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Tax Filing Program 2023

Tax Filing Program 2023
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Tax Filing Program 2023

The Inland Revenue Board (IRB) Return Form (RF) Filing Programme for 2023 is now available on HASiL official portal as a reference for taxpayers to submit their return form this year.

In a statement on Sunday (Jan 1), the IRB said taxpayers dan employers are encouraged to use the e-Filing facility for the submission of RF which will be the primary method for submission of tax returns in the future.

It also encouraged tax agents to use the Tax Agent e-Filing (TaeF) (https://taef.hasil.gov.my/) service to submit RF.

Source

It can be accessed through www.hasil.gov.my or via quick access at https://www.hasil.gov.my/media/mpofkuqz/programmemfailbn_2023.pdf.

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Nombor Bill LHDN FAQ

Nombor Bill LHDN FAQ
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Use of reference number (nombor bill) for IRB tax payment Part 2

This “Nombor Bill” is the “reference number” when making payment for LHDN online or counter.

FAQ

IRB has released FAQ for the “Nombor Bill” and “System E-biliing”

You can scroll down to the bottom through myTax link https://mytax.hasil.gov.my/ and click the ''User Manual'' to download.

Summary Information for the Nombor Bill:-

1. Start from 01.01.2023, taxpayer need to obtain the Nombor bill through ''MyTax'' (but currently unable to login)

2. All payments to LHDN need the Nombor Bill except for PCB and stamp duty

3. Transition period: Currently taxpayer still can use the Income Tax File Number as reference number until 30.06.2023.

Source

Enclosed is the Media Release for “Nombor Bill” from LHDN for your reference.

https://bit.ly/3WBDOgI

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Use of nombor bill for tax payment

Use of nombor bill for tax payment
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Use of reference number (nombor bill) for IRB tax payment

This “Nombor Bill” is the “reference number” when making payment for LHDN online or counter.

Below is the summary information for the Nombor Bill:-

1. Start from 01.01.2023, taxpayer need to obtain the Nombor bill through ''MyTax'' (but currently unable to login)

2. All payments to LHDN need the Nombor Bill except for PCB and stamp duty

3. Transition period: Currently taxpayer still can use the Income Tax File Number as reference number until 30.06.2023.

Source

Enclosed is the Media Release for “Nombor Bill” from LHDN for your reference.

https://bit.ly/3WBDOgI

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Personal Tax Relief 2022

Personal Tax Relief 2022
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Personal Tax Relief 2022

Overview

Year 2022 is approaching to its end and now is the time for you to keep and plan on your personal tax.

Do you know what personal deduction can be claimed for year 2022?

With that, here’s the full list of tax reliefs for YA 2022.

Key takeaways:

You will know the Tax Relief and consequences for non-compliance as follows:

1. What types of Personal Tax Relief for YA 2022?

2. What types of donation allowed for deduction?

3. What types of documents are required to be kept?

4. How many years to keep the documents?

5. What are the consequences of non-keeping proper records?

Summary of learning

1. What types of Personal Tax Relief for YA 2022?

- Please refer to the link https://bit.ly/3R1Y6fU to get the full listing.

2. What types of donation allowed for deduction?

  • Gift of money to the Government/ approved institutions;

  • Contribution in fighting against the COVID-19 pandemic; or

  • Gift of money / cost / value of gift of medical equipment to any healthcare facility approved by the Ministry of Health or etc

  • For full information on tax allowable donation for deduction, please refer to the link https://bit.ly/3R1Y6fU.

3. What types of documents are required to be kept?

Receipts and supporting documents for the tax deduction claimed must be kept for future reference and inspection if required from LHDNM.

4. How many years to keep documents?

Must be kept for a period of seven (7) years after the end of the year in which the return form is furnished to LHDNM.

5. What are the consequences of non-keeping proper records?

A RM300.00 – RM10,000.00 fine or imprisonment for a term not exceeding twelve months of both.

Source

a) Public Ruling No. 5/2021 – Taxation of A Resident Individual Part I - Gifts Or Contributions And Allowable Deductions

https://phl.hasil.gov.my/pdf/pdfam/PR_05_2021.pdf

b) Public Ruling No. 5/2000 – Keeping Sufficient Records for Individuals & Partnerships

https://phl.hasil.gov.my/pdf/pdfam/PR5_2000_Rev.pdf

c) Public Ruling No. 6/2000 – Keeping Sufficient Records for Persons Other Than Companies Or Individuals

https://phl.hasil.gov.my/pdf/pdfam/PR6_2000_Rev.pdf

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Common Mistakes in Reinvestment Allowance

Common Mistakes in Reinvestment Allowance
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Common Mistakes in Reinvestment Allowance

Reinvestment Allowance is a red flag to IRBM so Reinvestment Allowance is always scrutinized by our IRBM during tax audit/investigation.

