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Tax Incentive for Employers Who Provide Child Care Centre

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

Definition of childcare centre

A centre to take care of:

• At least 4 or more children;

• Aged below 4 years old;

• From more than one household

Qualifying childcare centre

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

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

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

Existing Tax Treatment

(i) Provision and maintenance of childcare centre

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

Examples:

  •  Rental

• Salaries

• Food and beverage

• Cleaning fee

(ii) Child care allowances

Employer – Provider

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

Employee – Receiver

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

• Enjoy tax exemption up to RM2,400.

Additional Tax Incentives

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

• The provision and maintenance of child care centre; and

• Child care allowances paid to employees

Industrial Building Allowance (IBA)

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

• Built or purchased by the employer;

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

• In operation

Qualifying Capital Expenditure (QCE)

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

• Purchase price

• Legal fee

• Stamp duty

• Other incidental expenditure

Sources:

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

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

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Month End Closing

Month End Closing
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Month End Closing

The month-end close is the collection of financial accounting information, review, and reconciliation of records each month. This is a financial reporting requirement for some companies and helps businesses keep accurate records throughout the year.

Appended below is the checklist for month end closing :

  • Record incoming cash

  • Update account payable

  • Reconcile bank accounts

  • Review petty cash

  • Review fixed assets

  • Count stocks

  • Check revenue and expense account

  • Adjust journal entry

  • Final review

  • Plan for next month

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Minimum Transfer Pricing Documentation LHDN

Minimum Transfer Pricing Documentation LHDN
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Minimum Transfer Pricing Documentation LHDN

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

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

Key takeaways:

You will understand the:

1. Requirement to use this documentation.

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

Requirement to use the documentation

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

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

ii. financial assistance must be greater than RM50 million.

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

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

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

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

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

New Requirements

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

• What is the element of costs

• What is the anticipated profit mark-up

• Who determine the pricing policy

• How often is the policy being revised

• Sample of documents to support the pricing policy

• Comparability study Source Minimum Transfer Pricing Documentation

Source:

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

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Service Tax on Customs Agent Services

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

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

Key takeaways:

You will understand 5W:

1. Who is Customs Agent?

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

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

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

5. What are the responsibilities of the registrant?

Who is “Customs Agent”?

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

What is the threshold for registration under Service Tax?

  1. ·There is no threshold for Customs Agent.

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

What types of services are subject to service tax?

1. Preparing or amending customs declaration

2. Presenting goods for customs declaration

3. Documentation

4. Handling / forwarding

5. Examination / attendance to examination

6. Sealing

7. Electronic Data Interchange (EDI)

8. Overtime (relating to clearance of goods only)

What types of services are not subject to service tax?

1. Haulage services

2. Services provided by shipping agents and freight forwarders

What are the responsibilities of the registrant?

1. Charge service tax on taxable services

2. Issue an invoice and receipt to customers

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

4. Keep proper record

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Dividends the Companies Act 2016

Dividends the Companies Act 2016
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Dividends the Companies Act 2016

Continuous learning is part of our company culture…

We attended an external webinar on “Everything About Dividends” from Ms Leong Ai Wah on 11 November 2022.

The key takeaway from the webinar:

a) Dividend distribution requirements.

b) How is available profit determined?

c) Powers to declare dividends.

d) Dividend policy

e) Solvency test can be cashflow or ratio

f) Dividend distribution method

Summary of learning

Here is the summary reflected in the webinar is dividends can only be distributed to shareholders if the company has available profit and solvency.

Most of the time we focus on retained earnings, but in fact, the profits for the year can also be used to determine dividend distribution.

The power to declare dividends differs between companies with constitution and those company without constitution. The companies with constitution will be determined by the board of directors and followed by members at the annual general meeting. For companies without constitution, the decision is made only by the board of directors.

Dividend Policies

Dividend policies are divided into 3 categories namely Residual, Stable and Hybrid. The Residual policy is that dividends are paid only when all capital requirements are met, but with the Stable policy, dividends are paid annually regardless of earning fluctuations. However, the Hybrid policy is a combination of Residual and Stable.

Solvency Test

Typically, most of us assess a company's solvency by preparing a cash flow statement for the next 12 months from the payment date. In fact, in addition to the cash flow statement, we can also use the 3 ratios to do the solvency test. There are quick ratio, current ratio and solvency ratio.

Payment Mode

As we know, cash dividends are the most common payment method. In fact, there are any other payment methods, such as share dividends, also known as bonus issue. It will be paid up in full or in part non-cash using shares allocated or deemed allocated.

The third is set-off again amount owing, for example a company can declare a dividend to offset what is owed by shareholders.

