New rules are coming to town!! Changes in tax treatment of secretarial and tax filing fees.
 

Overview

On 18.09.2020, the IRB had issued a technical guideline on tax deductions for secretary and tax agent fees effective from YA2020.

Key takeaway

• What is the current practice (YA 2019 and before)?
• Changes in year 2020 onwards
• What is the secretarial fee?
  • Deductible
  • NOT deductible
• What is tax filing fees?

Summary of learning

What is current practice (YA 2019 and before)?

Expenses incurred on secretarial and tax filing fees give a tax deduction of up to RM5,000 and RM10,000 respectively for each year of assessment (YA).

Changes in year 2020 onwards

Secretarial and tax filing fees being combined, such that a total deduction of up to RM15,000 per YA be allowed for both expenses from YA 2020 onwards.

Scenario:

ABC Sdn. Bhd. has received following invoices for financial year end is 31 December 2020 and made payment as follows:

What is the secretarial fee?  

Secretarial fee charged in respect of secretarial services to comply with the statutory requirements under the Companies Act 2016 is deductible as follows:

• Lodgement of annual return and Financial statements.
• Change of name
• Add or delete business activities
• Retainer fees
• Issuance or transfer of shares
• Update register of members and directors
• Appointment of director or auditor

*Condition to be made: Must be incurred and paid

General secretary charges NOT deductible:

• Incorporation fee for new company (include professional fees)
• Fee for acquisition of shelf company (include professional fees)
• Name search fee to SSM (include professional fees)
• Preparation of registration documents
• Company profile printout from SSM
• Professional fee for preparation of ordinary/ special resolution
• Professional fee for preparation of other resolution, confirmation letter to bank or solicitor
• Professional fees for preparation of trust deed
• Preparation fees for CTC documents
• Attestation fees for commissioner for Oaths

 What is tax filing fee?

A tax agent approved under the Income Tax Act 1967 (ITA) in respect of services provided for the:

• Preparation and submission of income tax returns
• Estimate of tax payables

A person in respect of services provided for the preparation and submission of returns in the prescribed form for the purposes of:

• Section 26 of the Sales Tax Act 2018
• Section 26 of the Service Tax Act 2018
• Section 19 of the Departure Levy Act 2019; or
• Section 19 of the Tourism Tax Act 2017

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Special tax treatment for SME

1. Lower income tax rate

   - 17% on the first RM600,000 of chargeable income.

2. 100% capital allowance on small value assets

   - Assets costs not exceeding RM2,000.00.
   - No maximum limit of RM20,000 per year.

Criteria for SME

1. Share capital / capital contribution

   At the beginning of the basis period for a year of assessment:
   - A resident company: paid-up capital of RM2.5 million and less;
   - LLP: Total contribution of capital of RM2.5 million and less.
   
   AND

2. ​Gross business income

   - Gross business income not exceeding RM50 million.
   - The Gross income shall be determined as follows:
   
   a) If engaged in manufacturing, trading or services activities

• Section 22 of the Income Tax Act (ITA) 1967 – Gross income generally
• Section 24 of the ITA 1967 – Basis period to which gross income from a business is related
• Section 30 of the ITA 1967 – Special provisions applicable to cross income from a business

• Specific provisions under the ITA or specific regulations for certain industries

1. Investment holding company (Not listed on Bursa Malaysia) - Section 60F of ITA 1967
   The entity is deemed to have no gross income from business source.
    
2. Investment holding company (Listed on Bursa Malaysia) - Section 60FA of ITA 1967
   The entity is deemed to have gross income from business source.
    
3. Rent or interest as other source of income
   The rent or interest Is not under paragraph 4(a) of the ITA 1967, the entity is deemed to have no gross income from a business source.
    
4. Income from foreign business sources
   Gross income from foreign business sources shall be taken into account in determining gross business income.
    
5. Company/LLP enjoying tax incentives - such as pioneer status or investment tax allowance
   Exempted gross income from business source shall be taken into account in determining gross business income.
    
6. * Company/ LLP carries out a business activity.- No gross income from business sources due to current year business losses
   The company/ LLP is deemed to have gross income from a business source equivalent to NIL.
    
7. * Company/ LLP is temporary closure of business operation - No gross income from business sources due to current year business losses.

Taxpayer can claim 𝐒𝐩𝐞𝐜𝐢𝐚𝐥 𝐃𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐑𝐞𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 & 𝐑𝐞𝐟𝐮𝐫𝐛𝐢𝐬𝐡𝐦𝐞𝐧𝐭 𝐨𝐟 𝐁𝐮𝐬𝐢𝐧𝐞𝐬𝐬 𝐏𝐫𝐞𝐦𝐢𝐬𝐞 as it was finally gazetted on 28/12/20.

Keynote on the PU order:

• Gazetted on 28th December 2020
• Effective from Year Assessment 2020
• Incurred from 1st March 2020 to 31st December 2021
• Maximum amount of RM300K
• Certified by external auditor

Background story in our social media dated 30/11/20 as we voiced our concern on this special deduction.

''We, as approved tax agent, can not claim these two tax incentives namely

𝟏. 𝐒𝐩𝐞𝐜𝐢𝐚𝐥 𝐝𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐫𝐞𝐧𝐭𝐚𝐥 𝐝𝐢𝐬𝐜𝐨𝐮𝐧𝐭 𝐭𝐨 𝐒𝐌𝐄 𝐭𝐞𝐧𝐚𝐧𝐭𝐬

𝟐. 𝐃𝐞𝐝𝐮𝐜𝐭𝐢𝐨𝐧 𝐟𝐨𝐫 𝐫𝐞𝐧𝐨𝐯𝐚𝐭𝐢𝐨𝐧 𝐚𝐧𝐝 𝐫𝐞𝐟𝐮𝐫𝐛𝐢𝐬𝐡𝐦𝐞𝐧𝐭

The above-said special tax deduction has not yet been gazetted. Claims on such incentive/deduction can only be allowed after legislation is gazetted....''

Click the gazette order PU (A) 381

INCOME TAX (COST OF RENOVATION AND REFURBISHMENT OF BUSINESS PREMISE) RULES 2020

PS #1 We still need to seek further clarification of IRB guideline especially on the involvement of external auditor on certification.

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