The advantages of buying property via Sdn Bhd (private limited company)

#1 Risk Diversification

Pool more money up to 50 shareholders into the Sdn Bhd to buy one/more property.

#2 Easy/Flexible disposal

The shareholders who want to exit the investment can be done via transfer of share of the sdn bhd instead of disposal of property.

#3 Execute legal document

The shareholders of the Sdn Bhd can delegate the signing of documents to director of the company.

#4 Estate planning

Share of the deceased shareholder can be transferred to the beneficiaries.

#5 Debt Service Ratio

A ratio where bank use to determine the borrower capacity for payment of debt via company earning power.

#6 Loan to Share Capital Ratio

Higher share capital is used as one of criteria for bank borrowing on property.

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Do you know what is the difference in Bad Debts, Provision for Doubtful Debts and Bad Debts Recovery?

Due to the impact of Covid-19, the economy has become worse. There are many companies that will face a situation in which the debts cannot be collected.

However, if the companies are unable to collect the debts, what should we do on account?

Don’t worry, let us show you how to do it!

1. Definition：

(a) Bad Debts

- The uncollectible debts from customers.

(b) Provision for Doubtful Debts

- The estimation of future uncollectible debts from customers.

(c) Bad Debts Recovery

- The cash is recovered from bad debts written off previously.

2. What is the document needed to prepare?

(a) Bad Debts

- Issuing reminder notices.

- Legal action

(b) Provision for Doubtful Debts

- The aging report shows customers in slow payment and long outstanding.

(c) Bad Debts Recovery

- The payment slips form customer or Bank receipt.

3. When do we need to do the transaction in account?

(a) Bad Debts

- Once the debts are confirming uncollectible.

(b) Provision for Doubtful Debts

- The debts are overdue but still can be pursued for collection though difficult.

(c) Bad Debts Recovery

- The overdue is received from customers on the bad debts written off.

4. Double Entry：

(a) Bad Debts

Debit Bad Debts Written Off (Expenses)

Credit Account Receivable (Current Assets)

(b) Provision for Doubtful Debts

Debit Allowance for Doubtful Debts (Expenses)

Credit Provision for Doubtful Debts (Current Liabilities)

(c) Bad Debts Recovery

Debit Cash at Bank (Current Assets)

Credit Bad Debts Recovery (Income)

5. Example:

Example 1:

In year 2021, Company A’s account receivable is RM 100,000.00 and RM 10,000.00 is uncollectable due to the customer is bankrupt.

Answer:

The journal entry is debit Bad Debts RM 10,000.00 and credit Account Receivable RM 10,000.00.

Example 2:

In year 2020, Company A's account receivable amounted to RM 200,000.00. Company A decided to provide 5% for doubtful debts on the year.

Answer:

The journal entry is debit Allowance for Doubtful Debts RM 10,000.00 (RM 200,000.00 X 5%) and credit Provision for Doubtful Debts RM 10,000.00 in year 2020.

Example 3:

In year 2021, customer paid RM 1,000.00 to Company B for a debt which had already been written off as bad debts in year 2020.

Answer:

The journal entry is debit Cash RM 1,000.00 and credit Bad Debts Recovery RM 1,000.00 in year 2021.

You may refer to the link for more information of tax treatment on bad debts: Is Provision of Bad Debts eligible for tax deduction?! Is Provision of Bad Debts tax deductible?

Case Study on the Transition of MFRS 16 Leases

Background

ABC Sdn Bhd's financial statement is in accordance of Malaysian Financial Reporting Standards (MFRS).

The Company has signed a 5 years tenancy agreement since Year 2018 for the warehouse used in its business.

Struggles

The accountant of the Company is wondering whether

Ø   They should apply for MFRS 16 Leases to comply the Standards?

Ø   What is the corrective action if they fail to comply in Year 2019?

Ø   What is accounting entries to recognise the MFRS 16 Leases?

Q1: They should apply for MFRS 16 Leases to comply the Standards?

Solution Exemption requirement

The Company can elect not to apply only if the lease contract is:-

1. Short-term lease

- less than 12 months

 2. For low value assets

- Not highly dependent on, or highly interrelated with other assets

- Benefit from use of assets on its own or together with other sources that are readily available to the lessee

 If the Company is not exempted, it has to apply the Standard and determine the following items:-

1. Discount rate

- Implicit interest rate; or

- Incremental borrowing rate

2. Application method

- Retrospectively to each prior reporting period; or

- Retrospectively with the cumulative effect

Q2: What is the corrective action if they fail to comply in Year 2019?