What is reinvestment allowance?

Reinvestment allowance (RA), as the name suggests, is an incentive to encourage companies to reinvest and expand their businesses. It is only granted after the company has been in business for a certain period of time, and only to companies resident in Malaysia.

How good is reinvestment allowance?

The allowance is given for 15 years from the first year of claim. The allowance is computed at 60% of QCE incurred and can be utilised against 70% of statutory income

Latest development in reinvestment allowance

Budget 2021 has announced that a special Reinvestment Allowance (RA) will be given for eligible manufacturing and agricultural projects in Years of assessment (YA) 2020 to YA 2022.

This means that eligible companies that have fully utilized their 15-years RA can enjoy additional RA claims for 3 years (YA2020 to YA2022).

Common mistakes in claiming reinvestment allowance

  • The purchase invoice is the only supporting document available. The absence of a project paper, feasibility study, business plans, budgets, directors resolutions, and other relevant documents supporting the project;

  • Mismatch between the company incurring the investments and the company using the plant and machinery;

  • Claim RA on assets incurred for the benefits of related companies/directors.

  • Claim RA on non-qualifying activities.

  • Claim RA on the transfer of assets from related parties who have previously claimed RA on the same assets.

  • The absence of payment records to support the qualified assets.

  • Supporting documents are not kept for at least 7 years.

  • Clain RA concurrently with other tax incentives (like PS, ITA & etc).

  • No written/ pictorial production flow on the qualifying project

     

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Reinvestment Allowance Excluded List

Reinvestment Allowance Excluded List
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Reinvestment Allowance Excluded List

Why my ex-tax agent can claim Reinvestment Allowance on my bakery business in a shopping mall?

A incoming new client, a bakery in shopping mall, challenge us to follow their ex-tax agent past practice on claiming reinvestment allowance recently.

We are stunned but show them PU (A) 23 2012 on the excluded activities and a tax case Lavender Confectionery and Bakery.

Excluded List

The following activities are excluded from the definition of “manufacturing” as per PU (A) 23 2012

  • Ice making

  • Herb or spice-related activities

  • Folding and shaping papers box, cardboard, plastic bag & envelop

  • Laminating

  • Quarrying, Mining, and Extraction of mineral

  • Processing of photograph, picture, slide and film

  • Baking except in a factory

  • Distillation of filtration of water

  • Treatment of waste water and solid waste

  • Mixing and blending of petroleum product

What can taxpayer do now?

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How to pass the SIRIM verification requirement of the machine for Automation Capital Allowance (ACA)

How to pass the SIRIM verification requirement of the machine for Automation Capital Allowance (ACA)
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How to pass the SIRIM verification requirement of the machine for Automation Capital Allowance (ACA)?

Overview

Under the National Budget 2015, the Automation Capital Allowance (ACA) incentive was released to encourage the quick adoption of automation in the manufacturing sector.
The application for the ACA is jointly assessed by both MIDA (non-technical assessment) and SIRIM (technical assessment). The Company that needs to claim the incentive must meet both requirements from MIDA and SIRIM.
On this topic, we will mainly focus on the requirement of the SIRIM for the verification of machines for ACA.

Key takeaways:
You will understand: -
1. What is the general eligibility of the machine?
2. What type of machine is considered automated?
3. What is the productivity enhancement need to be achieved?
4. Other contributing factors for productivity enhancement?

Summary of learnings:
1. What is the general eligibility of the machine?

(I) The machine is used directly in the process of carrying out the services.
(II) The machine is more advanced than the current technology used by the company.
(III) The machine should be used at least 1 month after installation/commissioning.
(IV) The machine is consisting at least one of the:
-Areas of automation / automated system and,
-Automation components

Note: the details of the automated system and components can be found in the next paragraph.

