LHDN Amends Its Foreign Capital Gains Guideline: See What's New

LHDN has updated its guideline on the tax treatment of gains from the disposal of foreign capital assets received in Malaysia, dated 29 September 2026. Gains from disposing of a capital asset situated outside Malaysia, such as property, shares or intellectual property, are taxed when the money is received in Malaysia. These are the key updates.

First, the exemption window is longer. The exemption was previously available only until 31 December 2026. It now runs until 31 December 2030, giving another four years. The substance test itself stays the same. LHDN does not set a minimum number of employees, but looks at the type of industry, whether employees work full time or part time, and whether an adequate office is actually used. Only a service director employed under a contract of service counts as an employee, and outsourced work must be carried out in Malaysia under adequate monitoring and control.

Second, expenses can no longer be deducted. Previously, when working out the taxable gain, expenses incurred wholly and exclusively to acquire and dispose of the asset could be deducted, such as legal fees, appraiser fees, advertising and costs to increase or maintain its value. The updated guideline now treats foreign income brought into Malaysia as net income, so no further expenses are allowed once it is received. This matters most where the exemption does not apply, because the gain received is taxed without these costs reducing it.

Third, unit trusts now have their own exemption route. The previous guideline did not cover unit trusts, and they are now dealt with under a separate exemption order. A resident unit trust can qualify in one of two ways. The first is participation exemption. The gain must have been taxed in the country where it arose, and that country's highest tax rate, known as the headline tax rate, must be at least 15%. In simple terms, a gain already taxed in a country whose highest tax rate is 15% or more is exempted when received in Malaysia. The second way is economic substance at the unit trust's management company, meaning adequate qualified employees and operating expenditure in Malaysia.

Fourth, Labuan entities that elect to be taxed, or are subject to tax, under the Income Tax Act are now expressly covered.

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