Solution The Company has to do the restatement of its financial statement for the reporting period by applying MFRS 129 Financial Reporting in Hyperinflationary Economies.

Q3: What is the accounting entries to recognise the MFRS 16 Leases?

Solution The accounting entries for recognition of right-of-use assets and lease liability will be as follow:-

Dr. Right-of-use assets

            Cr. Lease liability

Dr. Depreciation

            Cr. Accumulated depreciation

Dr. Interest on lease liability

            Cr. Lease liability

Dr. Lease liability

            Cr. Bank/Cash

 Source:

MFRS 16 Leases https://www.masb.org.my/pdf.php?pdf=BV2018_MFRS%2016.pdf&file_path=pdf_file

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Background

The main objective of this incentive is to further promote high-value added activities in the E&E industry to transition into 5G digital economy and Industry 4.0.

This Special Investment Tax Allowance is to encourage companies in the E&E sector that have exhausted the Reinvestment Allowance in Malaysia to further reinvest in Malaysia.

Type of Incentive:

Investment Tax Allowance of 50% on qualifying capital expenditure to be offset against 50% of Statutory Income.

The exemption period is valid for a period of 5 years starting from the date of the approval letter.

Eligibility Criteria:

1. Manufacturing company incorporated under the Companies Act, 1965/2016, and residents in Malaysia.

2. Possess valid Business License from the relevant Local Authority.

3. Possess Manufacturing License (ML) from MITI or Confirmation Letter of Exempted from Manufacturing License from MIDA (whichever is applicable).

4. The applicant company is engaged in manufacturing activities in the E&E sector and intend to reinvest for the purpose of expansion, automation, diversification and modernization.

5. The applicant company has fully exhausted the eligibility period of fifteen years to claim Reinvestment Allowance (RA) under Schedule 7A ITA 1967 by 31 December 2019 and is currently not enjoying any other tax incentives approved by the Government.

6. The applicant company will be subjected to the following conditions:

 a. The minimum investment in the related proposed projects shall be at least RM1.5 million in capital expenditure within a period of five (5) years as proposed

b. The company to incur the minimum yearly operational expenses (as proposed by company); and

c. The company to hire minimum number of Malaysian full time workers (as proposed by company)

Application Process:

1. Company submits application to MIDA through MIDA e-Incentive portal.

2. MIDA evaluates the non-technical eligibility.

3. MIDA issues a ‘Consideration Letter’ to the Applicant Company and Carbon Copies (c.c.) to the Minister of International Trade & Industry (MITI), Ministry of Finance (MoF), and Inland Revenue Board (IRB).

Effective Date of Application:

Applications received by MIDA from 1 January 2020 until 31 December 2021 are eligible to be considered for this incentive.

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Weekly E-KTP Newsletter #191: Permanently increase of Indebtedness threshold to RM50,000

Summary

A higher threshold for winding up proceedings against a debtor who inability to pay debts

Full story

Suruhanjaya Syarikat Malaysia (SSM) has permanently raised the indebtedness threshold for companies from RM10,000.00 to RM50,000.00 with effect from 1 April 2020; after introduced a temporary measure from 23 April 2020 to 31 March 2021 under Section 466 of the Companies Act 2016.

This initiative was aimed to reduce the burden and impact on companies facing cash flow problems. This is prevention to companies being winding up and able to continue doing business during the COVID-19 pandemic.

Upon implementation of this initiative, the number of winding-up petitions is expected to reduce and companies will be able to continue doing business without worry. This is supported by the number of petitions submitted to SSM from April to December 2020 recorded at 665 cases as compared to 1,760 cases in the year 2019 and 1,533 cases in the year 2018.

Is the threshold considered an appropriate amount? As elaborate from Datuk Seri Alexander Nanta Linggi, the Minister of Domestic Trade and Consumer Affairs, this amount was considered appropriate from two (2) perspective as below:

1. not too low in forcing companies to wind up due to small amounts of debt, and

2. not too high which could burden smaller creditors for not being able to take action against companies in debt.