2. What type of machine is considered automated?

The machine shall consist of at least one of the following areas of automation / automated system:

(I) Material handling system
(II) Warehousing
(III) Processing equipment
(IV) Testing equipment
(V) Measurement system
(VI) Packaging equipment
(VII) Others (to specify)

The machine shall also consist of at least one of the following Automation components:

(I) Motion Controllers
(II) Pneumatic / Hydraulics
(III) Programmable Logic Controller (PLC)/Programmable Automation Controller (PAC)
(IV) Computer/Industrial Software including CAD/CAM/CAE/PLM
(V) Computer Numerical Control (CNC), High Speed, Multi Axes
(VI) Robot and Robotic System
(VII) Industrial Networking & Communication
(VIII) Visual system
(IX) Others (to specify)

3. What is the productivity enhancement need to be achieved?

(I) Reduction in the number of manpower involved in the operation
(II) Reduction in the number of man-hours
(III) Increase in efficiency by reducing human errors or reducing the time taken to complete tasks;
(IV) Reduction in accident/complaint rate

4. Other contributing factors for productivity enhancement?

(I) Possibility of upgrading in future
(II) Possibility of integrating into other processes
(III) Worker Safety & Environment Improvement
(IV) Energy Efficiency

Source:
SIRIM verification of machine/equipment for ACA

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What are the criteria for an individual to become a tax resident in Malaysia?

What are the criteria for an individual to become a tax resident in Malaysia?
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What are the criteria for an individual to become a tax resident in Malaysia?

There are 4 criteria for the basis year of assessment to determine an individual’s residency status in Malaysia.

If he falls into any of these criteria, he will be a resident, if not, he will be a non-resident.

Let's start to understand the following 4 criteria:

In Malaysia for ≥ 182 days in a basis year

The number of days does not have to be consecutive.

In Malaysia for ≤ 182 days in basis year

A period of less than 182 days can be linked to another period of 182 consecutive days or more during which he was in Malaysia before or after the current basic year.

In calculating the period, temporary absence is allowed as following: -

1. Attending conference or seminar abroad

2. Ill-heath involving the individual or immediate family member

3. Social visit not more than 14 days

In Malaysia for ≥ 90 days

The number of days does not have to be consecutive. 3 out of 4 years of assessment before/after the current year assessment

  1. He is a resident; OR

  2. He is in Malaysia for 90 days or more

Not in Malaysia or in Malaysia for ≤ 90 days

  1. The individual is resident for 3 consecutive year assessment prior to the current basic year assessment; AND

  2. The individual is a resident for the next year of assessment.

Source:

Public Ruling No 11/2017 - Residence Status of Individuals

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Avoiding Pitfalls When Claiming Tax Incentives

Avoiding Pitfalls When Claiming Tax Incentives
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Avoiding Pitfalls When Claiming Tax Incentives

How one seminar amazed me!

On 30 November 2022, I attend Ms Yong Mei Sim webinar ''Avoiding Pitfalls When Claiming Tax Incentives'' conducted by the Chartered Tax Institute of Malaysia.

When it comes to tax incentives, I thought to myself ''What else can tax incentives changes since I have been doing for more than 20 years? Now what?''

Nevertheless, I am truly surprised to realise there are some insights or changes from MIDA or IRBM relating to tax incentives policy.

The key takeaways from the webinar can be summarised as follow :

1. Intellectual property (IP) income is excluded from tax incentives due to ''compliance'' with the OEDC ruling on preferential tax treatment!

2. The use of tax incentives to attract foreign investment is considered ''harmful tax competition'' under the current global tax environment-BEPS (not K-Pop boy band).

3. Taxpayers are to comply MIDA annual declaration as duly certified by the external auditor on pre-determined operating/capital expenditure and employment, local value add %, preparation of transfer pricing documentation & etc.

4. IRBM shall ''tarik balik''/revoke tax incentive shall those conditions from MIDA are not met.

5. Discuss with MIDA the relaxation of terms and conditions with relevant facts and documentary justification ASAP.

6. With effect from 7 July 2019, a Malaysian company with corporate shareholders is no longer eligible for the Allowance of Increased Export.

7. Trading of agriculture products is not eligible for the Allowance of Increased Export.

8. ''Contract R&D company'' and ''R&D company'' must be approved by MITI under the new Section 4H of the Promotion of Investment Act 1986.

9. Full documentation from the project paper, feasibility study, board resolution, and other documents (engineering report, cost-saving report, financing report & etc) to support the Reinvestment Allowance claim.

Maybe it is a good time to conduct a risk assessment review before IRBM knock on your door for a tax audit.

In short, don't play play with tax incentives.

