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The trust body is distinct from its beneficiaries, and the residence position of each is determined independently. The taxability of a beneficiary will usually be affected by their residence position and, to some extent, by the residence position of the trust body. Apart from determining the tax rate applicable to it, the residence position of the trust body does not affect its own taxability. A non-resident trust is taxed at the normal non-resident rate (28%), but the rate for a resident trust may be different (for example, 27% for the year of assessment 2007).
There is a special rule to ascertain the residence position of a trust body. In general, a trust body is resident for a basis year for a year of assessment if any one or more of the trustees is resident for that year. However, the trust body will not be resident for that year if any of the following occur:
The trust was created outside Malaysia by a non-citizen;
The trust income for the basis year was wholly derived outside Malaysia;
The trust was administered for the whole of the basis year outside Malaysia; or
At least half the trustees were not resident in that basis year.
The tax residence of an individual beneficiary is determined under Section 7 of the Act in the usual way, as is the residence of any individual trustee. The residence of a corporate trustee is determined in accordance with Section 8.
Source of income
It is important for a trust body to consider the rules that apply to sources of income. Income that accrues in (or is derived from) Malaysia, or is deemed to be derived from Malaysia, is income of the trust for tax purposes. Foreign source income is not within the scope of charge. Even if it is received in Malaysia, it is exempt by Paragraph 28 of Schedule 6 of the Act.
A non-resident trust had the following income for the year of assessment 2007 (the basis period being the year to 31 December – see table below):