15% or 24%? What the Latest SCIT Decision Means for Foreign Companies Earning Interest in Malaysia

Many foreign companies keep money in Malaysian bank accounts and earn interest on it.

Under the Income Tax Act 1967, interest a non-resident receives from Malaysia can be taxed at 15%. Companies are normally taxed at 24%.

So which rate applies to a foreign company that also runs a business in Malaysia?

On 21 October 2026, the Special Commissioners of Income Tax (SCIT) decided a case on this question, MDCOGL v. Director General of Inland Revenue.

What happened in this case?

The company was a non-resident company, but it had a place of business in Malaysia, known as a permanent establishment (PE), for the years of assessment 2016, 2017 and 2018.

A PE is simply a fixed place in Malaysia where a foreign company carries on its business.

LHDN taxed the company's interest income for those three years at the 24% corporate rate. The company said the rate should be 15%.

What did the company argue?

The company said the 15% rule in Section 6(1)(b)(i) is written specifically for interest received by a non-resident. Nothing in it says the non-resident must not have a PE in Malaysia.

It also pointed out that the rule applies "notwithstanding any other provisions of this Act". So, in its view, the 15% rule should take priority over the general 24% rate.

On withholding tax, the company said it is only a way of collecting the tax. The fact that no withholding tax was deducted should not turn a 15% rate into 24%.

What did LHDN argue?

LHDN said that although the company was a non-resident, it had a PE in Malaysia and the bank deposits were connected to its Malaysian business. So the interest had to be declared in its tax return and taxed at 24%.

LHDN also said the 15% rule is expressly subject to Section 109, the withholding tax provision. Since the interest was not subject to withholding tax under Section 109, the 15% rate did not apply.

So, what did the SCIT decide?

The SCIT dismissed the company's appeals. It found that the company had failed to discharge its burden of proof, which means the company did not prove its case.

The additional assessments for 2016, 2017 and 2018, together with the penalties, were upheld.

In simple terms, the company lost, and the additional tax and penalties raised by LHDN for all three years stand.

Does this mean every foreign company with a PE loses the 15% rate?

Not necessarily. The case summary published by LHDN says the company failed to prove its case, but it does not explain which side's legal arguments the SCIT accepted. The company also still has the right to appeal within 21 days of the decision.

From a business perspective, the bigger lesson is about proof. If a foreign company has a PE in Malaysia and its bank deposits are linked to its Malaysian business, LHDN may require the interest to be declared in the tax return and taxed at 24%.

My advice is simple. Keep clear records of where the deposited money came from, what it is used for, and how the bank account relates to the PE's business, together with the basis for the tax rate applied.

A good argument on paper is not enough. In a tax appeal, it has to be backed by proof.

If your company is a foreign company in Malaysia and you are unsure how income should be taxed, our team can help review the tax treatment and prepare the supporting records for you. Feel free to WhatsApp us at 010-246 2151.