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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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MPERS Section 32 - Events after the end of the reporting period

MPERS Section 32 - Events after the end of the reporting period
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MPERS Section 32 - Events after the end of the reporting period

1. What is the Event after the reporting period?

These are the events that may affect the financial statement that occurs between the end of the reporting period and the date of the financial statements.

There are two types of events which are

Adjusting events

- provide evidence of conditions that existed at the end of the reporting period

Non-adjusting events

Non-adjusting events

- indicative of conditions that arose after the end of the reporting period

2. Recognition & Measurement

a) Adjusting events after the reporting period

- Adjust the amounts recognised in its financial statements, including related disclosures

- Example of adjusting events:

o Impairment of assets with audit evidence

o contingent liabilities

o the bankruptcy of a major customer which confirms that a loss existed

o discovery of fraud or errors that show the financial statements were incorrect

b) Non-adjusting event

- No adjustment to be recognised in financial statements but including the related disclosures

- Types of non-adjusting events

o disposal of a major subsidiary

o announcement of a plan to discontinue an operation

o major purchases or disposals of assets

o destruction of a major production plant by a fire

o entering into significant commitments or contingent liabilities

3. Disclosure

a) Adjusting events after the reporting period

- Shall adjust the amounts recognised in its financial statements, including related disclosures, to reflect adjusting events after the end of the reporting period.

b) Non-adjusting events after the reporting period

- Disclosure shall include: -

 the nature of the event; and

 an estimate of its financial effect, or a statement that such an estimate cannot be made.

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Lee Pei Jia 实习 (Internship) 故事 with Thk Advisory

Lee Pei Jia 实习 (Internship) 故事 with Thk Advisory
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Lee Pei Jia 实习 (Internship) 故事 with Thk Advisory
我是李佩家，就读于MDIS，我正在 THK 任职一名会计师实习生兼助理。我从8月16日开始在THK正式实习但距离我实习结束的时间还剩余32天也已过去了69天。
在这 THK 实习期间我学到了很多会计的知识例如怎么去分 Sales Invoice 和 Purchase Invoice 等等同时我也认识了几位朋友也因为他们让我的朋友圈子大了一些。
在THK实习期间也让我从一个只会操作UBS系统的会计大学生蜕变成了一位会操作 Xero 和 SQL 系统的会计实习生虽然还不是很熟练但在接下来的日子我会努力学习慢慢上手的。
在 THK 实习间我不止接触了会计还接触了很多新事物例如筹办活动和参加网络研讨会。在这一次我很荣幸有机会跟我们的MR Koh Teck Peng一起参加网络研讨会在此之前我对上司都存在严肃和凶的印象。直到我到了 THK 接触了 MS TEO 和这次接触了 MR Koh Teck Peng 我才发现其实不是每个老板们都是那么严肃和凶的。两位老板们都很平易近人也让刚步入社会的我不那么紧张害怕。
在与MR Koh Teck Peng 的网络研讨会中，气氛很融洽也很顺利欢笑声也不断就感觉真的就像普通聊天都忘记了镜头的存在。所谓的实习生研讨会就是让实习生分享在公司的生活经历和学到事物也因这次的研讨会让我发现原来不止我是实习生也让我认识三位来自KTP的实习生但我却只记得两位小姐姐的名字。
这次的研讨会进行了大概40分钟的时间，在这40分钟内我们互相与MR Koh Teck Peng 分享了许多事情例如自我介绍，选择公司的原因，在公司的欢乐困难等等问题。
通过这次研讨会，我想下次我应该可以坦然面对镜头和放松式的老板们沟通。也谢谢这次的研讨会帮我增加了日后回校演讲的素材也谢谢THK让我体验了很多新事物相比起我同届实习的朋友们我想我的实习经历会比他们充实和丰富很多。待我实习结束后，我将成为一名正式员工期待与公司日后的生活。
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𝐕𝐢𝐬𝐢𝐭 𝐮𝐬
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𝐊𝐓𝐏 (𝐀𝐮𝐝𝐢𝐭,𝐓𝐚𝐱, 𝐀𝐝𝐯𝐢𝐬𝐨𝐫𝐲)
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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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First financial period

First financial period
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How do I find my financial year end if I incorporate a Sdn Bhd on 18/10/22?