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Tax Incentive for Employers Who Provide Child Care Centre

Tax Incentive for Employers Who Provide Child Care Centre
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Tax Incentive for Employers Who Provide Child Care Centre

Definition of childcare centre

A centre to take care of:

• At least 4 or more children;

• Aged below 4 years old;

• From more than one household

Qualifying childcare centre

• Registered with the Department of Social Welfare (DSW);

• Subjected to Child Care Centre Act 1984 (Act 308);

• Governed by the Ministry of Women, Family and Community Development

Existing Tax Treatment

(i) Provision and maintenance of childcare centre

Expenses incurred for the provision and maintenance of a child care centre are allowed for tax deduction. [Paragraph 34(6)(i) of the ITA 1967]

Examples:

  •  Rental

• Salaries

• Food and beverage

• Cleaning fee

(ii) Child care allowances

Employer – Provider

• The child care allowance paid to employees who have children is allowable for tax deduction under Section 33(1) of the ITA 1967.

Employee – Receiver

• Employee has to declare the allowances received as part of gross income, which subjects to tax. [Paragraph 13(1)(a) of the ITA 1967]

• Enjoy tax exemption up to RM2,400.

Additional Tax Incentives

A 100% further deduction will be given in respect of:

• The provision and maintenance of child care centre; and

• Child care allowances paid to employees

Industrial Building Allowance (IBA)

An employer is entitled to claim a 10% IBA of the capital expenditure of the building, where it is:

• Built or purchased by the employer;

• Served as a child care centre for his employees' children; and

• In operation

Qualifying Capital Expenditure (QCE)

Only cost attributable to the building is entitled, which include:

• Purchase price

• Legal fee

• Stamp duty

• Other incidental expenditure

Sources:

Public Ruling No. 5/2016: Tax Incentives For Employers Who Provide Child Care Centres

https://phl.hasil.gov.my/pdf/pdfam/PR_5_2016.pdf

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Minimum Transfer Pricing Documentation LHDN

Minimum Transfer Pricing Documentation LHDN
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Minimum Transfer Pricing Documentation LHDN

On 11.11.2022 LHDN has published a new document for transfer pricing which is Minimum Transfer Pricing Documentation.

The Minimum Transfer Pricing Documentation is to replace the Limited Transfer Pricing Documentation.

Key takeaways:

You will understand the:

1. Requirement to use this documentation.

2. Differences between Minimum Transfer Pricing Documentation and Limited Transfer Pricing Documentation.

Requirement to use the documentation

According to Section 3.1 of Transfer Pricing Guidelines 2012, there are two criteria to be determined:

i. gross income and total related party transactions must be greater than RM25 million and RM15 million respectively; or

ii. financial assistance must be greater than RM50 million.

If tax payer fulfils one of the criteria as above, Full Transfer Pricing Documentation should require to be prepared.

On the other hand, Minimum Transfer Pricing Documentation is required for those falls outside the transfer pricing guidelines 2012 section 3.1.

Differences between Minimum Transfer Pricing Documentation and Limited Transfer Pricing Documentation.

The major difference between these two documentations is comparability study. In previous Limited Transfer Pricing Documentation, we do not perform any comparable working and causing there is a limitation to justify the reasonableness of pricing policy.

Minimum Transfer Pricing Documentation has implemented a new section to resolve this limitation.

New Requirements

Under section D of Minimum Transfer Pricing Documentation, there are 6 columns need to fill in to justify the transfer price is reasonable, which are:

• What is the element of costs

• What is the anticipated profit mark-up

• Who determine the pricing policy

• How often is the policy being revised

• Sample of documents to support the pricing policy

• Comparability study Source Minimum Transfer Pricing Documentation

Source:

https://www.hasil.gov.my/media/gesbb4yx/template-minimum-tp-doc-1_2022.pdf

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Service Tax on Customs Agent Services

Service Tax on Customs Agent Services
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Service Tax on Customs Agent Services

On 09 August 2022, RMCD issued a Guide on Customs Agent Services. Generally, this guide is to let us know about the service tax treatment on customs agent services.

Key takeaways:

You will understand 5W:

1. Who is Customs Agent?

2. What is the threshold for registration under Service Tax?

3. What types of services are subject to service tax?

4. What types of services are not subject to service tax?

5. What are the responsibilities of the registrant?

Who is “Customs Agent”?

Who acts on behalf of importers and exporters to carry out the business to relieve goods from customs control.

What is the threshold for registration under Service Tax?

  1. ·There is no threshold for Customs Agent.

  2. All customs agent must apply for service tax registration within 14 days from the date of approval as a customs agent.

What types of services are subject to service tax?