Fourth, dividend in specie, also called the transfer of assets is also one of the mode of payment for distribute dividend. For example, land. The land is allocated according to the shareholders' shares.

Lastly, there are dividend reinvestment plans, which are plans that allow shareholders to reinvest cash dividends in additional company shares.

Thanks to the speaker – Ms Leong Oi Wah for hosting this webinar and giving us a clear picture of the dividend.

Authored by Caroline Teo, our assistant manager of the firm in our Group in her personal LinkedIn. http://bit.ly/3UQh5fE

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Key Amendments to the Employment Act 1955 (wef 1/1/2023)

Key Amendments to the Employment Act 1955 (wef 1/1/2023)
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Key Amendments to the Employment Act 1955 (wef 1/1/2023)

Definition of employment

1. Employee earning RM4000 and below *

2. Employee in manual labour

3. Supervisor of employee in manual labour

4. Employee in mechanically propelled vehicle

5. Domestic employee

*Provision of the Act not applicable include overtime, payment for work done on off/rest day and public holidays, shift allowance and termination benefits for employee’s wages exceeds RM4000.

Presumption of employment

The Bill provides that in the absence of a written contract and unless proven otherwise, there will be presumption of an employment relationship if the following factors are given:

  • his/her work or hours of work are subject to control by another person;

  • he/she is equipped with tools, material or equipment by another person to execute his work;

  • his/her work constitutes an integral part of another person's business;

  • his/her work is performed solely for the benefit of another person; or

  • payment is made to him/her for work done at regular intervals and it constitutes the majority of his/her income.

Apprenticeship Contract

Shall be for a minimum period of six months and a maximum period of twenty four months.

Calculation of wages for an incomplete month

The Bill provides a new section in the Act that introduces the below formula for calculating wages where an employee has not worked a full month:

(Monthly wages/number of days of the particular wage period ) X Number of days eligible in the wages period

For OT (or encashment of annual leave) : ordinary rate of pay (ie 26 days) remain unchanged under the current law.

Extension of maternity leave

Previously, the Act provided a 60 days maternity leave for all female employees, subject to the conditions of the Act. Now, when the Bill comes into force, eligible female employees will be entitled to 98 days of maternity leave.

Restriction on termination of pregnant employees

The Bill introduces a new section in the EA which prohibits an employer from terminating an employee who is pregnant or is suffering from an illness arising out of her pregnancy, except under specific circumstances such as willful breach of contract, misconduct or closure of the employer’s business. It is vital on employers to prove that the termination was not due to pregnancy.

Paternity Leave

Married male employees will now be entitled to 7 consecutive days of paternity leave up to 5 confinements.

Sexual harassment

The Bill introduces a new section which requires employers to conspicuously exhibit a notice to raise awareness of sexual harassment in the workplace. The sexual harassment provisions are still viewed as weak and limited. The Anti Sexual Harassment Bill 2021 would provide more guidelines upon being passed. It is currently in its first reading in Parliament.

Employment of foreign employees

Approval must be obtained from the Director-General of Labor to employ a foreign employee. Upon the employer satisfying the conditions listed in the Act, approvals are granted. Failure to obtain an approval is an offense, and on conviction, the employer shall be liable to a fine not exceeding RM 100,000 and/or to imprisonment for a term not exceeding five years.

Reduction on working hours

Previously, the Act provided 48 hours as regular working hours. With the Bill coming into force, the regular working hours will be reduced to 45 hours a week.

Flexible working arrangements

Employees can apply for flexible working arrangement, depending on the suitability of the working hours or work place. However, there is no legal obligation on the employer to grant this request. If the employer is to reject the request, they are required to provide grounds of refusal within 60 days of the application.

Discrimination

The Director General has the authority to investigate and decide disputes on discrimination in employment between employer and employee. Furthermore, the Director General has the power to make an order where necessary. However, this provision is vague and it does not define discrimination. Job seekers will not be able to rely on this provision as there is no employment relationship between an employer and job seekers, and as such this provision will not apply to protect job seekers from discrimination.

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What is the penalty of late filing to IRB and SSM for my Sdn Bhd?

What is the penalty of late filing to IRB and SSM for my Sdn Bhd?
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What is the penalty of late filing to IRB and SSM for my Sdn Bhd?