“The beginning is the most important part of the work” – Plato

The same thing can be applied when 𝐝𝐞𝐭𝐞𝐫𝐦𝐢𝐧𝐢𝐧𝐠 𝐚 𝐧𝐞𝐰𝐥𝐲 𝐢𝐧𝐜𝐨𝐫𝐩𝐨𝐫𝐚𝐭𝐞𝐝 𝐒𝐞𝐧𝐝𝐢𝐫𝐢𝐚𝐧 𝐁𝐞𝐫𝐡𝐚𝐝 (𝐑𝐞𝐟𝐞𝐫 𝐡𝐞𝐫𝐞𝐢𝐧 𝐚𝐬 “𝐒𝐁”) 𝐟𝐢𝐫𝐬𝐭 𝐟𝐢𝐧𝐚𝐧𝐜𝐢𝐚𝐥 𝐲𝐞𝐚𝐫 𝐞𝐧𝐝.

As simple as it sounds, there is more to it than meets the eye. There are various compliance standards that the Company need to adhere to as well as multiple factors to be taken into consideration when making the financial decision on fixing the SB first financial year-end.

Firstly, the Company is required to comply with Section 248 of the Companies Act 2016 (refer herein as “CA 2016”)

Every SB is obligated to fix its financial year end (refer herein as “FYE”) within 18 months from the date of its incorporation.

Indeed,18 months may sound like a lot, but you may not want to max out the time frame given. The company may want to consider including a time buffer in their planning for unforeseen circumstances.

𝑰𝒔 𝒕𝒉𝒂𝒕 𝒊𝒕? 𝑫𝒐𝒆𝒔 𝒕𝒉𝒂𝒕 𝒎𝒆𝒂𝒏 𝒘𝒆 𝒄𝒂𝒏 𝒇𝒊𝒙 𝒐𝒖𝒓 𝒇𝒊𝒏𝒂𝒏𝒄𝒊𝒂𝒍 𝒚𝒆𝒂𝒓 𝒆𝒏𝒅 𝒂𝒕 𝒂𝒏𝒚 𝑭𝒀𝑬 𝒘𝒆 𝒅𝒆𝒔𝒊𝒓𝒆𝒅 𝒂𝒔 𝒍𝒐𝒏𝒈 𝒂𝒔 𝒘𝒆 𝒄𝒐𝒎𝒑𝒍𝒚 𝒕𝒐 𝒕𝒉𝒆 𝒂𝒃𝒐𝒗𝒆?

𝑩𝒆𝒇𝒐𝒓𝒆 𝒚𝒐𝒖 𝒋𝒖𝒎𝒑 𝒊𝒏𝒕𝒐 𝒚𝒐𝒖𝒓 𝒅𝒆𝒔𝒊𝒓𝒆 𝑭𝒀𝑬, 𝒍𝒐𝒐𝒌 𝒄𝒍𝒐𝒔𝒆𝒍𝒚 𝒇𝒐𝒓 𝒂𝒅𝒅𝒊𝒕𝒊𝒐𝒏𝒂𝒍 𝒄𝒐𝒎𝒑𝒍𝒊𝒂𝒏𝒄𝒆 𝒂𝒔 𝒃𝒆𝒍𝒐𝒘:

(𝐢) 𝐂𝐨𝐦𝐩𝐥𝐢𝐚𝐧𝐜𝐞 𝐭𝐨 𝐒𝐞𝐜𝐭𝐢𝐨𝐧 247 of 𝐂𝐀 2016

(a) If the SB becomes a subsidiary of any holding company that is incorporated in Malaysia within two years from its incorporation date, the FYE should be synchronized with the FYE of the holding company.

(b) Having said that, a holding company may apply in writing to the Registrar under Section 247(3) of CA 2016 if the holding company has good reason for the subsidiary to continue having a different financial year.

(c) Although the SB may initially fix its FYE differently compared to its holding company and change it on a later date (within two years of its incorporation date), but why go through the hassle when you can do it neat at the initial stage not to mention the additional professional fee that will be incurred when change of FYE involved.

