Understanding Common Reporting Standard

The Common Reporting Standard (CRS) is a global initiative designed to facilitate the automatic exchange of financial account information between countries for tax compliance purposes. Introduced by the Organisation for Economic Co-operation and Development (OECD), CRS aims to combat tax evasion and improve transparency in the international financial system. Since its implementation in 2017 and 2018, over 100 jurisdictions, including financial hubs like Hong Kong, Switzerland, and Luxembourg, have adopted CRS.

In Malaysia, CRS has been enforced since 2018 under the Income Tax Act 1967, administered by the Inland Revenue Board of Malaysia (LHDN). All Malaysian Financial Institutions (MFIs) required to comply with CRS must register with LHDN. These institutions are tasked with conducting due diligence on the financial accounts they manage, gathering relevant account holder information, and submitting the data annually to LHDN.

The data collected pertains to account holders who are tax residents in Malaysia’s exchange partner jurisdictions. LHDN then exchanges this information with partner countries as part of Malaysia’s international commitments under CRS. This system ensures greater compliance with tax regulations across borders and discourages tax evasion through offshore accounts.

For account holders, the impact of CRS is significant. Financial institutions are obligated to collect detailed personal and financial data, including tax residency information, and ensure its accurate reporting. Account holders are advised to check with their financial institutions for more details on CRS compliance and its implications for their accounts.

By implementing CRS, Malaysia aligns itself with global efforts to enhance tax transparency and foster fair tax practices, benefiting the government and compliant taxpayers.