Hence, SSM hopes that the implementation of this initiative will help and support the corporate sector during the economic recovery period, especially for companies affected by the COVID-19 outbreak.

Source :

SSM Press release https://bit.ly/3dLpE7s

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#KTP

#Thk

#windingup

#SSM

What should you do on tax matters after the conversion from enterprise to sdn bhd ?

Form CP 502

Upon conversion from enterprise to sdn bhd, you shall vary the instalment payments if do not agree with the Notice of Instalment Payments (CP500).

Form CP502 must be filled up by using a black ink pen and be submitted to the respective IRBM branch which handles the taxpayers' file.

The due date for submission of Form 502 is not later than 30 June 2020.

CP 204 Tax estimation for Sdn Bhd

Submission of tax estimate in Malaysia is mandatory under Section 107C of the Malaysian Income Tax Act, 1967.

According to Public Ruling 07/2011, A company which has been in operation (existing) should furnish estimation of tax payable not later than 30 days before the beginning of the basis period for a year of assessment.

For those that have just commenced business the estimate of tax payable should be furnished within 3 months from the date of commencement of business of the company, trust body or co-operative society.

SME is not required to furnish an estimate of tax payable or make instalment payments for a period of 2 years beginning from the year of assessment in which the SME commences operations.

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What is the valuation of stock for the conversion from enterprise to Sdn Bhd?

Referring to Public Ruling 2/2020 Tax Treatment of Stock in Trade Part 1 - Valuation of Stock

Valuation of Stock equal to

1. Price paid on the sales or

2. Value of the consideration

Valuation of Stock is not market value of the stock

Conditions

Where a person permanently ceases to carry on his business and –

(a) any stock of the business is transferred on cessation or shortly after cessation for a valuable consideration to another person who intends to use that sold or transferred stock in his business

(b) the cost of the transferred stock is deductible as an expense in computing the other person’s adjusted income for the basis period for a year of assessment of his business

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Instructional Video - How to Register with HRDF

Background

Recently, the Government has expanded the scope of industries for employers who have more than 10 employees to register Human Resources Development Funds (HRDF).

The objective is to increase the training opportunities for all employees to up-skill themselves and be prepared for a future ready workforce against technology displacement.

The Government has also encouraged those employers who are not mandatory to register to submit the Form 1 as well.

We understood this is a challenge for some employers on how to do the registration.

To clear your doubt, please watch our video with one click.

https://bit.ly/3sFAzWN

Sources:

Human Resources Development Fund Official Website https://www.hrdf.com.my/

P.U.(A) 84 Pembangunan Sumber Manusia Berhad (Amendment of First Schedule) Order 2021

https://www.hrdf.com.my/wp-content/uploads/2016/12/FEDERAL-GOVERMENT-GAZETTE-PEMBANGUNAN-SUMBER-MANUSIA-BERHAD-AMENDMENT-OF-FIRST-SCHEDULE-ORDER-2021.pdf

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What is control transfer under income tax act for the conversion from sole proprietorship to Sdn Bhd?

As per refer to Public Ruling 1/2018 Public Ruling 1/2018 Disposal of Plant and Machinery Part II - Controlled Sales

Control transfer is transaction of asset between two parties.

• The acquirer of the asset has control(at least 50%) over the disposer and; vice versa

• Some other person has control over the disposer and acquirer of the asset

• The disposal is effected in consequence of a scheme of reconstruction or amalgamation of companies

The disposal is effected by way of a settlement or gift or by devolution of the property in the asset on death

The conversion of sole proprietorship to Sdn Bhd will subject to control transfer.

 As the control right of sole proprietorship and Sdn Bhd come from one person.

Treatment in tax

• The disposal of asset from sole proprietorship to Sdn Bhd.

• The assets deemed transfer at residual expenditure instead of the transaction price.

• Disposer would not subject to balancing charge or allowance.

• Acquirer's can't claim the initial allowance and claim annual allowance based on disposer's acquisition price but restricted to the residual expenditure.

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Question 7: Is professional firm considered as employer? (eg: sole-proprietor, partnership and LLP)

Answer:

Yes, all are considered as employer if they have contract of service with employee.

“Employer means any person who has entered into a contract of service to employ any other person as an employee, and includes an agent, manager or factor of such first-mentioned person.”