1. Preparing or amending customs declaration

2. Presenting goods for customs declaration

3. Documentation

4. Handling / forwarding

5. Examination / attendance to examination

6. Sealing

7. Electronic Data Interchange (EDI)

8. Overtime (relating to clearance of goods only)

What types of services are not subject to service tax?

1. Haulage services

2. Services provided by shipping agents and freight forwarders

What are the responsibilities of the registrant?

1. Charge service tax on taxable services

2. Issue an invoice and receipt to customers

3. Submit SST-02 Form and pay service tax before the deadline

4. Keep proper record

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Tax Update on Withholding Tax

Tax Update on Withholding Tax
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Tax Update on Withholding Tax

1. Withholding Tax on Payment Made to Agents, Dealers, Distributor - Credit Note

On October 21, 2022, the Frequently Asked Questions (FAQ) on 2% withholding tax on payment made to agents, dealers, or distributors under Section 107D of the Income Tax Act 1967 was updated by the Inland Revenue Board.

Previously FAQ stated payment by way of credit note is not subject to withholding tax.

Under the latest item A6 of FAQ, IRB clarify that the determining factor on credit note which is subject to withholding tax depends on the substance of payment (not the label on the document itself).

If it is proven that the credit note is a commission payment in the form of cash arising from sales, transactions and schemes carried out by agents, dealers and distributors, then the provision of S107D of the Income Tax Act 1967 shall be applied.

Refer to our past blog posting on withholding tax payments to agents.

https://www.ktp.com.my/.../2percent-withholding.../17mar22

https://www.ktp.com.my/.../2percent-withholding.../21apr22

https://www.ktp.com.my/.../2percent-withholding.../12july22

2. Payment of small value withholding tax– new form

On 27 October 2022, IRB has issued a media release on the new form for payment of withholding tax on small values.

Form CP37S on royalties and interest income

Form CP37DS on a special class of income under Section 4A of the ITA 1967

Refer to our past blog posting on small-value withholding tax

https://www.ktp.com.my/.../small-value.../19aug22

https://www.ktp.com.my/.../small-value.../07oct22

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Stoppage Order Malaysia

Stoppage Order Malaysia
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Stoppage Order Malaysia

Are you plan to travel overseas for a holiday or business trip abroad? If yes, have you checked the Immigration website for your travel restriction? Why?

The LHDNM has the authority to issue the stoppage order certificate to a Commissioner of Police or a Director of Immigration to prevent you from leaving Malaysia if you fail to pay all taxes to the LHDNM.

Key Takeaways

You will understand:

1.      What is a Stoppage order?

2.      What is the tax liability?

3.      Who is responsible for the tax liability?

4.      What conditions allow taxpayers to leave without full payment of tax liability excluding foreign nationals?

5.      What are the consequences if fail to comply?

6.      What is the responsibility of the taxpayer?

7.      Where to check the travel restriction status?

 

Summary of Learning

1.      What is a Stoppage order?

A stoppage order is an order issued by Director General (DG) to prevent a taxpayer from leaving Malaysia if he fails to pay all the tax liabilities.

2.      What is the tax liability?

(i)               All tax payable is due and payable;

(ii)             All sums payable due by a taxpayer in relation to an increase in tax charged for

  • Late payment of tax;

  • Late payment of tax installment;

  • Late payment of estimate tax installment; or

  • Notice of Installment payment (CP205) issued by LHDNM when failing to submit the prescribed form.

(iii)             All debts payable by taxpayer on withholding tax included：-

  • Contract payment;

  • Interest and royalties;

  • Special classes of income; or

  • Miscellaneous income.

3.      Who is responsible for the tax liability?

  • Individual or a Company director.

  • The meaning of Company director:

o   The person who is involved in the management of the company’s business; and

o   Holds at least 20% of company’s ordinary shares; or

o   Directly or indirectly through other companies holds at least 20% of company’s ordinary share

4.      What conditions allow taxpayers to leave without full payment of tax liability excluding foreign nationals?

  • Make at least 50% of the payment (or a rate as determined by LHDNM) of the total claim in the certificate issued.

  • Proof of documentary such as payment made in cash or bank draft to enable a letter for a temporary release certificate.

  • Arrange the schedule of installment payments on the balance of tax due.

A taxpayer who fails to comply with the schedule of installment payments is not eligible to be considered for a subsequent application for a temporary release letter.

5.      What are the consequences if fail to comply?

Taxpayers who voluntarily or attempt to leave Malaysia without settlement of debt, he/she will be liable to: -

  • a fine of not less than RM200.00 and not more than RM20,000;

  • imprisonment for a period not exceeding six (6) months; or

  • both.