(𝐢𝐢) 𝐓𝐚𝐱 𝐢𝐦𝐩𝐥𝐢𝐜𝐚𝐭𝐢𝐨𝐧 - 𝐏𝐮𝐛𝐥𝐢𝐜 𝐑𝐮𝐥𝐢𝐧𝐠 8/2014 (𝐏𝐑)

As stipulated under Para 4.2 of the PR, the first accounting period would be the first year of assessment for the SB.

But of course, if the Company intended to opt for (i)(c) above, the Company is obliged to comply to Para 5 of the PR as well.

All in all, of course, other than the above, there are a lot more factors which may come into play that may affect the decision such as the agreement with a third party, decision by key management personnel of the Company and etc. Hence, I am confident, each Company out there will come up with its best decision when fixing its first financial year end after a thorough consideration.

Authored by Calvin Lim, audit senior, from his personal Linkedin posting https://bit.ly/3SwfJFr

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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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Structured internship Programme TalentCorp

Structured internship Programme TalentCorp
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Structured internship Programme TalentCorp

The National Structured Internship Programme (MySIP) is developed to encourage companies to provide meaningful practical learning experiences through approved structured internships module for students.

As an employer who hires Malaysian full-time students from local IPTA or IPTS including higher learning institutions abroad and TVET institutions to undergo a structured internship programme endorsed by us, you will be eligible for a double tax deduction incentive for related expenses incurred on the interns throughout the programme.

Terms and conditions of MySIP

To qualify for the MySIP incentive, your organisation must fulfil the following criteria:

  • Provide a minimum internship period of ten (10) weeks

  • Pay a minimum monthly allowance of RM600 for master’s degree, bachelor’s degree and Professional Certificate or equivalent

  • Pay a minimum monthly allowance of RM500 for diploma/Malaysian Skills Certificate (SKM) Level 1 to Level 5 or equivalent

  • Provide an internship framework that includes practical experience and emphasizes on the development of specific knowledge or skills for students and approved by TalentCorp

  • Registered with the Companies Commission of Malaysia (SSM)

  • Complete your MySIP registration at www.mynext.my

Contact TalentCorp

For more information on the MySIP or to get in touch with the team, you can write to: sip@talentcorp.com.my

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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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Budget 2023 Tax Seminar Postponed

Budget 2023 Tax Seminar Postponed
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Due to the dissolution of the Parliament, all matters from webinar, internal training, newsletter & social media relating to Budget 2023 is postponed until further notice.

We will inform you in due course most likely when a new government is formed. Stay tuned.

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Service Tax Refund for Companies operating in the Joint Venture Development

Service Tax Refund for Companies operating in the Joint Venture Development
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Service Tax Refund for Companies operating in the Joint Venture Development

Who is Eligible?

  • Joint Venture Development (JDA) operate companies who have been paid on all taxable services.  

When is the effective date?

  • 15ᵗʰ AUGUST 2022.  

What are the 5 Requirements?? 

  • Services are fully used for official purposes and it is the main activities of the JDA operation. 

  • JDA companies need to furnish a declaration for Malaysia-Thailand and joint Authority (MTJA) to proof the service is for official purpose. 

  • JDA had paid for the acquisition. 

  • Comply all the conditions and procedures. 

  • Application of refund must make every three months (quarterly basis). 

Refund policy

Refund requests should be submitted no later than the last day of the month following the end of 3 months period, for example:  

  • Service Acquisition Period : 15 August 2022 – 30 September 2022 (Last date for service tax refund claim application 31 October 2022)

  • Service Acquisition Period : 1 October 2022 – 31 December 2022 (Last date for service tax refund claim application 31 January 2023)

Important points

  • After the period for submission of claims any refund will not be processed. 

  • Service tax exemption is not entitled for importation of taxable service including digital services tax.  

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Small Value Withholding Tax Payment

Small Value Withholding Tax Payment
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Small Value Withholding Tax Payment (update)

IRB released a media release on 27/09/22 in respect of deferment of small value WHT.

