Foreign Bank Interest: When It Is Taxed & How to Report

Introduction

You have a savings or fixed deposit account at a bank abroad — for example, from your time working overseas. Is the interest accruing in that foreign bank taxable in Malaysia? And if so, how and when must it be reported?

This article explains the tax treatment of interest from foreign bank/savings accounts for individuals: the general rule in s.3 ACP 1967, the foreign source income (FSI) exemption, reporting in the Income Tax Return Form (BNCP), and the exchange rate to use.

General rule — s.3 ACP 1967

Income tax is charged on income that accrues in or derives from Malaysia, or is received in Malaysia from outside Malaysia (s.3 ACP 1967). Interest from a foreign bank account is income deriving from outside Malaysia — so whether it is taxed depends on whether it is received in Malaysia.

FSI after 1.1.2022 — generally taxable

From 1 January 2022, following the amendment to Paragraph 28 of Schedule 6 ACP, all foreign source income (FSI) received in Malaysia by residents is generally subject to tax. This includes foreign bank interest that is remitted/brought into Malaysia.

FSI exemption for individuals — conditional

There is a special exemption for resident individuals: FSI (including interest) is exempt provided the income has been subject to tax in the source country. This exemption is provided under P.U.(A) 234/2022 and has been extended by P.U.(A) 451/2024 until 31 December 2036 (effective 1 January 2027).

Distinguish: domestic deposit interest vs foreign bank interest

The exemption for deposit interest from licensed financial institutions in Malaysia (domestic regime) does not apply to interest from foreign banks. These are two different regimes — do not confuse them.

Reporting — even if exempt

Individuals receiving FSI (including foreign interest) must:

• Declare FSI in BNCP even if it is exempt;
• Keep supporting documents, for example the source-country notice of assessment showing the income was taxed there (R1, §5.2.4);
• Use the foreign exchange rate at the date the income was remitted when filling the relevant box (Form B Notes);
• Answer the question in Form B, Part D, box D5: "Do you have financial accounts in financial institutions outside Malaysia? 1=Yes 2=No".

If tax has been paid in the source country, a claim for foreign tax credit (HK-8/HK-9 in Form B) may apply to the portion of income remitted to Malaysia.

Transparency context — CRS/AEOI

Malaysia participates in the Common Reporting Standard (CRS) / automatic exchange of information (AEOI): financial account information is exchanged automatically with partner countries. This is a transparency/information-sharing matter, not a Malaysian tax provision itself.

this item still awaits official confirmation from HASiL — check again with HASiL before deciding. notes from research

Frequently Asked Questions (FAQ)

Q. Is interest from a foreign bank account taxable? A. If it is received in Malaysia, FSI is generally taxable from 1.1.2022. Resident individuals are exempt if the income has been subject to tax in the source country (P.U.(A) 234/2022, extended by P.U.(A) 451/2024 until 31.12.2036).

Q. Do I need to report even if exempt? A. Yes — FSI must be declared in BNCP with supporting documents; and answer Form B question D5 about owning financial accounts outside Malaysia.

Q. Which exchange rate do I use? A. The foreign exchange rate at the date the income was remitted (Form B Notes).

Q. Does the domestic deposit interest exemption apply to foreign banks? A. No — the exemption for deposit interest from licensed Malaysian financial institutions does not apply to foreign bank interest. These are two different regimes.

Glossary

• AEOI/CRS — automatic exchange of financial account information with partner countries.
• BNCP — Income Tax Return Form (Borang Nyata Cukai Pendapatan).
• FSI — foreign source income.
• Resident — an individual eligible as a Malaysian tax resident.
• Remittance — bringing income from outside Malaysia into Malaysia.
• YA — Year of Assessment.