Malaysia - Royalty

Article 13. Royalties

1.  Royalties arising in one of the States and paid to a resident of the other State may be taxed in that other State. 

2.  However, such royalties may also be taxed in the State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties the tax so charged shall not exceed: 

a. 10 per cent of the gross amount of the royalties where the royalties are as defined in sub-paragraph (a) of paragraph 6; and 
b. 15 per cent of the gross amount of the royalties where the royalties are as defined in sub-paragraph (b) of paragraph 6. 

3.  Notwithstanding the provisions of paragraph 2, approved industrial royalties as defined in paragraph 7 of this Article derived from Malaysia by a resident of the Netherlands shall be exempt from Malaysian tax. 

4.  The competent authorities of the States shall by mutual agreement settle the mode of application of paragraphs 2 and 3. 

5.  Royalties derived by a resident of the Netherlands, being royalties that, as film rentals, are subject to the cinematograph film-hire duty in Malaysia, shall not be liable to Malaysian tax. 

6.  The term “royalties” as used in this Article means payments of any kind received as a consideration for: 
a the use of, or the right to use, any patent, trade mark, design or model, plan, secret formula or process, copyright of any scientific work, or for the use of, or the right to use, industrial, commercial, or scientific equipment, or for information concerning industrial, commercial or scientific experience; 
b the use of, or the right to use, cinematograph films, or tapes for radio or television broadcasting, or any copyright of literary or artistic work. 

7.  The term “approved industrial royalties” means royalties as defined in sub-paragraph (a) of paragraph 6 which are approved and certified by the competent authority of Malaysia as payable for the purpose of promoting industrial development in Malaysia and which are payable by an enterprise which is wholly or mainly engaged in activities falling within one of the following classes: 

a manufacturing, assembling or processing; 
b construction, civil engineering or shipbuilding; or 
c electricity, hydraulic power, gas or water supply. 

8.  The provisions of paragraphs 1, 2 and 3 shall not apply lf the beneficial owner of the royalties, being a resident of one of the States, carries on business in the other State in which the royalties arise, through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 8 shall apply. 

9.  Royalties shall be deemed to arise in one of the States when the payer is that State itself, a political subdivision, a local authority or statutory body thereof, or a resident of that State. Where, however, the person paying the royalties, whether he is a resident of one of the States or not, has in one of the States a permanent establishment in connection with which the obligation to pay the royalties was incurred, and such royalties are borne by such permanent establishment, then such royalties shall be deemed to arise in the State in which the permanent establishment is situated. 

10.  Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each State, due regard being had to the other provisions of this Agreement. 

Protocol:

III. Ad Articles 11, 12, 13 and 13A

Where tax has been levied in excess of the amount of tax chargeable under the provisions of Articles 11, 12, 13 or 13A applications for the restitution of the excess amount to tax have go be lodged with the competent authority of the State having levied the tax, within a period of three years after the expiration of the calendar year in which the tax has been levied.