.

Tax treatment

Capital reductions and share buybacks may trigger capital gains tax implications. Malaysia implemented a capital gains tax regime effective March 1, 2024, imposing a 10 percent tax on net gains from disposal of unlisted company shares by corporate entities. This applies to shares of Malaysian companies and, under certain conditions, shares of foreign companies with substantial real property interests in Malaysia.

Certain exemptions apply, including restructuring within corporate groups, initial public offerings, and venture capital companies. Companies should carefully evaluate CGT implications when planning capital repatriation transactions.

Comparison of repatriation methods

Many multinationals employ a combination of methods to optimize their overall repatriation strategy.

Tax implications of profit repatriation in Malaysia

Malaysia imposes withholding taxes on certain types of payments to non-residents, effectively collecting tax at the source before funds leave the country. The standard domestic withholding tax rates are:

• Dividends: 0 percent to corporate recipients (single-tier system; already subject to corporate tax).
• Interest: 15 percent.
• Royalties: 10 percent.
• Technical fees: 10 percent.
• Management/service fees: 10 percent.
• Contract payments: 10 percent on the service component.

These rates represent the baseline under Malaysian domestic law. However, double taxation agreements frequently provide reduced rates or exemptions, making treaty analysis an essential component of repatriation planning.

From January 1, 2025, resident and non-resident individuals receiving dividend income exceeding RM 100,000 annually are subject to a 2 percent dividend tax. This new measure expands Malaysia's tax base but does not affect corporate shareholders who continue to benefit from the single-tier dividend system.

Tax planning strategies for minimizing repatriation cost

Effective tax planning can significantly reduce the cost of profit repatriation while maintaining full compliance with Malaysian regulations:

• Structure ownership and payment flow to maximize access to favorable treaty rates, ensuring proper documentation is in place to claim treaty benefits.
• Combine different repatriation methods (dividends, management fees, royalties) based on their relative tax efficiency and commercial justification, with proper attention to transfer pricing requirements.
• Plan repatriations to align with tax year-ends, changes in tax rates, or currency movements that may affect net proceeds.
• Evaluate whether intermediate holding companies in treaty-favorable jurisdictions provide legitimate commercial benefits and tax efficiency, being mindful of anti-treaty-shopping provisions.
• For companies with complex intra-group transactions, consider negotiating advanced pricing agreements with the Inland Revenue Board to obtain certainty on transfer pricing treatment.

All tax planning should be driven by genuine commercial substance and business rationale, not solely tax minimization. Aggressive tax avoidance schemes risk penalties, reputational damage, and challenges by tax authorities.

Step-by-step process for repatriating profits from Malaysia

Successfully repatriating profits from Malaysia requires careful attention to sequential compliance steps, proper documentation, and coordination among various stakeholders including internal finance teams, external advisors, banks, and regulatory authorities.

Step 1: Ensure compliance with Malaysian Tax and Company Laws

Before initiating any profit repatriation, conduct a comprehensive compliance review to verify that all statutory obligations are current. This includes confirming that annual corporate income tax returns have been filed and all taxes paid, statutory financial statements have been prepared and audited according to Malaysian Financial Reporting Standards, annual returns have been filed with the Companies Commission of Malaysia, and all required regulatory filings with Bank Negara Malaysia, LHDN, and other authorities are up to date.

Address any outstanding compliance matters before proceeding with repatriation, as banks and authorities may scrutinize the company's regulatory standing when processing cross-border transfers.

Step 2: Fulfill all outstanding tax obligations

Verify that all current tax liabilities have been satisfied, including corporate income tax for the most recent assessment year, advance tax payments or installments for the current year, withholding taxes on previous payments to non-residents, sales and service tax (if applicable), and real property gains tax (if property disposals occurred).

If tax assessments are under dispute or audit, companies should evaluate whether to resolve these matters before repatriating profits or to set aside adequate reserves for potential additional liabilities.

For situations requiring tax clearance (such as winding-up scenarios or large-scale capital repatriation), initiate the clearance application process, allowing sufficient time for LHDN processing.

