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Income tax incentive for agriculture in malaysia

Income tax incentive for agriculture in malaysia
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(Tax Update) Unlock the Benefits of Tax Incentives for Your Food Production Business

At KTP, we understand the value that strategic investments in the agricultural sector can bring to your business. With the release of Public Ruling No. 5/2023, the Inland Revenue Board of Malaysia has introduced enticing tax incentives for approved food production projects, designed to encourage investments and boost the agricultural industry’s growth.

Here’s how you can capitalize on these incentives to enhance your business prospects:

Overview of Tax Incentives

The Malaysian government provides significant tax relief for approved food production projects, encompassing a variety of agricultural activities. Whether you are planting crops, engaging in aquaculture, or rearing livestock, these incentives are tailored to support and mitigate the risks associated with agricultural investments.

Approved Projects for Tax Incentives

The tax incentive covers a wide range of agricultural activities aimed at increasing food production in Malaysia. Here are some of the projects that qualify under Public Ruling No. 5/2023:

  • Crop Plantation : Includes planting of kenaf, vegetables, fruits, herbs, spices, and other industrial or cash crops. Specific commencement dates apply to each type of planting.

  • Aquaculture and Livestock Rearing : This encompasses the aquaculture of various species and the rearing of animals such as cows, buffaloes, goats, sheep, and deer.

  • Fishing Activities : Both deep sea and high seas fishing activities are eligible for the tax incentives.

  • Specialized Farming : Projects such as apiculture (beekeeping) and the cultivation of feed mill crops identified and approved by the Ministry of Agriculture and Food Security (MAFS).

Who Can Undertake These Projects?

Eligibility to participate in these incentive-backed projects extends to:

  • Incorporated Entities : Companies and cooperatives incorporated under the Malaysian Companies Act 2016.

  • Agricultural Associations : Includes Area, Federal, and State Farmers’ and Fishermen’s Associations.

  • Individuals and Partnerships : Sole proprietors and partnerships engaged solely in agricultural or fisheries activities for the approved project.

Key Tax Benefits

  • Tax Exemption : Enjoy a 100% tax exemption for up to ten consecutive years for new projects, and five years for expansion projects. This exemption applies from the first year of assessment in which you derive statutory income from the project.

  • Capital Allowances : Claim deductions for capital expenditures involved in your project, ensuring that your initial investment is economically feasible.

  • Loss Carry Forward : Adjusted losses incurred before and during the exemption period can be carried forward, offsetting future taxable income once the exemption period concludes.

Eligibility Criteria

  • Type of Projects : The incentive covers a wide range of agricultural activities, from planting and aquaculture to livestock rearing and deep-sea fishing.

  • Qualifying Entities : Eligible applicants include companies, cooperatives, and sole proprietors engaged solely in agricultural or fishery activities.

  • Application Process : Applications must be submitted to the Ministry of Agriculture and Food Security (MAFS) before project commencement and within specified deadlines.

How to Apply

Visit the MAFS website for detailed criteria and application procedures. Ensure that your project meets all stipulated requirements and that you maintain separate financial records for the activities under the incentive.

Strategic Investment

Investing in related companies undertaking approved projects can also yield tax deductions, enhancing the financial viability of your broader corporate structure.

Conclusion

Leveraging these tax incentives can substantially decrease the financial risks associated with agricultural projects, making it an attractive investment opportunity. At KTP, we are ready to guide you through the application process and help optimize your tax position.

For further information, please visit our website at www.ktp.com.my or contact us directly. Seize this opportunity to grow your business and contribute to Malaysia’s agricultural advancement with the support of KTP, your trusted tax agent.

Source

IRB Public Ruling 5/2023 AGRICULTURAL SECTOR INCENTIVE – TAX INCENTIVE FOR APPROVED FOOD PRODUCTION PROJECT Sector https://www.hasil.gov.my/media/tkqlzbit/draft-public-rulling-agricultural-sector-incentive.pdf

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What is TIN number Malaysia?

What is TIN number Malaysia?
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(Tax Update) Understanding Taxpayer Identification Number (TIN) for E-Invoicing in Malaysia

Introduction

As Malaysia embraces the new era of e-invoicing starting from 1st August, understanding the integration and utilization of the Taxpayer Identification Number (TIN) becomes essential for all business entities.

This guide, brought to you by KTP (www.ktp.com.my), aims to simplify the TIN formats for both individuals and businesses, ensuring that our clients are well-prepared and compliant with the upcoming changes.

What is a Taxpayer Identification Number (TIN)?

The Taxpayer Identification Number (TIN) is an alphanumeric code essential for tracking business transactions and ensuring tax compliance in Malaysia. With the shift to e-invoicing, having a TIN will become indispensable for all financial and tax-related activities.

TIN Formats in Malaysia

For Individuals:

Current Format: Post-2nd January 2023, the TIN for individuals starts with ''IG'' followed by a 9-11 digit unique identifier.

Previous Format: Before this date, it began with ''OG'' or ''SG.''

Example: IG845462070, IG57303584070

For Companies and Other Entities:

Format Overview: Begins with a prefix that denotes the entity type, followed by a 10 or 11-digit number. An extra ''0'' has been included after the TIN number for non-individual entities since 2nd January 2023 to standardize the format.

Entity Prefixes:

Companies: C

Cooperative Societies: CS

Partnerships: D

Employers: E

Associations: F

Examples:

Company: C20830570210

Cooperative Societies: CS1234567890

How to Apply for a TIN in Malaysia

For new taxpayers, obtaining a TIN involves visiting the official tax authority's website or office, providing necessary documentation, and submitting an application form. This process ensures that all your business dealings are recorded and taxed appropriately.

Finding Your Existing TIN

Existing taxpayers can locate their TIN by checking previous tax returns, accessing the tax authority's online portal, or contacting the tax authority directly for assistance.

Importance of TIN in the E-Invoicing System

The integration of TIN into the e-invoicing system ensures as TIN is one of compulsory fields under E-Invoicing system

  • Compliance: Streamlines tax compliance and simplifies audits.

  • Accuracy: Enhances the accuracy of financial transactions.

  • Security: Minimizes the risk of errors and fraud.

Conclusion:

As Malaysia progresses towards a more digitalized economy, understanding and applying the correct TIN format is crucial for seamless business operations.

KTP is committed to assisting our clients through these transitions, ensuring that your business remains compliant and efficient in handling all tax-related matters. For more insights and support on e-invoicing in Malaysia, visit us at www.ktp.com.my or contact our support team for personalized assistance.

