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Why M'sia is seen as a tax haven
P Stek | Feb 10, 09 12:32pm Source: www.malaysiakini.com
Malaysia’s banking secrecy laws and the Malaysia My Second Home (MM2H)
visa programme provide wealthy foreigners the ability to reduce or eliminate
their tax bill.
Although Singapore has come under pressure over its strict banking
secrecy laws, Malaysia has so far faced little criticism.
Rich Europeans have been avoiding paying taxes for years by taking up
residence in low-tax countries such as Switzerland or Monaco. Malaysia is
now emerging as a new and appealing alternative.
The MM2H visa is a 10-year social visit pass that allows foreigners to stay
in Malaysia, but they cannot work here. The visa is renewable.
Malaysia is an attractive place to take up residence because income remitted
from abroad is not taxed here. Malaysia has a ‘territorial taxation’ system
which means only income earned locally is taxed. Many other countries also
tax foreign income, so Malaysia’s tax regime can be very attractive.
The amount of tax that a person pays depends on where they are ‘tax
resident’. Different countries have different rules for determining whether
a person is ‘tax resident’ or not.
By holding the MM2H visa, applying for a local driver’s licence and opening
a local bank account, a person might be able to convince a foreign tax
authority that they are ‘tax resident’ in Malaysia even though they do not
normally live here. This can then exempt them from paying certain taxes.
Obtaining the MM2H visa and taking up residence in Malaysia is relatively
easy and inexpensive. The government requires foreigners to supply proof of
a fixed income from abroad, valid medical insurance and to make a deposit of
between RM150,000 and RM300,000 with a bank in Malaysia. Approximately
10,000 MM2H visas have been issued since the programme was initiated in
2002.
The MM2H visa compares favourably with similar schemes in Singapore and Hong
Kong that require a minimum investment of S$1 million (RM2.4 million) or
HK$6.5 million (RM3 million) respectively.
Secrecy assured
Another draw is Malaysia’s banking secrecy legislation, which is especially
strict in Labuan, an offshore banking centre.
According to the website of EC Trustco, a company handling offshore business
in Labuan “only in the case of suspicion of drug dealing, money laundering
and other similar serious criminal offences may result in information being
passed on to the relevant authorities”.
Labuan has
courted controversy in the past because of corporate
tax avoidance structures that exploited the island’s tax-free status.
Malaysia’s banking laws mean that banks are not allowed to cooperate with
foreign government’s so-called ‘fishing’ investigations.
HSBC, a large foreign bank, even advertises Labuan’s bank secrecy on its
website, saying: ‘In line with the secrecy provisions under the (Labuan)
Offshore Banking Act 1990, strict confidentiality is maintained on all
accounts.’
Therefore foreigners could be tempted to make deposits with banks in
Malaysia because they do not want to report these funds to their home
country’s tax authority.
If a foreign tax authority ever wonders why a person is remitting large
amounts of money to Malaysia, that person can always claim that they spent a
particularly unlucky weekend in the Genting casino!
Why the EU is silent
The European Union (EU) had made a big fuss about Singapore’s banking
secrecy laws during EU-Asean trade negotiations in 2007. Members of the
European Parliament (MEPs) also criticised Singapore for its investments in
Burma, which is a country on which the EU has imposed economic sanctions.
However the EU has remained quiet over Malaysia’s investments in Burma and
Labuan’s banking secrecy legislation. The European Commission representative
office in Kuala Lumpur was unable to comment on the matter.
It could be that the Europeans have simply not noticed Malaysia. In European
news reports, Singapore, Dubai and Hong Kong are frequently cited as
destinations for tax evasion. However Malaysia, Brunei and Macau are almost
never mentioned. Most of the criticism of Singapore was from MEPs who often
rely on news reports.
Banking secrecy and providing residence visas to wealthy foreigners are
essentially a way of stimulating tourism and foreign investment. But if
Malaysia’s status as an offshore financial centre and a tax haven grows, the
country could face more pressure as well.
The government will then have to make a choice between maintaining these
policies or changing them to placate Malaysia’s most important trade and
investment partners.
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