Step 3: Prepare audited financial statements and board resolution

Prepare current audited financial statements demonstrating the company has distributable profits available for repatriation. The financial statements should clearly show retained earnings and current year profits, reflect proper accounting for all liabilities and obligations, and comply with Malaysian Financial Reporting Standards.

The board of directors must formally authorize the repatriation through a properly documented resolution. For dividend distributions, the resolution should declare the dividend amount per share, specify the payment date and currency, confirm that directors have conducted solvency testing and are satisfied the company will remain solvent, identify the recipients, and authorize designated officers to execute the transaction.

For other payment types (management fees, royalties, interest), board minutes should document approval of the payment, acknowledgment of the commercial basis and arm's length nature of the transaction, and authorization of payment processing.

Step 4: Select the repatriation method

Based on the company's circumstances, select the most appropriate repatriation mechanism: dividends for distributing accumulated profits to shareholders, management fees for compensating actual services provided by the parent company, royalties for intellectual property licensing arrangements, interest payments for servicing legitimate inter-company debt, or capital reduction for returning capital rather than profits.

The selection should balance tax efficiency considerations, commercial substance and defensibility in potential audits, transfer pricing requirements and documentation burden, and practical cash flow and timing needs.

Many companies employ a combination of methods, using dividends for the primary profit distribution supplemented by management fees or royalties where commercially justified.

Step 5: Deduct applicable Withholding Tax

For payment types subject to withholding tax (interest, royalties, management fees), calculate and deduct the appropriate withholding tax before remitting to the non-resident recipient. The withholding percentage depends on whether a double taxation agreement provides reduced rates.

The payer is responsible for deducting withholding tax at the time of payment and remitting it to LHDN within one month using the appropriate form:

• Form CP37: Interest payments.
• Form CP37A: Royalties, technical fees, and special classes of income.
• Form CP37C: Contract payments.

Maintain copies of all withholding tax returns and payment receipts as evidence of compliance.

Step 6: Compile documentation

Assemble comprehensive supporting documentation for the repatriation transaction, including:

• Audited financial statements, management accounts demonstrating profitability, solvency test documentation (for dividends).
• Board resolution authorizing the payment, shareholder resolution (if required for dividends or capital reduction), company constitution and share certificates.
• Tax clearance certificate (if applicable), withholding tax returns and payment receipts, tax residency certificate from recipient (for DTA claims), beneficial ownership declarations.
• Service agreements (for management fees), licensing agreements (for royalties), loan agreements (for interest), invoices and payment requests, transfer pricing documentation.
• Bank Negara Malaysia approval (if required for certain transactions), AMLA due diligence records.

Maintain both original documents and electronic copies for audit trails.

Step 7: Submit through authorized dealer banks

Process the foreign currency remittance through a licensed onshore bank (authorized dealer). Submit the payment instruction along with all required supporting documentation to the bank.

Banks may request additional information or clarification, particularly for large or unusual transactions. Maintain open communication with the bank's remittance desk to facilitate smooth processing.

Step 8: Report large transactions to BNM

While most profit repatriation transactions do not require prior approval from Bank Negara Malaysia, reporting obligations may apply to large transactions exceeding certain thresholds. Authorized dealer banks typically handle these reporting requirements on behalf of their clients, but companies should confirm that proper notifications have been made.

For transactions requiring BNM approval (such as certain large-scale capital repatriations or transactions involving specific restrictions), submit applications well in advance of the planned transfer date to allow for processing time.

Step 9: Maintain compliance and audit trail

After completing the repatriation, maintain comprehensive records for the statutory retention period (typically seven years for tax-related documents). Proper record-keeping supports compliance in the event of tax audits, transfer pricing examinations, or other regulatory inquiries.

Records should be organized systematically, with clear connections between commercial rationale, legal authorization, tax treatment, and payment execution. Consider maintaining a repatriation register tracking all outbound transfers, withholding taxes, and compliance documentation.

Conduct periodic internal reviews to ensure repatriation practices remain compliant with evolving regulations, particularly given the 2025 updates to e-invoicing, global minimum tax, and AMLA requirements.