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(Tax Update) E-Invoicing Update: A Breakthrough for Micro-SMEs in Malaysia

(Tax Update) E-Invoicing Update: A Breakthrough for Micro-SMEs in Malaysia
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(Tax Update) E-Invoicing Update: A Breakthrough for Micro-SMEs in Malaysia

Early Development to MSME

In early July 2024, during a parliamentary session, Finance Minister II Datuk Seri Amir Hamzah Azizan announced new e-invoicing regulations and supports for MSMEs. These regulations exempt MSMEs with annual revenues below RM150,000 from the obligation to issue e-invoices.

However, they also permit these MSMEs to issue consolidated e-invoices that summarize monthly sales transactions, offering flexibility in managing their invoicing requirements.

Latest Development to MSME

Abu Tariq, CEO of the Inland Revenue Board of Malaysia (LHDN), has announced a important update to e-invoicing regulations, marking a significant development for small enterprises nationwide on 16 July 2024

Major Update

Micro-SMEs with annual revenues below RM 150,000 are now completely exempt from e-invoicing mandates.

Impact of the Exemption:

  • No requirement to issue e-invoices: Micro-SMEs are relieved from the obligation of generating electronic invoices, allowing them to continue using their current billing systems without additional upgrades or changes.

  • No need to consolidate e-invoices: These enterprises are not required to merge multiple e-invoices into a single document, which typically helps in reporting and compliance, thus saving time and reducing complexity.

  • Full exemption from adopting the e-invoicing system: This complete waiver frees micro businesses from the financial and logistical challenges associated with setting up and maintaining a compliant e-invoicing system.

This amendment substantially alleviates the administrative load for thousands of micro businesses, enabling them to concentrate on growth and sustainable development.

Our Thoughts

This initiative indicates LHDN's acknowledgment of the unique hurdles that micro businesses encounter, demonstrating a commitment to support the smallest economic contributors in our country.

To secure tax deductions from purchases made from MSMEs, taxpayers should meticulously document transactions and retain detailed invoices as proof for claims. However, potential abuse, such as overstating expenses, could occur.

Buyers also need to conduct thorough due diligence on MSME transactions to ensure legitimacy and accuracy. This approach allows buyers to responsibly benefit from tax deductions while maintaining the integrity of the tax system.

Final Words

While larger enterprises will see the continued rollout of the e-invoicing system as planned, aimed at simplifying tax procedures and increasing transparency with effect from 1 August 2024.

We will continue to monitor the progress of e-invoicing in Malaysia and provide further updates. Should you have any queries regarding your business’s e-invoicing obligations, please consult LHDN or your tax advisor.

 

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(Tax Update) Understanding Controlled Transfers in Taxation: A Guide for Businesses

(Tax Update) Understanding Controlled Transfers in Taxation: A Guide for Businesses
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(Tax Update) Understanding Controlled Transfers in Taxation: A Guide for Businesses

Controlled transfers, as outlined by the Inland Revenue Board of Malaysia, refer to the disposal and acquisition of assets between related parties under common control. This blog post explains the significance of these transfers, particularly in relation to plant and machinery, within the context of Malaysian tax law.

Objective:

Our aim is to demystify the tax implications of controlled transfers, helping businesses and accounting professionals grasp how such transactions affect their tax calculations and obligations.

What is a Controlled Transfer?

A controlled transfer occurs when assets are transferred between parties that are related or under common control. This could be due to ownership, partnership shares, or company management structures. In taxation terms, such transfers are handled uniquely to ensure tax fairness and prevent manipulation of tax liabilities.

Tax Implications of Controlled Transfers:

Tax neutrality

In controlled transfers, the actual sale price is often disregarded. Instead, tax calculations are based on the residual expenditure of the asset, ensuring that tax outcomes remain neutral regardless of the transaction price.

Capital Allowances

The buyer in a controlled transfer inherits the seller's tax basis in the asset. This means the buyer steps into the shoes of the seller regarding capital allowances, which can impact the buyer's future tax deductions.

Avoidance of Balancing Charges

Normally, when an asset is sold for more than its tax-written value, a balancing charge arises, increasing taxable profits. However, in controlled transfers, these balancing charges (or allowances) are typically not recognized, avoiding unexpected tax liabilities.

Where a disposal of an asset is subject to control, the sale price and the purchase price are ignored and no balancing allowance or balancing charge is imposed on the disposer. The qualifying expenditure (QE) incurred by the acquirer and the date the asset is deemed to have been acquired by the acquirer is determined.

Benefits for Business Planning

Understanding these rules can significantly aid in tax planning, particularly for groups of companies or partnerships where assets frequently change hands internally. Strategic planning of asset transfers can optimize tax positions across the group without triggering additional tax costs.

Conclusion

Controlled transfers, while complex, offer a mechanism for businesses to manage their assets within a controlled group without adverse tax consequences. By aligning with a knowledgeable tax agent, businesses can ensure compliance and optimize their tax positions effectively.

Source

IRB Public Ruling 1/2018 Disposal of Plant and Machinery Part II - Controlled Sales https://phl.hasil.gov.my/pdf/pdfam/PR_1_2018.pdf

(Tax Update) Reinvestment Allowance Common Mistakes

(Tax Update) Reinvestment Allowance Common Mistakes
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(Tax Update) Reinvestment Allowance Common Mistakes

The Reinvestment Allowance (RA) offers a significant tax incentive for Malaysian companies committed to reinvesting in qualifying projects related to agricultural, manufacturing, and integrated activities.

Here are more common mistakes businesses make when claiming the Reinvestment Allowance (RA), based on detailed findings from the Inland Revenue Board of Malaysia (IRB):

Insufficient Supporting Documentation:

Lack of comprehensive documentation

Many businesses rely solely on purchase invoices. The absence of project papers, feasibility studies, business plans, budgets, directors' resolutions, and other relevant documents supporting the project can lead to disqualification of the RA claim.

Documentation retention

Failure to keep supporting documents for at least seven years as required by Malaysian tax law.

Misalignment of Investment and Usage

Mismatch of entities

Sometimes, the company that incurs the investment is not the same as the company that uses the plant and machinery, leading to ineligible RA claims.

Related party transactions

Claiming RA on the transfer of assets from related parties who have previously claimed RA on the same assets is a significant error, as it can be seen as double-dipping into tax benefits.

Improper Allocation of Expenditures

Benefit to related companies/directors

Claiming RA on assets incurred for the benefits of related companies or directors, rather than for qualifying business activities.

Non-Qualifying activities

Businesses sometimes mistakenly claim RA on activities or assets that do not qualify under the RA guidelines.

Issues with Payment Records

Absence of payment records

Not maintaining proper payment records to support the acquisition and use of qualified assets can lead to RA claims being rejected during audits.

Concurrent Claims with Other Tax Incentives

Overlap with other incentives

Businesses often err by claiming RA concurrently with other tax incentives like Pioneer Status (PS) or Investment Tax Allowance (ITA), without understanding the exclusivity clauses that might apply.