A police officer or an immigration officer may arrest, without a warrant, any person whom he reasonably suspects of committing or is about to commit an offence by not complying with a certificate issued under Section 104 of the Income Tax Act.

6.      What is the responsibility of the taxpayer?

  • To check and settle the tax and debt before leaving.

  • To inform the change of the correspondence address to the IRBM branch who handles the income tax file (if any).

7.      Where to check the travel restriction status?

  • The taxpayer can check the travel restriction status on the official website of the Immigration Department of Malaysia (IDM) at www.imi.gov.my or contact the IRBM call center.

Sources:

Public Ruling 4/2022 - Recovery From Persons Leaving Malaysia

https://www.hasil.gov.my/media/mmcpirll/public-ruling-no-4_2022-recovery-from-persons-leaving-malaysia.pdf

This article is jointly authored by Ms. Ong Xin Ying, Ms. Liu Shi Lee and Ms. Teo Mei Qi with guidance and mentoring from our Assistant Manager Ms. Chong Chee Ling and Ms. Yew Jia Chong from KTP Group of Companies.

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Tax Deduction on Software

Tax Deduction on Software
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Is the Purchase of Software Tax Deductible?

The tax treatment on purchasing / licensing software has been subject to many discussions due to uncertainty from the many legislative changes over the years.

Find out Thannees Tax Consulting Services Sdn Bhd managing director Thanneermalai Somasundaram's view on the matter in the blog of Thannees Tax Consulting Services Sdn Bhd here -> https://lnkd.in/gynAxDXN

PS : This article was contributed by Thannees Tax Consulting Services Sdn Bhd managing director SM Thanneermalai.

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tax treatment on advance to director

tax treatment on advance to director
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Loan or Advance to Director by A Company - Tax Impact

On 30 November 2015, IRB issued Public Ruling (PR) No.8/2015 - Loan or advances to director by a company. Generally, this PR has elaborated the tax treatment of:

1.      Loan or advances provided to the director by company without interest or with interest rate lower than arm’s length rate; and

2.      Company is deemed to receive the interest income from the loan or advances.

Key takeaways:

You will understand: -

1.     What is the tax treatment?

2.     What are the sources of funding?

3.     Treatment for other circumstances.

4.     How to determine the deemed interest income?

5.     What is the circumstance if a dormant company makes loan or advances to directors?

Summary of learnings:

1.    What is the tax treatment?

If the loan or advances to directors was wholly raised from internal funds, then an interest income will deem to be received by the company, and subject to tax under [Section 140B of Income Tax Act (ITA)].

However, no tax will be charged on the loan or advances which are raised from external funds.

2.      What are the sources of funding?

3 categories of funds:

(i) Internal

Mainly arise from the injection of capital, retained earnings, and reserves.

(ii) External

Loan from bank or third parties.

(iii) Mixed (Internal + External)

Only interest income generated from internal funds will be subject to tax. For external funds, all the supporting and proof must be kept properly.

Interest restriction [Subsection 33(2) of ITA] may come in if part of the loan is from external funds used for investment purposes.

3.      Treatment for other circumstances

(i) If the loan or advances from external funds to directors who are also employees of a company, a perquisite (interest expense incurred from the loan facility) needs to be reported as part of the employee’s gross income under [paragraph 13(1)(a) of

the ITA].

(ii) For a partnership, if the director is also a partner of the company, the loan or advances provided will also be subject to Section 140B of ITA, considering partnership is not a separate legal entity from the business owner. 

4.      How to determine the deemed interest income?

(i) Interest-free loan

Interest will be computed based on prescribed formula in subsection 140B (2) of ITA, using Average Lending Rate (ALR) published by Bank Negara Malaysia (BNM).

(ii) With interest

Interest will be determined by comparing the interest rate charged by the company and the rate computed from the prescribed formula.

Whichever lower will be disregarded, while the higher amount will be reported as interest income of the company.

5.      What is the circumstance if a dormant company makes loan or advances to directors?

The company will be treated as an active company, whose business will be deemed to commence operations under subsection 21A (8) of the ITA. The loan or advances granted will still be subject to Section 140B of ITA.

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Real Property Gain Tax Penalty

Real Property Gain Tax Penalty
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Real Property Gain Tax Penalty

The consequences of non-compliance with the RPGT Act 1976 are costly. Are you aware of that?