1) Late Filing to IRB/LHDN

Generally, the standard penalties that will be imposed by IRB for late submission of tax return form is according to:

Section 112 of Income Tax Act 1967 - Failure to furnish return or give notice of chargeability

a) Section 112 (1) Failure to furnish return for one (1) YA

Penalty: RM200 – RM20,000; or

Imprisonment: not exceeding 6 months; or Both

b) Section 112 (1A) Failure to furnish return for two (2) YAs or more

Penalty: RM1,000 – RM20,000 and triple of tax payable with DG best judgement; or

Imprisonment: not exceeding 6 months; or Both

c) Section 112 (3) of Income Tax Act 1967

Penalty: Triple of the tax payable for the YA

However, in normal practice, IRB will charge the penalties based on the:

Operational Guidelines GPHDN 3/2020 - Guidelines on the imposition of penalties for failure to furnish tax returns

The Inland Revenue Board (IRB) has issued Operational Guidelines GPHDN 3/2020 - Imposition of penalties under subsection 112(3) of the Income Tax Act 1967, subsection 51(3) of the Petroleum (Income Tax) Act 1967, and subsection 29(3) of the Real Property Gains Tax Act 1976, dated 13 August 2020.

It replaced the earlier issued GPHDN 5/2019 of the same title that revokes Operational Guidelines GPHDN 1/2015 dated 5 March 2015, which only covered penalties under subsection 112(3) of the Income Tax Act 1967.

The following table set out the penalty rates for late filing as provided in the new guidelines.

Late filing period Penalty rate (%)

  • Within 12 months 15%

  • More than 12 months to 24 months 30%

  • More than 24 months 45%

• In normal practice, LHDN will directly impose a 45% penalty on the tax payable amount when a taxpayer has failed to furnish the return form in the prescribed time limit.

• LHDN will then issue a Form J letter detailing the penalty amount to the taxpayer and the amount must be paid within 30 days from the date of the letter.

• If the taxpayer fails to remit the tax amount before the due date, the Company will be liable for a penalty of 10% on unpaid tax.

• If the late filing period is less than 24 months, the taxpayer can submit the tax appeal to LHDN to request for the reduction of the penalty rate from 45% to 15% or 30% depending on the actual period the tax return form was submitted.

2) Late Filing to SSM

i) Lodgement of Annual Return (AR)

Section 68(1) of Companies Act, 2016 require a company to lodge the AR to SSM not later than 30 days from the anniversary of its incorporation date.

Penalty: Fine not exceeding RM50,000.00

ii) Prepare Financial Statements

Section 248(1) of Companies Act, 2016 require a company to prepare the financial statements within 6 months of its financial year end.

Penalty: Fine not exceeding RM500,000.00 or imprisonment not exceeding 1 year or both

iii) Circulation of Financial Statements

Section 258(1) of Companies Act, 2016 require a company to circulate the financial statements within 6 months of its financial year end.

Penalty: Fine not exceeding RM50,000.00

iv) Lodgement of Financial Statements

Section 259 (1) of Companies Act, 2016 require a company Lodge the financial statement to SSM within 30 days from the circulation date.

Penalty: Fine not exceeding RM50,000.00 and if continuing offence, a further fine not exceeding RM1,000 for each day

In addition to the penalties as stated above, SSM also issued a Practice Directive No.1/2017 – The Lodgement Requirements and Related Matter that further details out the penalty for late lodgement of documents.

For any documents that is lodged to SSM later than the prescribed timeframe as per stipulated in the Act, the following late lodgment penalty shall apply:

After deadline Penalty(RM)

  • 7 days to 3 months RM50

  • 4 months to 6 months RM100

  • 7 months to 12 months RM150

  • 13 months onward RM200

The Company is required to pay this penalty amount on the spot at the time filing for the documents to SSM.

Authored by Kam Shi Zhen (Bryan), a junior associate with the Firm.

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6 common mistakes of Sdn Bhd under Companies Act 2016

6 common mistakes of Sdn Bhd under Companies Act 2016
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6 common mistakes of Sdn Bhd under Companies Act 2016

1. Section 30 (1) :

The company does not display the company's name and registration number at the places where the business is carried on (signboard)

2. Section 30 (2) :

The company does not specify the name and registration number on all business documentation and correspondence.

3. Section 68 (1):

The company fails to lodge the yearly annual return within 30 days from the anniversary date of incorporation.

4. Section 248 (1):

Directors fail to prepare financial statements within

(a) 18 months from the incorporation date;

(b) 6 months from the subsequent financial year end.

5. Section 258 (1) (a):

Failure to circulate the financial statements within 6 months from financial year end.

6. Section 259 (1) (a):

The company fails to lodge yearly financial statements within 30 days from the circulation date.

Non-compliance with any of the above sections is subject to penalty.

Penalty ….to be revealed in the next posting

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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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Wisma 𝐊𝐓𝐏, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
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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
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A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsource booking, accounting and payroll services to clients
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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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  • Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

  • 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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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

Visit Us

  • Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

  • 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.

#Thk

#KTP

 


 

THK Management Advisory Sdn Bhd

Wisma THK, No. 41, 41-01, 41-02, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru, Johor, Malaysia.
+6012-771 7903
+607-361 3443
 
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