P&R ANALYSIS

RPGT
- Submit Form CKHT (RPGT return) within 60 days from [Link]

- [Link] = [Link]/Gov approval

- Late submission -> DGIR impose penalty

- Irrevocable election once in lifetime to treat property as private residence

Criteria

Period of ownership > 1 year

Frequency of transactions Isolated, no history of past disposals
Methods of financing Bulked by own funds
Circumstances of disposal Reasonable
Reasons of obtaining property Derive investment income

Badges of Trade

- From G.o.D of agricultural land = capital gain = subject to RPGT

Treatment

- Capital gain chargeable to tax

- Submit Form CKHT RPGT tax return

- RPGT liability depends on which year of disposal

NGNL

- Controlled company by a connected person

- Consideration is substantially (75%) in shares and balance in cash

Transfer of Real Property

- Disposal of chargeable asset in exchange for shares by Msian citizen = NGNL

- Para 34(2) Sch 2: Shares are deemed chargeable asset

Transfer from Parent to Child

- No RPGT liability

- Constitutes as gift from Parent (citizen) to child

- Para 12 Sch 2: NGNL

- Acq price = acq price + permitted exp

RPC
- RPC: Defined value >75% of TTA, acquires tangible asset, is a controlled co

Individual to Co (NGNL)

- Para 3(b) Sch 2: By Msian citizen for consideration consisting substantially (at least 75%) of shares +
controlled co

Treatment

- if defined value >75% TTA & controlled co, and acquisition of tangible asset

= RPC + chargeable to RPGT

- Para 34A: Ordinary shares NOT RPC if not exchanged for real property (mutually exclusive)

- Para 34(2): Ordinary shares is chargeable asset (takes precedence)

- Acq price: (A/B) x C

A: no. of shares deemed chargeable asset

B: total no. of shares

C: defined value of real property

- Submit tax return (Form CKHT 1B) within 60 days to DGIR of disposal + details of acq & disposal
price & chargeable gain

- Acquirer: submit (Form CKHT 2A) within 60 days of disposal + disposal price of acq & chargeable
gain. Retain & remit 3% total consideration to DGIR

Co to Co (NGNL)

Para 17 Sch 2: NGNL between co

- Approval must be obtained prior to transfer

- Transferee co must be resident in Msia

- Transfer made in & to implement scheme of reorganisation/reconstruction/amalgamation

- Exemption is withdrawn within 3 years if ceased to be tax resident

Para 17(1)(a) Para 17(1)(b)

- Transfer of assets within group of co - Transfer of assets between any co
- Greater efficiency of operation - Comply with gov policy
- Consideration at least 75% shares - Any consideration
- Remain group of transferor co for 3 years - Transferee must remain tax resident

Deemed Disposal

- Cessation of biz
- Deemed to have disposed for RPGT purpose

- Disposal price = amount taken into trading stock/market value if building

- Acq price = Acq price + permitted exp

- Bal charge reduced by unabsorbed losses b/f, bal c/f until 7th YA or date of liquidation (whichever
earlier)
- Liable to stamp duty (transfer of property where value not at arm’s length)

Lease & RPGT

- Acquirer: withhold 3% of disposal consideration & pay to DGIR within 60 days of disposal date +
furnish RPGT tax return

Before:

- Rental exp for lease used in manufacturing biz = fully deductible against gross income biz

After:

- Sub-lease of monthly rental expense deductible against gross income by lease biz

Sale of RPC shares to Director

- Co dispose RPC share to director

- No chargeable gain (acq price = market value)

- Taxable perquisite as Director exercises employment

- Taxable as employment inc

Sale from Director to 3rd party

- Disposal of RPC shares

- No chargeable gain

Both co liquidation

- Unabsorbed losses = lost

- No tax implication

Disposal subject to Control

- Acquirer must have interest in co before transaction

- Scheme of reconstruction/amalgamation of co exists

- If not, purchase price = cost + IA +AA

QCE/QBE, CA/IBA
Plant

- Apparatus used by person fpr carrying business

- Performs an active functional role

- NOT building, intangible asset, or asset used as place which biz is carried on

QBE

- Incurs capex on construction, reconstruction, extension, improvement of public road/ancillary

structures that is RECOVERABLE (can generate income)

- Qualify as industrial building

- Only when project is completed and open for use + capex already incurred + resultant assets
integrated into biz = eligible claim IBA

Disposal of Qualifying Assets

Land Not QE, no bal adj = No IBA

Moveable plant and machinery Signed & pending completion, reclassify to AHFS
Para 61A Sch 3: once classified as AHFS, deemed
ceased to be used in following period, value = mv
or net proceeds of sale, whichever greater
Building + permanently-affixed machinery Bal adj by comparing sales consideration +
residual exp on assets

Transfer of Assets

- Para 62 Sch 3: Bal allowance/charge calculated at higher of market value or net sales proceeds

- Para 38 to 40 Sch 3: No bal allowance/charge & acquirer will claim future annual allowance

- Transfer of Assets subject to control: > 50% control = no bal allowance/charge

CAPITAL/REV RECEIPTS/EXP
Receipts/Income

CAPITAL REVENUE
Not taxable ITA -> adjustment treated as [Link] Taxable ITA) – loss of income instead of loss of
or [Link] on disposal income source
- Gains on disposal of warehouse - Damage on loss of asset as part of perm
(restricted to IBA given) structure
- Compensation for loss of essential
capital asset
- Transfer of biz goodwill
Expenses