Lack of Detailed Project Documentation

No written or pictorial production flow

Failing to provide a written or pictorial representation of the production flow for the qualifying project, which is essential to demonstrate the direct application of the investment towards eligible activities.

Final Words

These common errors underscore the complexity of tax planning and compliance. Businesses should ensure thorough documentation, accurate allocation of expenses, and clear understanding of the IRB's regulations regarding RA.

Engaging with a tax professional can provide the necessary guidance and support to navigate these challenges effectively.

Source

Public Ruling 10/2022 Reinvestment Allowance Part 1 - Manufacturing Activity
Public Ruling 11/2022 Reinvestment Allowance Part 2 - Agricultural and Integrated Activity

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(Tax Update) Reinvestment Allowance Public Ruling

(Tax Update) Reinvestment Allowance Public Ruling
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(Tax Update) Reinvestment Allowance Public Ruling

The Reinvestment Allowance (RA) offers a significant tax incentive for Malaysian companies committed to reinvesting in qualifying projects related to agricultural, manufacturing, and integrated activities.

This guide simplifies the complex aspects of RA and explains how businesses can capitalize on this opportunity to reduce their tax liabilities.

Objectives of RA

Our primary goal is to ensure that businesses are well-informed about the benefits of RA and the conditions under which they can claim this allowance.

This is particularly pertinent for companies planning substantial reinvestment into their operational capabilities.

Eligibility Criteria of RA

Company status

Taxpayer must be a resident company in Malaysia.

Operational duration

Must have been in operation for at least 36 months.

Project types

Investment must be directed towards expansion, modernization, or automation of existing business operations within the same industry, or diversification into related products within the same industry.

Qualifying Expenditures

Capital expenditure

Costs associated with the acquisition of new machinery, upgrading existing facilities, diversification or expanding production capacity are eligible.

Specific activities

For agricultural businesses, eligible expenses might include land preparation, crop planting, and installation of irrigation systems.

Financial Advantage:

Tax deduction

RA allows for a claim of 60% of qualifying capital expenditure incurred during the year, which can be deducted against the statutory income of the business.

Limitation

The amount of RA claimed is restricted to 70% of the statutory income from the business for the year.

Tax Implications:

By reducing taxable income, RA not only decreases the immediate tax burden but also improves cash flow, enabling further investment in business growth and innovation. This fosters a cycle of reinvestment and development, enhancing long-term business viability and competitiveness.

How to Claim

Documentation

Companies need to include RA claims in their annual tax returns using the specific forms provided by the Inland Revenue Board of Malaysia (IRBM).

Compliance

It is essential to retain all documents related to RA claims as these may be required for audit purposes.

Latest Development RA

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).

Conclusion

The RA provides a tangible incentive for businesses to reinvest in enhancing their operational capacities. By understanding and utilizing this tax incentive, companies can significantly benefit from reduced tax liabilities while strategically positioning themselves for future growth.

Source

Public Ruling 10/2022 Reinvestment Allowance Part 1 - Manufacturing Activity
Public Ruling 11/2022 Reinvestment Allowance Part 2 - Agricultural and Integrated Activity

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E - Invoice Guidelines for Micro SME

E - Invoice Guidelines for Micro SME
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(Tax Update) E - Invoice Guidelines for Micro SME

Finance Minister II Datuk Seri Amir Hamzah Azizan recently outlined new e-invoicing regulations and support mechanisms during a parliamentary session.

Here are the key points:

E-Invoicing Requirement:

MSMEs with annual revenues less than RM150,000 are exempt from issuing e-invoices currently. However, all businesses, including small traders, are encouraged to adopt e-invoicing to align with Malaysia's digital business aspirations.

Support for MSMEs

The government recognizes the challenges MSMEs face, such as increased operational costs and the need for IT system upgrades. To mitigate these, MSMEs are allowed to issue consolidated e-invoices that summarize all sales transactions monthly.

MyInvois Portal

MSMEs can utilize the MyInvois portal for e-invoicing at no additional cost. This tool helps streamline the digital invoicing process.

Tax Incentives

Custom system developers or users of third-party solutions can benefit from accelerated capital allowance claims, reducing from four to three years for purchasing devices and software starting in the 2024 assessment year.

A tax deduction up to RM50,000 per assessment year is available from 2024 to 2027 for consultancy fees incurred in implementing e-invoicing.

Implementation Timeline

  • From August 1, 2024, companies with a turnover exceeding RM100 million are mandated to implement e-invoicing.

  • Businesses earning between RM25 million and RM100 million must adopt e-invoicing by January 1, 2025.

  • By July 1, 2025, all other businesses, including SMEs, hawkers, and traders, are required to start e-invoicing.

Finance Minister Amir emphasized that the government would adopt an ''educate and correct'' approach to support the transition and remains committed to assisting companies, including MSMEs, in moving to e-invoicing. This initiative aims to enhance business efficiency and align Malaysian businesses with global digital standards.

Our Key Takeaway

We welcome this initiative and are eagerly awaiting the official guidelines from the Inland Revenue Board (IRB) regarding this concession. Stay tuned for our upcoming update on the latest developments in e-invoicing.

Taxation on Limited Liability Partnerships (LLPs) : Simplified Guide

Taxation on Limited Liability Partnerships (LLPs) : Simplified Guide
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(Tax Update) Taxation on Limited Liability Partnerships (LLPs) : Simplified Guide

In Malaysia, taxation for LLPs follows specific rules set by the Inland Revenue Board, blending features from companies and partnerships. Notably, the LLP Act is poised for amendments focused on enhancing transparency and accountability.

These amendments will require LLPs to maintain a register of beneficial owners, disclose detailed ownership information, and lodge this with the Registrar. Such changes aim to align with international standards to combat money laundering and improve corporate governance.

We are going to clarify tax implications for clients considering or currently in an LLP under IRB’s Public Ruling 8/2022 Taxation on LLP.

Introduction of LLP

Limited Liability Partnerships (LLPs) provide a hybrid structure with benefits akin to corporations but operate with the flexibility of a partnership.

This format is beneficial for small to medium-sized enterprises (SMEs) or professionals who require a simpler entity with limited liability.

Taxation Basics

LLPs in Malaysia are taxed at the entity level, unlike traditional partnerships where individual partners are taxed.

The profits of an LLP are taxed directly to the LLP, and not to the partners.

Key Features

Formation and Legal Status:

LLPs are registered under the Limited Liability Partnerships Act 2012.

They must end with ''PLT'' after the partnership’s name indicating their status.

Capital Contribution

Partners can contribute capital in cash or kind, but not as loans.

Such contributions determine the financial backbone of the LLP.