3 Types of Penalties

There are 3 types of penalties and increments for 3 different scenarios.

1. Subsection 30(2) (RPGT ACT 1976)

• Action: Disposer makes incorrect return or incorrect information on disposal of the asset.

• Consequence: Penalty amount equal to the amount of tax under-declared.

2. Subsection 29(3) (RPGT ACT 1976)

• Action: Disposer/acquirer fails to submit CKHT 1A or CKHT 1B within 60 days from the date of disposal of property or out of the extension period. OR

• Action: Disposer fails to declare the disposal of property

• Consequence: Penalty will be charged up to 3 times the tax charged (Subsection 29(3a))

3. Subsection 14(5) (RPGT ACT 1976)

• Action: The acquirer remitted the payment wrongly because the disposer made an incorrect return.

• Consequence: An additional surcharge of 10% on the amount of tax charged will be imposed on the disposer.

How to avoid such penalties?

1. Disposers are required to:

• Submit the form CKHT 1A or CKHT 1B within 60 days from the date of disposal.

• Submit tax exemption form and supporting documents (eg: water bills, rental agreement, etc).

• Submit form CKHT 3 together with CKHT 1A or CKHT 1B.

• Submit a copy version of CKHT 3 to acquirer.

2. Acquirers are required to:

• Submit form CKHT 2A within 60 days from the date of acquisition.

• Submit supporting documents such as sale and purchase agreement and CKHT 502 payment receipt/payment slip/completed form CKHT 3.

• Receive a copy of completed form CKHT 3 from disposer.

Reference:

Real Property Gains Tax Act 1976

https://www.lowpartners.com/real-property-gains-tax-act-1976/

Imposition Of Penalties And Increases Of Tax

https://www.hasil.gov.my/en/rpgt/imposition-of-penalties-and-increases-of-tax/

Responsibility Of Disposer And Acquirer

https://www.hasil.gov.my/en/rpgt/responsibility-of-disposer-and-acquirer/

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Can a Pioneer Status (PS) taxpayer claim Reinvestment Allowance (RA) on non-promoted product concurr

Can a Pioneer Status (PS) taxpayer claim Reinvestment Allowance (RA) on non-promoted product concurr
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Can a Pioneer Status (PS) taxpayer claim Reinvestment Allowance (RA) on non-promoted product concurrently?

Why are taxpayers unable to enjoy pioneer status and reinvestment allowance at the same time? What should we take note of?

Lesson from Tax Case : Syarikat Kion Hoong Cooking Oil Mills Sdn Bhd vs Ketua Pengarah Hasil Dalam Negeri

The Company has been granted a pioneer certificate for promoted activity/product. Besides that, the tax relief period has not ended and ceased. Therefore, the Company is not eligible to claim reinvestment allowance (RA).

Background information

The Company is involved in the manufacturing of promoted products (ie, margarine and shortening) and non-promoted products (eg, cooking oil, coconut oil, refined oil, soap, animal and poultry feed).

The Company is exempted 85% of its statutory income in respect of the promoted products in which the Company has been granted pioneer status.

Besides, the Company also claims RA on capital expenditure incurred on plant and machinery used in the manufacture of these non-promoted products.

Tax Issue

Whether incentives of pioneer status and reinvestment allowance are mutually exclusive?

The Company’s opinion

The pioneer certificate granted to the Company was in relation to the promoted product/activity, it is not attached to the Company's status as a pioneer company.

 According to the paragraph of interpretation of exclusion from reinvestment allowance, Schedule 7A para 7(a)(ii), it did not expressly exclude a company from claiming RA.

 IRB argument

Pioneer certificate does not refer to the status of the products manufactured, it is referring to the status of the Company.

Under the interpretation of exclusion from reinvestment allowance, taking the position that pioneer companies were excluded from qualifying for RA during the pioneer period.

 The decision by The Court (Court of Appeal)

The incentives of reinvestment allowance and pioneer relief are not mutually exclusive. The RA granted is to promote productivity through the use of new and efficient plants and machinery.

However, if the Company was granted pioneer status, regardless of whether it also had non-promoted activities/products, it was not entitled to claim RA. The exclusion from claiming RA does not apply to a company with a pioneer certificate that manufactures non-promoted goods.

Source: https://phl.hasil.gov.my/pdf/pdfam/Syarikat_Kion_Hoong_Cooking_Oil_Mills_Sdn_Bhd.pdf

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Buy car under company or personal

Buy car under company or personal
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Tax Opinion of Chai Shi Qing (Audit Semi-Senior of KTP)

It is advised to purchase the passenger car (say Proton X70) under personal name after taking the following considerations.