An individual/body resident in Malaysia or doing business in Malaysia that is required to pay WHT under S.109 or S.109B of the Income Tax Act 1967 that do not exceed RM500 per transaction for transactions that recur may submit the WHT form and pay the WHT as follows:

S.109 or S.109B of the Income Tax Act 1967

  • S.109 = Royalty and Interest earned by non-resident

  • S.109B = Special class of income under Section 4A of the ITA including service and rental of moveable property

Others Operational Issue

The above will take effect from 1st August 2022.

The WHT form (CP37 & CP37A) and WHT payment of small value for transactions that recur can be submitted once on or before 31 December for payment transactions made to non-residents between 1 June to 30 November in the current year.

Payers are advised to keep a list of recipients in respect of the small value WHT.

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Sales Tax (Exemption from Registration) (Amendment) Order 2022

Sales Tax (Exemption from Registration) (Amendment) Order 2022
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Sales Tax (Exemption from Registration) (Amendment) Order 2022

The Royal Malaysian Customs Department has issued the Sales Tax (Exemption From Registration) (Amendment) Order 2022 on 1st September 2022 to replace the 2018 Order. 

Don’t worry, let us summarize it for you. 

Amendment # 1: Definition on Paragraph 2 

2018 Order

  • Whose only have one of the manufacturing operations listed in Schedule A are exempted from registration. 

2022 Order 

  • Whose only have one of the manufacturing operations out of several operations in a manufacturing chain to produce a good and that operation is specified in Schedule A is exempt from registration.; and

  • The person who operates more than one manufacturing operation in Schedule A and manufacturing operations that do not relate in producing a goods is exempt from registration.  

Amendment # 2: Schedule A

Removed Order

  • The incorporation of goods into buildings. 

  • The installation of air conditioners in motor vehicles. 

  • The manufacture of jewellery and goldsmiths wares. 

  • The extraction of gold from mineral ores. 

  • The recovery of gold from jewellery and / or the refining of gold. 

New Order  

  • A cleaning operation by removing dirt or dust without any further operation. 

Amendment Order

  • The developing, printing of photograph, production of film slides or any forms or combination of any of those activities.  

  • Engraving, printing, drawing, writing, embossing or any other similar activities on taxable goods with a description relating to the sports record or other circumstances under which the taxable goods was donated or awarded.  

  • The preparation of foods or drinks by —  

(i) any person who provide services under Group B, First Schedule, Service Tax Regulations 2018 or

(ii) central kitchen for distribution to its premises which provide services under Group B, First Schedule, Service Tax Regulations 2018 

  • Printing, sewing or pasting of logo, knitting, crocheting or embroidering on ready made garments.  

Sources:  

  1. Sales Tax (Exemption from Registration) (Amendment) 2022 [PUA277]

  2. Sales Tax (Exemption From Registration) Order 2018

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Cases on promoters under the Company Act

Cases on promoters under the Company Act
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Cases on promoters under the Company Act

Who is a promoter?

“Someone who undertakes all necessary steps to form a company” - Twycross v Grant

What are Promoter duties?

  • Make an adequate disclosure

  • Does not exercise undue influence

  • Cannot make a secret

How to make an adequate disclosure?

Full disclosure of any transactions he had entered into on behalf of the company by way of

  • General meeting (Public Limited “Bhd”)

  • Board meeting (Private limited “Sdn Bhd”)

What does it mean by undue influence?

Where the “consent” is obtained by some pressure whereby the other party was in a disadvantaged position

Am I ever making a secret profit?

Profit in terms of rebates, discounts or incentives received without the company’s consent either by way of in the connection of the company or via its nominee (family related).

What if I breach my duties as a promoter?

Company may:

  • Rescind the contract

    Case law : Erlanger v Sombrero Phosphate Co

  • Recovery of secret profit

    Case law : Gluckstein v Barnes

  • Claim damages for breach of fiduciary duties

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RMCD Special Voluntary Disclosure & Amnesty Program (VA) - Update

RMCD Special Voluntary Disclosure & Amnesty Program (VA) - Update
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RMCD Special Voluntary Disclosure & Amnesty Program (VA) - Update

Background of VA

Under the proposed indirect tax amnesty program, taxpayers will be encouraged to voluntarily disclose underpaid or unpaid indirect taxes arising from errors or mistakes made in indirect tax filings or submissions, in exchange for reduced penalties.