Management and Control

Tax residency of an LLP is determined by where the management and control activities are conducted.

Important decisions should be made in Malaysia to maintain local tax residency status.

Tax Implications

Tax rates follow a tiered structure similar to corporate rates.

Special provisions apply for income under RM50 million from business sources and a capital contribution of RM2.5 million or less.

Compliance Requirements

LLPs are not required to audit financial statements but must maintain accurate records for tax purposes.

Proper bookkeeping and financial disclosures are crucial for compliance.

Deductions and Allowances

Specific expenses and capital investments are deductible under the tax law.

It is crucial to document all financial activities in the LLP agreement to claim deductions.

Benefits of LLP

LLPs enjoy limited liability protection, reducing personal risk for partners.

Flexible management structure without the stringent requirements of a corporation.

Final Words

Choosing an LLP structure offers flexibility and protection but requires careful consideration of tax obligations and compliance requirements.

For detailed advice and assistance, consider engaging a tax consultant or visit our website KTP for expert guidance.

Source

IRB’s Public Ruling 8/2022 https://www.hasil.gov.my/media/3wzlz0nl/pr_8_2022.pdf

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(Tax Update) Exemption of Foreign Source Income

(Tax Update) Exemption of Foreign Source Income
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(Tax Update) Exemption of Foreign Source Income

IRB has issued a technical guidelines on “Tax Treatment in Relation to Income received from Abroad (Amendment)” dated 20 June 2024. The Amended Guidelines replace IRB’s Technical Guidelines on Tax Treatment in relation to Income Received from Abroad (Amendment) dated 29 December 2022..

The amendments to the tax guidelines on foreign-sourced income received in Malaysia, which are effective from January 1, 2022, introduce more flexible criteria for taxpayers seeking exemptions on this type of income, specifically dividend income.

Here's a detailed breakdown of the key changes and what they mean:

Previous Guidelines

Under the old rules, to qualify for an exemption on foreign-sourced dividend income, taxpayers had to meet all three of the following conditions:

  • Economic Substance Requirement : There needed to be substantial business activities in the country from where the income originated.

  • Taxation of Dividend Income : The dividend income must have been subject to tax in that foreign country.

  • Headline Tax Rate : The foreign country's corporate tax rate had to be at least 15%.

New Amendments - Eligibility for Tax Exemption

  • Applies To : The exemption applies to resident companies, resident limited liability partnerships (LLPs), and resident individual partners involved in a partnership business in Malaysia (IIP).

  • Duration : From January 1, 2022, to December 31, 2026.

  • Conditions for Exemption :

    • Option A:

      a) The dividend income must have been taxed in the originating country.

      b) The highest tax rate (headline tax) in that country must be at least 15%.

    • Option B:

      Comply with the economic substance requirements, demonstrating significant business activities in the foreign country.

Clarification on Determining the Headline Tax Rate

The guidelines provide additional clarity on when the headline tax rate is determined, which is illustrated in Examples 6 and 7.

This helps in understanding how to evaluate the tax rates applicable at the time the income was earned.

Detailed Economic Substance Requirements

Specified Economic Activities

The guidelines specify what constitutes economic activities for both investment holding entities and non-investment holding entities, clarifying what activities need to be conducted to meet the substance requirements.

Employment of Service Directors

A service director employed under a contract of service is recognized as an employee, which aids in meeting the economic substance criteria.

Outsourcing Permitted

Outsourcing of specified economic activities is permissible, provided certain conditions are met. This allows flexibility in how companies manage and report their business activities in foreign jurisdictions.

Why These Tax Updates Matter

These detailed updates make it clearer for Malaysian entities and individuals who earn foreign-sourced dividend income to understand and comply with the requirements for tax exemptions.

The options provided for meeting the exemption criteria (either through tax status and headline tax rate or through economic substance) offer flexibility, accommodating different business models and international arrangements.

Furthermore, the clarifications on economic substance requirements and the conditions for outsourcing ensure that businesses can plan their operations and tax strategies with greater certainty.

The acknowledgment of service directors and the conditions for outsourcing help in structuring business operations efficiently while complying with tax laws.

Source

IRB’s Technical Guideline Tax Treatment In Relation To Income Received From Abroad https://www.hasil.gov.my/media/fzofh1gz/20240620-guidelines-tax-treatment-in-relation-to-income-received-from-abroad-amendment-june-2024.pdf

Maximizing Tax Incentive with Investment Tax Allowance

Maximizing Tax Incentive with Investment Tax Allowance
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(Tax Update) Maximizing Tax Incentive with Investment Tax Allowance

At KTP, we understand the complexities that manufacturers face, particularly in navigating the realm of tax incentives. A significant opportunity currently available is the Investment Tax Allowance (ITA) which can substantially benefit companies involved with promoted products in the manufacturing sector.

Here’s why you should consider this incentive for your business growth and innovation strategies.

What is the Investment Tax Allowance (ITA)?

The ITA offers a lucrative tax incentive for manufacturers that produce specific promoted products in Malaysia. This allowance is essentially a tax deduction from the qualifying capital expenditure incurred by businesses, aiming to boost domestic manufacturing capabilities and technological advancements.

Benefits of the Investment Tax Allowance

Attractive Allowance Rates

Businesses can claim an allowance of up to 100% on their qualifying capital expenditure. This makes a significant impact on reducing the overall taxable income, thus lowering tax liabilities and enhancing cash flow.

Wide Range of Promoted Products

The ITA covers a diverse array of manufacturing activities and products, from high-tech electronics to resource-based manufacturing such as palm oil biomass and rubber. This inclusivity ensures many sectors can benefit from the allowance.

Enhanced Competitiveness

By reducing tax burdens, companies can reinvest savings into further innovation, quality improvement, or expansion, enhancing their competitive edge both locally and globally.

Support for High Technology and Small Scale Companies

Special provisions under the ITA support high technology and small scale companies, encouraging startups and SMEs to invest in innovative and high-value manufacturing.

How to Qualify for the Investment Tax Allowance

To be eligible, companies must engage in the manufacture of promoted products as determined by the Ministry of International Trade and Industry in concurrence with the Ministry of Finance. Companies must also meet specific criteria and conditions outlined by the Malaysian Investment Development Authority (MIDA).

Applying for the Investment Tax Allowance

Applications must be submitted in writing to MIDA, with all necessary documentation and adherence to the outlined guidelines.

Approval from MIDA not only secures the tax incentive but also affirms the strategic importance of your business operations within the sector.

Conclusion

At KTP, as your trusted tax agent and advisor, we are here to assist you in navigating the application process, ensuring compliance, and maximizing the benefits from the Investment Tax Allowance.