Question 8: What is the compound for not registering?

Answer:

According to Section 13(2) of PSMB Act 2001, the employer is liable to a fine of not exceeding RM10,000 or imprisonment not exceeding 1 year or both.

Question 9 : How to define employees?

Answer:

It included all the employees who are under “Contract of Service”.

Included: partners from partnership, trainee, part time, non-professional employees (eg: cleaner, coffee lady, receptionist)

Excluded: Internship

“Contract of service means any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee, and includes an apprenticeship contract”

Question 10 : Is internship consider under contract of service?

Answer:

No. Internship is not under contract of service.

Question 11 : How to define wages?

Answer:

Wages = salary + fixed allowance. Not include: no fixed allowance, bonus.

 “Wages means the basic salary and fixed allowances or other emoluments of a like nature paid in cash by or on behalf of an employer to an employee, and includes any leave pay and arrears of wages but does not include: -

a)       any contribution paid by an employer on his own account to any pension fund, provident fund, superannuation scheme, retrenchment, termination, lay-off or retirement scheme, thrift scheme or any other fund or scheme establish for the benefit or welfare of the employee;

b)      any travelling allowance or the value of any travelling concession;

c)       any sum payable to the employee to defray special expense entailed on him by the nature of his employment;

d)      any gratuity payable on discharge or retirement;

e)      any bonus or commission; or

f)        any allowances paid to apprentice under apprenticeship contract;”

“Monthly wages means the wages paid by an employer to an employee for the whole or part of the month during which the employee id employed by the employer.”

 Question 12 : Is director fee subject to HRDF?

Answer:

A director who only receive director fees is not considered as employee.

Question 13 : What are the steps to claim HRDF?

Answer:

Step 1: Send application first and is approved training (registered under HRDF)

Step 2: Approved and attend training (include registered under HRDF and internal training (eg: conduct by manager)

Step 3: Submit complete document for the claim after training (will have a workshop on guiding how to claim)

Question 14 : Any expire date to utilize the fund?

Answer:

Yes, you need to claim the fund within 24 months. Otherwise, it will be forfeited after 24 months from the date of contribution.

Question 15:  The levy payment is exempted from March to May 2021. Does it mean the first levy payment is on wages for June 2021 and the payment due date is on or before 15 July 2021?

Answer:

Yes, the company need to pay the levy on salaries from June 2021 onwards. Levy payment to be made no later than 15th of the month.

Question 16 :  How much is the rate of levy if number of employees reduce to less than 10? Do I need to notify Corporation?

Answer:

No, you no need to notify Corporation. The rate of levy shall remain at 1% of the monthly wages of each of the employees until the end of the current year.

However, the rate of levy shall be 0.5% if the number of employees remains below 10 after the current year.

[Refer to Section 15(5) and Section 15(6) of PBSM 2001]

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𝐊𝐓𝐏 𝐂𝐚𝐫𝐞𝐞𝐫 (Our job platform for interns, graduates & experienced candidates )

• Instagram https://bit.ly/3u2PxHg

• Facebook http://bit.ly/3rPxz9o

𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

• Website www.thks.com.my

• Facebook http://bit.ly/3duvQ5z

We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.

Summary of MIA seminar with HRDF on 23/3/2021

1. Before 1st March 2021, any activities/industry covered under 1st Schedule

- Manufacturing

- Services

- Mining & Quarrying

2. After 1st March 2021, industry/sectors/activity under 1st Schedule is a mandatory category

- Employer with min 10 local employees

- 1% from total gross salary + fixed allowances

- Section 14 Imposition of levy

P.U (A) 84 Pembangunan Sumber Manusia Berhad (Amendment of first schedule) order 2021

3. Exemption levy payment from 1.3.2021 – 31.5.2021 under P.U (A) 85 Pembangunan Sumber Manusia Berhad (Exemption of levy) order 2021

4. Objective to expansion – increase training opportunities for all employees, to up-skilling, and to prepare a future-ready workforce against technology displacement.

5. Please submit Form 1 even though a dormant company with no staff, just for HRDF record. If not required, they will email to reply to you. Except for voluntary register

How to submit Form 1

Step 1 – Scan all the document as per requirement

Step 2 – go to the HRDF website and click register here

Step 3 – Fill in Form 1 and attached all the information

Step 4 – Click submit

Step 5 – within 7 days process.