Taxpayers who have failed to register and comply with indirect tax filing requirements are also expected to be eligible for the VA.

Key summary of VA

Special Voluntary Disclosure and Amnesty Program (VA) will be implemented with effect from 1 January 2022.

The VA program will be introduced in two (2) phases with penalty remission (with full payment during the said period) :

  • 1 January 2022 to 30 June 2022 : 100% penalty remission

  • 1 July 2022 to 31 December 2022 : 50% penalty remission

What is VA?

The VA program will involve two (2) distinct programs :

1. Voluntary disclosure program : Taxpayers can voluntarily disclose any unpaid or under-reported indirect tax/duty not known or discovered by RMCD under this program.

2. Amnesty program – Taxpayers with any outstanding Bill of Demand (“BOD”) or who have been audited by the RMCD Compliance Division and received audit findings on non-compliance areas can enjoy penalty and tax/duty remissions under this program.

The VA program will cover all indirect taxes administered by RMCD, including Sales Tax, Service Tax, GST, Tourism Tax, Departure Levy, Import Duty, Export Duty and Excise Duty.

Good faith

Voluntary disclosure submitted in good faith will be accepted. No audit will be conducted on the activities and periods involved.

Once the VA period is over, RMDC will enhance enforcement with hefty penalties.

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Corporate and Business Information Data (CBID)

Corporate and Business Information Data (CBID)
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Corporate and Business Information Data (CBID)

Corporate and Business Information Data (CBID) is a business information tool available in SSM to customise data for both companies and businesses at a reasonable price.

The specific sets of data are divided into 3 segments as follows:

1. Demographic:- ie. gender, age, race, etc.;

2. Geographic:- ie. State, town, etc.; and

3. Financial:- ie. profit and loss, balance sheet, etc.

CBID become one of the important resources where users can obtain the information as research material to advantageously make a business decision in starting, operating, or even expanding the business.

The importance of CBID:

- business growth information in a particular location.

- marketing purpose and networking collaboration.

- specialised research and analysis.

- business or company expansion analysis either through joint ventures or alliances.

This product is accessible at e-CBID and the cost is listed below:

a) Companies

i) Processing Data / Statistics Fee - RM20/Application

ii) Companies Data Fee by Package - RM3/package per company

iii) List of Company – RM10/Company

iv) Companies Statistics Fee - RM100/statistic

b) Business

i) Processing Data / Statistics – RM10/Application

ii) Businesses Data Fee - RM10/Business

iii) Businesses Statistics Fee – RM20/Statistic

In conclusion, SSM encourages entrepreneurs to utilise the CBID platform for more accurate and reliable information to ease decision-making in business operations at an affordable price.

For more information, click here :

https://bit.ly/3AQ5QeO

https://bit.ly/3KVOdi8

 

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Exposure Draft on Section 23 Revenue of the IFRS for SMEs

Exposure Draft on Section 23 Revenue of the IFRS for SMEs
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Exposure Draft on Section 23 Revenue of the IFRS for SMEs

Section 23 of the IFRS for SMEs Accounting Standard set out requirement for SMEs to recognise revenue. It is based on IAS11 Construction Contracts and IAS 18 Revenue.

The IASB has applied the alignment approach to IFRS 15 Revenue from Contracts with Customers and is proposing to revise Section 23 by introducing a single framework for recognising revenue for goods and services.

The IASB is proposing to

  1. introduce a framework for recognizing revenue which require revenue to be recognized when the customer obtains control of the goods/service, based on the 5 step model in IFRS 15.

  2. simplify requirements of IFRS 15 to make the five-step model easier for SME

  3. provide transition relief to allow SME to apply their current revenue recognition policy to contracts already in progress.

Framework for recognizing revenue

1. Identify the contract with a customer

2. Identify the promises in the contract

3. Determine the transaction price

4. Allocate the transaction price to the promises in the contract

5. Recognise revenue when (or as) the entity satisfy a promise

What would this proposal mean for SME?

A comprehensive framework for determining when and how much revenue to recognise for goods and services.

For many contracts, the revised Section23 is expected to have little, if any, effect on the amount and timing of revenue recognition.

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