If your business is part of the manufacturing sector and you're looking to leverage this incentive, visit our website at www.ktp.com.my or contact us today for a detailed consultation.

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(Tax Update) Can a landlord claim Industrial Building Allowance

(Tax Update) Can a landlord claim Industrial Building Allowance
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(Tax Update) Can a landlord claim Industrial Building Allowance on his/her building?

Navigating the tax benefits associated with Industrial Buildings (IB) and the Industrial Building Allowance (IBA) in Malaysia can significantly impact your business’s financial planning.

This blog post, tailored for KTP’s clients with minimal tax knowledge, breaks down these concepts into understandable segments. Here, we reference the Public Ruling 8/2016, Public Ruling 8/2016 and Schedule 3 of the Income Tax Act 1967 which provides the guidelines on IBA.

Understanding Industrial Buildings (IB)

An industrial building in Malaysia includes properties used for manufacturing, processing, storage, or any other similar industrial purposes. These buildings are pivotal for businesses involved in production and operations, making them eligible for tax deductions through the IBA.

Here’s a more detailed list of the types of buildings that can qualify for IBA, as described in the public ruling o 3/2018, 8/2016 and Schedule 3 of the Income Tax Act 1967

  • Factories : Buildings used primarily for manufacturing or processing goods and materials. This includes all structures used in connection with manufacturing, such as storage facilities for raw materials and finished products if they are on the same site as the factory.

  • Warehouses : Specifically those used in connection with a qualifying industrial activity, such as storage of goods to be processed or manufactured.

  • Workshops : Buildings where goods are produced or repaired, as long as they are part of a larger industrial operation.

  • Buildings used for Research and Development : Buildings used specifically for industrial or scientific research related to the manufacturing process.

  • Buildings housing Industrial Power Generation : Includes buildings that house machinery used for generating power for industrial activity, as long as the power is used for operating the industrial facility.

  • Agricultural Buildings : Includes buildings used for the processing of agricultural produce, such as mills for processing rice or sugar.

  • Buildings used in Mining and Quarrying : Any building used directly in connection with mining operations or the processing of minerals.

Business Operator is the Owner of the Building

Commencing from the year of assessment 2016, the provision under subparagraph 16B(1), Schedule 3 of the ITA clarifies that a person who is eligible to claim IBA must be the owner and business operator of the above-mentioned types of industrial buildings.

A building owner who rents out his building to another person to carry on the business is not eligible to claim IBA on that building although the tenant uses it as an industrial building.

It is important to note that the tenant is eligible to claim IBA in respect of the capital expenditure incurred by him on alteration or renovations on the building that he uses as an industrial building.

What is Industrial Building Allowance (IBA)?

IBA is a tax relief mechanism designed to encourage the construction or purchase of industrial buildings. It allows businesses to deduct a percentage of the expenditure incurred on these buildings from their taxable income, effectively reducing the overall tax burden.

For detailed rate (initial and annual) allowance, you may refer to the Public Ruling 8/2016 Industrial Building Part 1.
 

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Investment Holding Company As Per Public Ruling

Investment Holding Company As Per Public Ruling
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(Tax Update) Investment Holding Company As Per Public Ruling

In Malaysia, there are special businesses called Investment Holding Companies (IHCs). Unlike regular companies that sell products or services, IHCs make money by managing investments like shares, properties, or earning interest.

Public Ruling 2/2024, issued by the Inland Revenue Board of Malaysia, is titled “Investment Holding Company” and was released on May 28, 20241. It replace the old Public Ruling 10/2015 on IHC.

It provides guidance on the interpretation of tax laws, policies, and procedures related to investment holding companies. This ruling is intended to assist both the public and officers of the Inland Revenue Board by clarifying the Director General of Inland Revenue’s stance on specific tax matters.

What is an Investment Holding Company (IHC)?

Think of an IHC as a big boss who controls various valuable assets—like owning stocks in different companies, real estate, or bonds. Their main job is to look after these investments and earn money from them, rather than selling goods or everyday services.

An IHC means a company whose activities consist mainly in the holding of investments and not less than 80% of its gross income other than gross income from a source consisting of a business of holding of an investment (whether exempt or not) is derived from the holding of those investment.

What is a Business of Holding of an Investment ?

A company is involved in renting out property and also offers maintenance or support services for those properties.

This means that besides allowing someone to use the property based on a lease or rental agreement, the company takes care of the property by providing upkeep services like cleaning, repairs, and managing facilities such as lifts, stairs, and outdoor areas like parking lots and gardens.

How Are IHCs Taxed?

Here’s how IHCs are taxed depending on the type of income they receive:

  • Money from Shares (Dividend Income): When IHCs receive dividends from the shares they own, this income is not taxed again. Why? Because the company distributing the dividends has already paid taxes on those profits.

  • Money from Interest (Interest Income): If an IHC earns interest from things like fixed deposits or bonds, this income is taxable. The IHC must report this income and pay taxes just like any other company.

  • Money from Renting Out Property (Rental Income): Just like interest, any income from renting out property owned by the IHC is taxable.

What About Expenses?

All businesses incur costs, but not all expenses can reduce their taxable income.

The tax treatment for an IHC depends on whether the IHC is or is not listed on the Bursa Malaysia. The special tax treatment for an IHC is provided under section 60F of the ITA for an IHC not listed on the Bursa Malaysia

For IHCs not listed on Bursa Malaysia, only expenses directly linked to earning taxable income are deductible. For example, costs to manage a rental property can be deducted from the rental income. However, general expenses like office supplies or company events are not deductible.

Why This Matters to You

Investment Holding Company (IHC) can no longer be considered as SME starting year 2020. That means it shall no longer be kept as 17% tax rate but 24% now.

Difference Between Old and New Public Ruling IHC

Expenses and deduction related to single-tier dividend

Capital allowance and deductions relating to single-tie dividends are to be disregarded

Time Limit for Unabsorbed Business Loss Carried Forward

Restrict to carry forward unabsorbed business loss for a period of 10 years with effect from YA 2019

Conclusion

For more detailed information, you can check the Public Ruling 2/2024 from the Inland Revenue Board of Malaysia titled ''Investment Holding Company,'' released on May 28, 2024.

This ruling provides guidance on tax laws related to IHCs and is intended to help the public and tax officers understand specific tax matters better.

You can view the full document on the official website of the Inland Revenue Board of Malaysia or consult with a tax professional for deeper insights.

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E-Invoice : FAQ Part 1

E-Invoice : FAQ Part 1
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(Tax Update) E-Invoice : FAQ Part 1

Welcome to KTP's definitive guide to e-invoicing! As your trusted auditors and tax agents, we're here to simplify the transition to e-invoices for everyone.

Whether you're a business owner, accountant, or just getting to grips with digital invoicing, this video is packed with essential information and answers to your most asked questions.

