The France-Malaysia tax treaty, article by article

The France-Malaysia convention was signed in Paris on April 24, 1975. According to Article 2, it covers income tax and corporate tax in France, and income tax, a supplementary tax, and tax on oil revenues in Malaysia. The official tax records only classify it as income tax and do not include information on wealth, inheritance, or gifts. It caps French tax on dividends paid to a Malaysian resident at 5 or 15 1 ...

This page follows the consolidated text published by the French administration, which incorporates the two amendments and the multilateral convention (MLI), and the BOFiP doctrine.

A text from 1975, two amendments, and the MLI since the end of 2021

The convention. Signed in Paris on April 24, 1975, with a protocol, it entered into force on July 23, 1976.

The amendments. The first was signed in Kuala Lumpur on January 31, 1991 (effective May 6, 1992). The second, signed in Putrajaya on November 12, 2009, entered into force on December 1, 2010 and applies to income from January 1, 2010.

The MLI. It entered into force on 1 January 2019 for France and on 1 June 2021 for Malaysia. It applies to the convention from 1 January 2022 for taxes withheld at source, and for other taxes from periods beginning on 1 December 2021.

The taxes in question (Article 2). In France, income tax and corporation tax. In Malaysia, income tax, an additional tax (tin, development, timber) and a tax on oil revenues.

Maximum deductions and key rules

Who is a resident? The tie-breaker under Article 4

A person is a resident of each State if they are a resident there for tax purposes. If an individual is a resident of both States, the convention applies the following criteria in order: permanent home, then, if they have one in each State, the closest personal and economic ties; failing that, habitual residence; failing that, nationality; failing that, the agreement of the competent authorities.

Dividends: the direction of payment changes the rule

When a French company pays a dividend to a Malaysian resident, Article 10 caps French tax at 5% of the gross amount if the recipient is a company holding at least 10% of the share capital, and at 15% in all other cases. An individual is therefore subject to the 15% rate.

Conversely, the text exempts dividends paid by a Malaysian company to a French resident from all dividend tax in Malaysia. For a Malaysian company's permanent establishment in France, withholding tax is capped at 15% of two-thirds of profits after corporate tax.

Interest, royalties and technical services

Interest is taxable in the beneficiary's state of residence. The source state may also tax it, up to a limit of 15% of the interest amount, provided the beneficial owner is a resident of the other state. Interest on approved loans paid to a resident of France is exempt from Malaysian tax.

Royalties follow the same logic, with a cap of 10 % subject to the same beneficial ownership requirement. Approved royalties paid to a resident of France by a resident of Malaysia are exempt from Malaysian tax. Films and works for television or radio remain taxable according to the law of the source state.

Article 12A, specific to this convention, concerns remuneration for technical, managerial, or consulting services paid to a person other than an employee of the payer. Such remuneration is taxable in the source state, at a maximum of 10% of the gross amount, unless it relates to a permanent establishment in the source state.

Wages: two 183-day rules that are not symmetrical

Article 14 establishes the principle: salaries are taxable in the state of residence, unless the employment is carried out in the other state. Two exceptions exist, and the text does not formulate them in the same way.

For a resident of Malaysia who works in France, he is taxable only in Malaysia if four conditions are met: a stay in France of no more than 183 days in total "during the calendar year in question"; a stay in France over an uninterrupted period of no more than 183 days; an employer not resident in France; an expense not borne by a permanent establishment in France.

For a French resident working in Malaysia, the four conditions are the same, with one difference: the total of 183 days is measured "over any base year corresponding to a tax year." The requirement of an uninterrupted period is therefore added to the total number of days.

This convention threshold is not the same as that for Malaysian tax residency, which is 182 days: our page on living in Malaysia distinguishes between them.

Self-employment, pensions and public functions

Article 15 follows the same pattern for self-employed professions: a resident of Malaysia who works in France remains taxable in Malaysia only if his stay in France does not exceed 183 days in the calendar year, without an uninterrupted period exceeding 183 days, and if the remuneration is not deductible from the income of a person subject to French tax.

Private pensions paid in respect of previous employment are taxable only in the recipient's state of residence (Article 18), subject to Article 19. Article 19 deals separately with public functions. Remuneration paid by one state to a person who is a national of that state but not of the other, in respect of services rendered in the exercise of public functions, is exempt from tax in the other state; this rule does not apply to remuneration paid in respect of a commercial or industrial activity carried on by a state. Public pensions paid in respect of previous public service are taxable in the state that pays them.

Real estate and capital gains

Income from real estate is taxable in the state where the property is located. For France, the protocol refers to French tax law to define real estate. Capital gains on buildings, and on shares in real estate co-ownership companies or companies whose assets are primarily real estate, are taxable according to the location of the property. Capital gains on other assets are taxable only in the state of which the seller is resident.

Eliminating double taxation: Article 23

France exempts income taxable in Malaysia under the convention, except for income eligible for a tax credit: dividends, interest, royalties (Articles 10, 11, and 12), and Articles 15, 16, and 17. The credit corresponds to the tax levied in Malaysia, but cannot exceed the French tax levied on this income. For royalties referred to in Article 12, paragraph 5(b), it cannot exceed 15% of their gross amount. The tax levied in Malaysia is deemed to include certain amounts not paid due to economic incentive exemptions, with a ceiling of 15% for the interest and royalties concerned: the conditions are set out in the text (Article 23, paragraph 1(c)). Malaysia, for its part, grants a credit against French tax.

Inheritance and gifts: the convention does not address these.

The administrative register for Malaysia only provides information on income tax. The columns for wealth, inheritance, and gifts are empty. This page says nothing about Malaysian inheritance law.

Other articles and what this page does not cover

Article 24 prohibits imposing "other or heavier" taxation on nationals of the other state in the same situation. Article 25 establishes the mutual agreement procedure: the request must be submitted within three years of the first notification of the measure. Article 26 governs the exchange of information, and banking secrecy does not allow for its refusal. A clause in the MLI allows for the refusal of a benefit if one of the main objectives of an arrangement or transaction was to obtain it, except in cases where the benefit is consistent with the object and purpose of the agreement.

This page does not detail permanent establishment or Articles 16 and 17.

Dividends and mission to Malaysia: a numerical example (fictitious profile)

Situation. A Malaysian company (fictitious profile) holds 12 shares of a French company that pays it €200,000 in gross dividends (assumptions). Furthermore, an employee residing in France, working for a French company, makes two trips to Malaysia during the same base year: 120 consecutive days, then 50 days.

Issue. The company wants to know the maximum withholding tax in France. The employee wants to know if they are only taxable in France.

Strategy. The company applies Article 10: it holds at least 10 % of the capital. The employee compares the total number of days and the longest uninterrupted period to the two 183-day ceilings of Article 14 § 3.

Result. The French withholding tax cannot exceed €10,000 for 5 % employees, compared to €30,000 for 15 % employees without the required contribution, a difference of €20,000. The employee has accumulated 170 days, which is 13 days below the threshold, with an uninterrupted period of 120 days. A single stay of 189 days would exceed the threshold by 6 days.

This profile is fictitious. The calculations do not take into account either the Malaysian company's tax status or the employee's French tax status. No outcome is guaranteed. Malaysian law should be reviewed in consultation with local legal counsel.