Contentions: -

(i) Tax perspective:

• Allowable expenses

According to Section 33(1) of Income Tax Act 1967, the expenses which are incurred for business purpose is generally allowable for tax deduction.

Therefore , the related expenses of motor vehicle( such as petrol, road tax and insurance, repair and maintenance) incurred for business purpose is deductible although it is registered under personal name.

• Benefit-in-kind

On the other hand, Section 39 (1)(a) of Income Tax Act 1967 provided that, the expenses incurred for personal use (private element) is not allowed for tax deduction.

However, Public Ruling No.11/2019 clarified that, the private expenses is deductible provided the expenses are treated as benefit-in-kind and reported as gross income of the person that is using the motor vehicle.

• Capital allowance claims

Public Ruling No. 5/2014 stated that the eligibility for capital allowance claims is not restricted to legal owner only, if the entity/person can be proven as the beneficial owner of the asset.

To qualify as a beneficial owner, the following conditions must be fulfilled:

(a) Incurred the qualifying expenditure (QE)

(b) Made the payment for the motor vehicle (Eg: Hire purchases installment, maintenance fee, and etc)

(c) The asset is utilized for his/her business

(ii) Commercial view:

• Lower cost

Based on practical experience, the purchase cost, hire purchase interest rate, insurance and road tax charges will be lower if the motor vehicle registered under personal name.

Sources: -

  • Public Ruling No. 5/2014 Ownership and use of asset for the purpose of claiming capital allowances

  • Section 33(1) of Income Tax Act 1967

  • Section 39 (1)(a) of Income Tax Act 1967

  • Public Ruling No. 11/2019 Benefits in Kind

Authored by Chai Shi Qing (Audit Semi-Senior of KTP).

Source: Chai Shi Qing LinkedIn post

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Should You Buy A Property Under My Personal Name or Sdn Bhd?

Should You Buy A Property Under My Personal Name or Sdn Bhd?
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Should You Buy A Property Under My Personal Name or Sdn Bhd?

Buying property under a personal name or Sdn Bhd has its own advantages or disadvantages, depending on the management decision.

There are a few factors to be considered before a decision is made: -

1) Tax

a) Rental Income

Effective from 18/05/2022, LHDN has made clarification on the Investment Holding Company (IHC). IHC is not considered as Small and Medium Enterprise (SME) due to there is not gross income generated, even though the company received rental income, interest income, and etc.

This means the company is a non-SME and the rental income will be directly taxed at 24%, not eligible to enjoy the preferential tax rate under paragraph 2A, Schedule 1 of ITA 1967.

b) Real Property Gain Tax (RPGT)

There is no RPGT imposed from the sixth year onwards for individuals who are Malaysian citizens and permanent residents, effective from 01 January 2022.

On the other hand, when the company disposes of the property, the RPGT will be taxed at between 10% to 30%, depending on the period for the disposal of the chargeable asset.

c) Tax Audit

A high-risk-profile individual or company will be selected by LHDN for a tax audit. This is due to LHDN's wondering where the deposit came from when you paid the deposit for the property you purchased. Has it reported tax?

d) Investment Building Allowance (IBA)

The building owner is eligible to claim the IBA under paragraph 63(c) Schedule 3 of the ITA 1967 when the property purchased and used it as industrial building by the tenant.

This means the owner of the building is eligible to claim the IBA, thereby reducing the tax payable.

2) Loan

The loan can be obtained by the financial institution up to 90% for the first and second residential properties purchased under the personal name. However, if the company purchases the residential properties under Sdn Bhd, the loan obtained will only be 60% for the company.

Therefore, there is an advantage for the person who buys the residential property under their own name.

Furthermore, you must obtain a 10% to 20% upfront deposit to the financial institution, regardless of whether it is under your personal name or under Sdn Bhd.

3) Administrative Expenses

Basically, the administration costs incurred for IHC and a Sdn Bhd are almost the same. The cost of setting up a Sdn Bhd runs into the thousands of dollars.

Otherwise, there is no extra cost incurred for buying property under your personal name.

In conclusion, there is no absolute answer. You should think twice before you make the decision by considering the factors above mentioned. Before you invest in property under your personal name or Sdn Bhd, you should be aware of your own motivation for purchasing the property, period of ownership, frequency of transaction, and etc.

Authored by Teo Mei Qi, a semi-senior associate with the Firm KTP & Company PLT

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