Dive into our FAQ Part 1 session to ensure your business stays compliant and ahead of the curve with e-invoicing.

Timestamps:

0:00 - Introduction to E-Invoicing

1:15 - Implementation Timelines Explained

3:50 - Understanding Mandatory Data Fields

6:30 - The Future of Handwritten Invoices

8:45 - Handling Staff Expenses and Claims with E-Invoices

11:10 - Conclusion and Additional Resources

FAQs on E-Invoice Implementation:

1. Implementation Timeline

  • Scenario 1

    If your company’s e-invoice implementation date is set for 2025 but your client’s date is 1 August 2024, you might need to adopt e-invoicing earlier to accommodate your client's requirements. Adjusting your schedule can ensure seamless transactions and maintain good business relations.

  • Scenario 2

    If facing a similar timeline with your supplier, it’s crucial to understand any specific requirements they might have. Early preparation can prevent disruptions in your supply chain.

2. Data Fields

With e-invoicing, there might be up to 55 required fields. While this sounds extensive, not all fields may be mandatory for every transaction.

It’s important to identify which fields are essential for your specific business context to ensure compliance without overburdening your processes.

3. Issuing Handwritten Invoices/Receipts

The shift to e-invoicing doesn't necessarily eliminate the possibility of using handwritten invoices or receipts. However, digital invoices are becoming a standard due to their efficiency and compliance benefits. Check if specific regulations apply to your industry.

4. Staff Expenses and Claims

  • Scenario 1

    E-invoices for professional subscriptions under an employee’s name can typically be claimed, provided they align with company policies and are properly documented.

  • Scenario 2

    Entertainment expenses billed under an employee’s name can also be claimed. Ensure that such expenses are justified, reasonable, and fall within company guidelines.

  • Scenario 3

    For overseas business trips, accommodation expenses invoiced in an employee's name are generally reimbursable. It's crucial these expenses are pre-approved and within the company’s travel policy limits.

For more insights and personalized advice on e-invoicing, don’t forget to subscribe to our channel and check out our other resources.

KTP is here to help you navigate the complexities of modern business compliance with ease and confidence.

YouTube Video on E-Invoice FAQ

Watch the 25 minutes webinar on IRB Tax Audit in our YouTube https://youtu.be/WjWFAVBy8bc

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Incorporate a Sdn Bhd in Malaysia

Incorporate a Sdn Bhd in Malaysia
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(Sec Update) Incorporate a Sdn Bhd in Malaysia

Incorporate a Sdn Bhd in Malaysia is a crucial step for businesses looking to establish a legal presence in the country. Whether you're a local entrepreneur or a foreign investor, understanding the process and requirements for setting up a Sdn Bhd (private limited company) is essential.

Here, we answer some of the most common questions about incorporating a Sdn Bhd in Malaysia to help you navigate this important business milestone.

FAQ on Incorporating A Sdn Bhd

1. Company Name

Can I register a Sdn Bhd company as ABC Sdn Bhd and change it to XYZ Sdn Bhd later?

2. Nature of Business

How many types of business activities can I register?

3. Director

Can a foreigner be a director of the company?

4. Shareholder

Do I need a local shareholder?

5. Share Capital

  • How much share capital is required for the new company?

  • Do I need to deposit the share capital into a bank account?

6. Address

I don't have a business address right now. Can I use my home address?

7. Company Secretary

  • Who is a company secretary?

  • Why do I need to appoint a company secretary?

  • When should I appoint a company secretary?

8. Timeline

How long does it take to incorporate a Sdn Bhd?

9. Process

  • Pre-incorporation: Company name search and approval, with reservation for 30 days.

  • During incorporation: Prepare and submit documents to SSM, get the Certificate of Incorporation and SSM statutory forms.

  • Post-incorporation: Open a bank account, enter a tenancy agreement, apply for a business license and signboard, and set up utilities like electricity (TNB) and water (SAJ).

Learn more about each step and ensure your incorporation process goes smoothly! Visit our website at www.ktp.com.my for more details.

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Unclaimed Money

Unclaimed Money
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Unclaimed Money

Recently, one of our #ktp clients received an audit letter from Unit Wang Tak Dituntut, JANM Negeri Johor. We are pleased to share the details of the letter and remind you about the Unclaimed Money Act 1965.

Inspection Notice

According to Section 12 (1) of the Unclaimed Money Act 1965, the Registrar of Unclaimed Money or an authorized officer can inspect documents and financial records to ensure your company complies with the act.

An inspection will be conducted on your company on 20 June 2024. Please take the following actions:

  • Prepare Documents : Get your books, registers, records, or documents ready as listed in Appendix A.

  • Complete Appendix B : Fill out Appendix B with the information of your company representative involved in the inspection. Return it no later than seven days before the inspection date to the provided email address.

  • Presence During Inspection : Ensure you or a company representative is present with the Inspector throughout the inspection.

Failure to cooperate may result in a fine up to RM5,000 or imprisonment for up to three months, or both, under Section 12(4) of the Unclaimed Money Act 1965.

About the Unclaimed Money Act 1965

The Unclaimed Money Act 1965 assigns the following roles to the Accountant General, appointed as the Registrar by the Minister of Finance:

  • Trustee for Unclaimed Money : Acts as a trustee for unclaimed money received.

  • Refunds to Claimants : Responsible for refunding unclaimed money to rightful claimants.

  • Compliance Enforcement Ensures companies comply with the Act.

  • Penalties : Imposes penalties for non-compliance.

What is Unclaimed Money?

Unclaimed money includes:

  • Unpaid Obligations : Money legally due to a person or company but unpaid for more than one year, such as salaries, bonuses, dividends, fixed deposits, and sundry creditors.

  • Dormant Bank Accounts : Bank accounts with no transactions for over seven years, including savings accounts, current accounts, and fixed deposits with automatic renewal.

  • Dormant Trade Balances : Trade creditors or trade debtors with a credit balance dormant for more than two years.

How to Register and Lodge Unclaimed Money

  • Record Keeping : Companies must record all unclaimed money in a register.

  • Annual Submission : Lodge the register with all unclaimed money up to December 31 annually and submit it by March 31 of the following year.

Guideline on Submission of Unclaimed Money (2020 Edition)

For detailed guidelines, please refer to the Guideline on Submission of Unclaimed Money (2020 Edition).

Consequences of Non-Compliance

  • Fines : The company and every responsible officer may be fined up to RM20,000.

  • Additional Fines : An additional fine of up to RM1,000 for each day the offence continues.

Should you have any questions or need further assistance, please do not hesitate to contact us.

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A Complete Guide on E-Invoice

A Complete Guide on E-Invoice
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(Tax Update) A Complete Guide on E-Invoice

Are You Prepared for the Upcoming Changes?