Take note:

(i) Details of submission officer

Please put the account email instead of the boss email. Because HRDF maybe clarifies with the submission document.

(ii) Employer Integrity Pledge

No compulsory to be filling.

(iii) Employee with 5-9 Malaysian employees are given the option to register with HRDF

Tick for voluntary registration only. If not, please tick.

6. How do you define employees?

Employee included office boy, coffee lady, receptionist excluded internship.

“Contract of service” means any agreement, whether oral or in writing and whether express or implied, whereby one person agrees to employ another as an employee and that other agrees to serve his employer as an employee and includes an apprenticeship contract

7. What are wages?

- Basic salary + fixed allowance

“Wages” means the basic salary and fixed allowances or other emoluments of like nature paid in cash by or on behalf of an employer to an employee and includes any leave pay and arrears of wages.

Not included any pension fund. Provident fund, retirement fund, retrenchment, termination, any traveling allowance, gratuity, bonus, commission, director fee.

8. How to refund?

- No refund - For striking off the company.

- De-registered –

(i) Has do re-registered within a period of two years from the date of deregister shall continue to be eligible to receive any financial assistance.

(ii) If not re-register within a period of two years, the financial assistance will lose.

Can deregister under Section 14A decrease to below ten for three consecutive months.

9. How to claim?

- The courses need to approve by the HRDF organization.

- The claimable is based on your account balance has a minimum of 50% of the training fee. Disbursement by 2 times when the account has sufficient balance.

10. Any update for new staff or resign staff?

- No need to register and update new staff information in the system. You only required to fill in the total paid 1% of the number of employees during the contribution.

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

• Website www.ktp.com.my

• Instagram https://bit.ly/3jZuZuI

• Linkedin https://bit.ly/3sapf4l

• Telegram http://bit.ly/3ptmlpn

𝐊𝐓𝐏 𝐋𝐢𝐟𝐞𝐬𝐭𝐲𝐥𝐞 (Our internal community for our colleagues)

• Tiktok http://bit.ly/3u9LR6Q

• Youtube http://bit.ly/3ppmjyE

• Facebook http://bit.ly/3ateoMz

• Instagram https://bit.ly/3jZpKLo

𝐊𝐓𝐏 𝐂𝐚𝐫𝐞𝐞𝐫 (Our job platform for interns, graduates & experienced candidates )

• Instagram https://bit.ly/3u2PxHg

• Facebook http://bit.ly/3rPxz9o

𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

• Website www.thks.com.my

• Facebook http://bit.ly/3duvQ5z

We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.

Registration Procedure:

1. Complete the Registration Form.

2. Every business owner and partners must sign on the registration form.

3. Owner or one of the partners may submit the application over the counter or submit through online via SSM EzBiz Online services in the SSM’s website at www.ssm.com.my.

4. Documents to be attached are as follows:

• Owner’s and /or partner’s identity card;

• Original Business Registration Certificate for the change of business type;

• Supporting document or approval letter from relevant agencies for certain type of business if required by Registrar of Business.

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

• Website www.ktp.com.my

• Instagram https://bit.ly/3jZuZuI

• Linkedin https://bit.ly/3sapf4l

• Telegram http://bit.ly/3ptmlpn

𝐊𝐓𝐏 𝐋𝐢𝐟𝐞𝐬𝐭𝐲𝐥𝐞 (Our internal community for our colleagues)

• Tiktok http://bit.ly/3u9LR6Q

• Youtube http://bit.ly/3ppmjyE

• Facebook http://bit.ly/3ateoMz

• Instagram https://bit.ly/3jZpKLo

𝐊𝐓𝐏 𝐂𝐚𝐫𝐞𝐞𝐫 (Our job platform for interns, graduates & experienced candidates )

• Instagram https://bit.ly/3u2PxHg

• Facebook http://bit.ly/3rPxz9o

𝐓𝐇𝐊 (Our associate in secretarial & accounting services)

• Website www.thks.com.my

• Facebook http://bit.ly/3duvQ5z

We are one-stop (20 years+ history) audit, tax, secretarial, accounting and payroll firms which commit to help and grow our clients business.