As Malaysia moves towards a more digital economy, the implementation of the e-invoicing system marks a significant step. This change, aimed at improving efficiency, transparency, and compliance in business transactions, is something all businesses must prepare for.

Here’s an overview to help you understand what’s coming and how you can get ready on E-Invoice.

Internal Training on E-Invoice (30-Apr-24)

Stay updated and informed through our active learning sessions and knowledge-sharing articles. Join the learning. https://www.ktp.com.my/blog/active-learning-on-sharing-of-knowledge-e-invoice/30apr2024

E-Invoice Webinar

For those new to e-invoicing, our webinar series on the basics provides a comprehensive overview.

Part 1: Everything You Need to Know (23-Apr-24) :

Watch now https://www.ktp.com.my/blog/e-invoice-basics-everything-you-need-to-know/23apr2024

Part 2: Consolidated and Self-Billed Invoices (29-Apr-24) :

Watch now https://www.ktp.com.my/blog/e-invoice-basic-consolidated-and-self-billed/29apr202

Latest E-Invoice Guidelines

Keeping up-to-date with the latest guidelines is essential. We provide summaries and links to the most recent e-invoice guidelines released by the authorities :

IRBM e-invoice Guideline Version 2.30 (09-Apr-24) :

Read more https://www.ktp.com.my/blog/irbm-e-invoice-guideline-version-230-6april2024/09apr2024

e-Invoice Guideline 2.1 (01-Nov-23) :

Read more https://www.ktp.com.my/blog/tax-update-e-invoice-guideline-2-1/01nov22

e-Invoice Guideline 2.0 (12-Oct-23) :

Read more https://www.ktp.com.my/blog/tax-update-e-invoice-guideline-2/12oct23

Industry-Specific FAQs (24-Nov-23)

Different industries may face unique challenges. Our FAQ for the Healthcare Industry addresses specific concerns and provides tailored advice.

Read the FAQs. https://www.ktp.com.my/blog/e-invoice-faq-for-healthcare-industry/24nov22

Transition Challenges and Strategies (17-Aug-23)

Transitioning to e-invoicing may present several challenges. Our article discusses common issues and offers strategies to overcome them effectively.

Explore transition strategies. https://www.ktp.com.my/blog/e-invoicing-malaysia-transition-challenges-and-strategies/17aug23

Are You Ready? (10-Aug-23)

Preparation is key to a smooth transition. Our guide on readiness checks and essential steps will help your business gear up for the upcoming changes.

Find out if you are ready. https://www.ktp.com.my/blog/e-invoicing-malaysia-are-you-ready/10aug23

Coverage and Scope (03-Aug-23)

Which businesses are required to adopt e-invoicing? Our coverage article explains the scope and the types of transactions that will be affected.

Learn about the coverage.https://www.ktp.com.my/blog/e-invoicing-malaysia-coverage/3aug23

Timeline for Implementation (02-Aug-23)

Understanding the timeline for the e-invoicing rollout is crucial for businesses to plan and transition smoothly. We have outlined the key dates and phases of implementation to keep you informed and prepared.

Check the timeline. https://www.ktp.com.my/blog/e-invoicing-malaysia-timeline/2aug23

The Workflow of E-Invoicing (31-Jul-23)

The e-invoicing workflow involves several key steps to ensure that invoices are issued, received, and processed digitally. Our detailed article on the e-invoicing workflow provides insights into each stage, from creation to approval and archiving.

Read more.https://www.ktp.com.my/blog/e-invoicing-malaysia-the-workflow/31jul23

We encourage all our clients to stay informed and proactive in their preparation for the upcoming e-invoicing system.

For further details, please refer to the linked articles and feel free to contact us for any specific queries.

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What is ESG in simple words?

What is ESG in simple words?
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What is ESG in simple words?

In today's business landscape, ESG, which stands for Environmental, Social, and Governance, represents a framework of policies or standard operating procedures adopted by companies to amplify positive impacts and mitigate negative effects across these three dimensions.

Socially conscious investors utilize these procedures as screening tools to assess the suitability of potential investments.

The environmental criteria assess how well a company acts as a steward of nature, while the social criteria evaluate its management of relationships with employees, suppliers, customers, and local communities.

Governance criteria focus on aspects such as company leadership, executive compensation, audits, internal controls, and shareholder rights. By considering all these criteria, a company can develop a comprehensive framework to evaluate its impact on society and the environment, as well as its overall sustainability and ethical conduct.

Why is the business world placing significant importance on ESG factors nowadays?

Lately, investors have increasingly recognized the significance of ESG criteria when making investment choices. Consequently, numerous businesses have started incorporating ESG principles into their operations and strategic planning.

ESG investing is also known as sustainable investing, responsible investing, and impact investing. When evaluating ESG criteria, investors consider a wide array of behaviors, policies, and procedures implemented by the company.

ESG investors prioritize companies that demonstrate responsibility towards the environment, act as good corporate citizens, and are led by accountable employees.

What factors do sustainable investors take into account when evaluating potential investments?

In assessing environmental impact, investors scrutinize corporate practices regarding climate impact, energy consumption, pollution mitigation, natural resource preservation, treatment of animals, and waste disposal. This evaluation encompasses aspects such as greenhouse gas emissions, handling of hazardous waste, and adherence to environmental laws.

In examining the social aspect, investors focus on both internal and external stakeholders. They assess whether the company allocates a portion of its profits to the local community and encourages employee involvement in societal welfare initiatives. Furthermore, they consider workplace conditions that prioritize the health and safety of employees.

Finally, in the realm of governance, investors evaluate whether a company employs precise and transparent accounting practices, promotes integrity and diversity in leadership selection, and remains accountable to shareholders.

They seek assurance that companies steer clear of conflicts of interest in appointing board members and senior executives and refrain from leveraging political contributions for preferential treatment or illicit activities.

Final Words on ESG

In essence, ESG serves as an assessment method encompassing environmental, social, and governance concerns. Within the private sector, it comprises a set of standards employed to assess a company’s risks and behaviors. This framework plays a vital role in aiding sustainable investors in gauging a company's alignment with their principles and analyzing its overall value for their investment objectives.

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Understanding IRB Tax Audits in Malaysia

Understanding IRB Tax Audits in Malaysia
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Understanding IRB Tax Audits in Malaysia

Here are the top five common questions taxpayers in Malaysia often raise concerning the Inland Revenue Board (IRB) tax audits:

  • Why I kena tax audit?

  • What are the consequences of discrepancies found during an audit?

  • What documents should I prepare for a tax audit?

  • What is the hot issues IRB normally focus in a tax audit?

  • Can I appeal an audit decision?

Tax Audit

Join us as we talk seriously the crucial aspects of tax audits conducted by the Inland Revenue Board of Malaysia (IRBM).

Our experts together with Mr Koh Teck Peng (the Group Principal) and Miss Lim Nguan Lian (the Client Relationship Manager) cover everything you need to know to navigate IRB desk and tax audit with confidence.

Key Topics Discussed:

  • Introduction to Tax Audits - What exactly is a tax audit, and why is it important?

  • Objectives of Tax Audits - Discover the main goals of conducting a tax audit.

  • Audit Period - Learn about the coverage period for which your finances may be audited.

  • Audit Triggers - Identify what factors might trigger a tax audit.

  • Conduct of Tax Audits - Understand the audit process and what taxpayers should expect.

  • Preparation for Audits - Find out which documents and records are essential to prepare for an audit.

  • Roles and Responsibilities - Clarify the rights and duties of IRB officers, taxpayers, and tax agents during the audit.

  • Audit Outcomes - Explore potential outcomes and consequences of a tax audit.

  • Handling Penalties - Procedures for the payment of additional taxes and penalties resulting from an audit.

  • Dispute Resolution - Options available for taxpayers who are dissatisfied with their assessment notices.

Don’t miss out on expert insights to help you prepare for and respond to IRBM tax audits effectively.

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Watch the 60 minutes webinar on IRB Tax Audit in our YouTube https://youtu.be/muZ_1APeMmU

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Complying with IRB Requests for Tax Information and Documents in Malaysia

Complying with IRB Requests for Tax Information and Documents in Malaysia
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Complying with IRB Requests for Tax Information and Documents in Malaysia

If you have received the notice/letter under Section 81 of the Income Tax Act 1967, it is compulsory to submit the information to LHDNM within 30 days from the date of the notice/letter.

We strongly advise against ignoring any request for tax information and documents from the Inland Revenue Board (IRB) of Malaysia. Such requests are not merely formalities but are a critical aspect of the tax administration process. Here’s what you need to know about these requests and the implications of non-compliance.

What is an IRB Request for Information?

The IRB is responsible for tax collection and ensuring compliance with tax laws. When they issue a request for information, it typically involves asking taxpayers to provide specific documents or details to verify their tax submissions. This can include income statements, receipts, or documentation related to deductions and exemptions.

Legal Obligations

Taxpayers are legally obligated to respond to these requests. The Malaysian Income Tax Act 1967 mandates that taxpayers provide accurate and complete information to the IRB. Failure to comply can be seen as an offense under the tax laws.

Consequences of Non-Compliance

Ignoring a request from the IRB can lead to severe consequences, including:

  • Penalties and Fines: The IRB can impose substantial fines and penalties for non-compliance, which might exceed the amount of tax due.

  • Audits and Investigations: Non-compliance can trigger a more thorough audit of your financial affairs. An audit can be intrusive, time-consuming, and stressful.

  • Legal Action: In extreme cases, the IRB can initiate legal action against individuals or entities that fail to comply with their requests. This can result in criminal charges and potential conviction.

Best Practices for Responding

  • Timely Response: Always respond within the timeframe specified in the request. If you need more time, communicate this to the IRB immediately and request an extension.

  • Accuracy and Completeness: Ensure that all information and documents provided are accurate and complete. Any discrepancies can lead to further scrutiny.

  • Seek Professional Help: If the request is complex or you are unsure about the information required, consider consulting a tax professional. This ensures that you are providing the correct information and mitigates the risk of errors.

Conclusion

While it might be tempting to ignore requests from the IRB hoping they might go away, such an approach can lead to significant legal and financial troubles. It’s crucial to treat these requests with the seriousness they deserve and respond appropriately.

Always remember that maintaining compliance is not just about adhering to legal requirements; it's about contributing responsibly to the nation's fiscal health and integrity.

Past Blog on IRB Profiling Information System (previously known as Information Collection Program)

IRBM Information Collection Program dated 26 May 2022 https://www.ktp.com.my/blog/irbm-information-collection-program/26may2022

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(Sec Update) Is Common Seal Required in Malaysia

(Sec Update) Is Common Seal Required in Malaysia
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(Sec Update) Is Common Seal Required in Malaysia

What Is Common Seal?

In Malaysia, the common seal is a significant component of corporate documentation, representing a stamp or embossing tool used by companies to imprint their official seal on various documents. This seal typically features the company's name and registration number engraved in legible romanised characters, serving as a hallmark of authenticity and authority.

It is commonly utilized to authenticate legal documents such as contracts, agreements, deeds, and share certificates, providing assurance and validity to such transactions.

Is the use of a common seal mandatory for Malaysian companies?

Despite its importance, the use of a common seal is not mandatory under the Companies Act 2016 in Malaysia.

However, it remains a prevalent practice among Malaysian companies due to its perceived value in adding an extra layer of authenticity to their documents.

Official Seal For Use Abroad

Can Malaysian companies use the common seal for transactions abroad?

Regarding international transactions, Malaysian companies may employ an 'official seal' when operating outside the country's borders. The official seal is essentially an authorized version of the common seal, augmented with additional information specifying the location where it is intended for use.

How can Malaysian companies authorize the use of the official seal for international transactions?

Companies may authorize designated individuals, appointed for this purpose and acting under the company's common seal, to affix the official seal to relevant documents. It is imperative that the person affixing the official seal provides written certification on the document, specifying the date and place of sealing.

Are there any limitations or conditions regarding the establishment of an official seal for international use?

It is essential to note that the establishment of an official seal for international use may be subject to specific limitations or conditions outlined in the company's constitution. Therefore, companies must adhere to any relevant provisions governing the use of official seals for transactions conducted outside Malaysia.

Official Seal for Share Certificate

A company that has a common seal may have an official seal to seal securities issued by the company, or documents creating or evidencing securities so issued.

The official seal, as outlined in Section 63(2), bears distinct characteristics. It must replicate the company's common seal precisely, with the additional inclusion of the word ''Securities'' on its face. This distinguishes it from the common seal, signifying its specific application to securities-related matters.

Furthermore, when the official seal is duly affixed to the document in question, it carries the same legal effect as the company's common seal. This underscores the importance and validity of documents sealed with the official seal in the eyes of the law.

Key Takeaways

In conclusion, the common seal holds significant importance in Malaysian corporate documentation, providing authenticity and authority to various legal documents. While not mandatory, its use remains prevalent among Malaysian companies due to its perceived value in enhancing document credibility.

Additionally, for transactions abroad, Malaysian companies may utilize an official seal, authorized for specific international use. The establishment and usage of an official seal, including for sealing securities and related documents, ensure compliance with legal requirements and maintain the integrity of corporate transactions both domestically and internationally.

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  • Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

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