CAPITAL REVENUE
Must materially add value/prolong life of asset Replacement of component/Repair
Must have active functional role & qualify as Maintain good & efficient operating condition
plant Recurring, periodic expenditure
Eligible for CA Not eligible for CA
Not allowed as tax deduction NOT plant
Tax deductible
- Replacement of entire asset - Repair/renewal of component/part of whole
asset

Franchise fees

- If not received regularly, consider nature of trade & meaning of biz inc + intention to make profit

- Sell know-how & license for returns & royalties = rev inc (extension of biz)

Principles:

- Asset + know-how are inseparable and sold as whole = proceed of sale is CAP receipt

- Asset essentially remains intact = Rev receipt

- Repeated transactions for sale of asset = Rev receipt/Singular transaction = Cap receipt

Royalties

- S4(a) biz inc arise from biz activity (course of carrying biz

RESIDENT STATUS
Company

- Place where directors meet for important board decision-making

- Where management and control exercised by directors in Msia

- Business carried out in Msia at any time where management and control exercised

- Place of general board meetings & kept book accounts + majority directors are resident

- For IHC, where finance & investment decisions are made

NOT:

- Place of registration/incorporation/registered office

- Directed by shareholder’s actions

Temporary Absence
- Permitted absence connected with employment service in Msia (attend conference/seminars/study
board)

- Social visit not exceed 14 days to immediate family members

- Ill-health of himself or immediate family members

Individual

Law
S7(1)(a) ITA Present in Msia 182 days or more
S7(1)(b) ITA Present < 182 days but linked to/by 182 consecutive days,
temporary absence is permitted
S7(1)(c) ITA Present 90 days or more, resident for ¾ previous years
S7(1)(d) ITA Resident for 3 immediately preceding years, resident for following
year

Tax Efficiency (Change of Resident Status)

- If taxed as NR, income tax rat e is 30%, no personal reliefs

- Elect for joint assessment (for citizens only)

- No income tax liability

CBAT

BUSINESS INCOME
- Scope of inc tax = derived & remittance basis

- Source = work done in/out msia to receive income (business/activity/employment/capital)

Business: profession, vocation, trade, every manufacture/adventure/concern in nature of trade,

exclude EMPLOYMENT

S4 ITA: Source of business = interest/rent included

S4A ITA: Payments made to NR Co

- S4A(ii): amounts paid in consideration for ADVICE/ASSISTANCE/SERVICES rendered in

management/scientific of any project/venture with commercial/industrial undertaking

- S4A(iii): rent/other payments under any agreement for use of any movable property
Treatment

Form B: submit by 30 June YA

- pay by six bi-monthly instalment payments and balance before 30 June

Overseas Sales

S12 ITA: Carries on biz & sells manufactured goods outside Msia

S12(b)(i) - Derivation provisions: all gross inc from overseas sales is deemed biz inc derived from Msia

S12(b)(ii) – Export without sale of goods manufactured in Msia = mv at time of export = biz inc
derived from Msia

- Derivation of biz inc provisions on sales from business carried on in Msia (no sale = no assets sold =
no gross biz inc = no provision)

Biz Inc vs Interest Inc

Biz Inc Interest Inc

Timing of recognition S24: Inc recognised in accrual as S27: Period in which it accrues (only
debt arises when received)
Overseas Income Either Msian/non-Msian source, Source where money is lent, taxable
taxable only when received in Msia only when received in Msia from
from outside Msia outside Msia by resident
Offset of biz loss Part of gross inc to offset biz loss Offset only as part of agg inc/ CY biz
b/f, CY loss, CA loss
Interest restriction Interest received from lending = Interest inc = S33(2) Investment inc
gross inc

EMPLOYMENT INCOME
Employment
- Master-servant relationship subsists
- Appointment/office (public/private) with remuneration payable
Indicators:
- Written agreement
- Extent of control by employer over employee
- Degree of skill required
- Nature of remuneration
- Location of work
- Times of attendance
- Power to delegate work

Employment Inc
- Salary & BIK derived from Malaysia where ind. Performs duties in Msia (regardless if foreign
employer)
Compliance:
- Notify DGIR on tax chargeability within 2 months of arrival in Msia
- Completion & submission of ind. Tax return (Form BE) each year
- Payment within 30 April following year
May elect NOT to furnish Form BE if income only from:
- Only incur employment inc
- Employer makes monthly tax deduction
- Employee income tax not borne by employer

Deemed Derived from Msia

- any period of employment exercised

- any period of leave attributable to exercise of employment

- duties performed outside incidental to employment exercised

Treatment

Form BE: employees & non-biz inc, submit by 30 April

- pay by employer through monthly tax deduction scheme

- non-biz by six bi-monthly instalment payment

Commissions

- Commission alone =/= employment

- Salary + commission for activities carried on in Msia = consider emp or self-emp

Employment + Self-Employed Self-employment

- Taxed at calendar year - Calendar year regardless received or not
- By employer (monthly tax deduction) - Responsible to file income tax return by 30 June
- Responsible to file income tax return - 6 bi-monthly instalments
- Commissions tax only when received
Deductibility of expenses:

- Must be W&E incurred in earning inc

- Employment exp need proof (CANNOT deduct cost of running office unless director)

- Self-employment easier (CAN claim CA & cost of capital assets)

- Employment cannot deduct travel from home to work & proportion of home exp

DTA
- Dual residence = tax residence in two countries

- Contains ‘tie-breaker’ rules to determine which country is tax resident to allow tax credit claim

- Tax credit eliminates double taxation

- Bilateral credit > unilateral credit provisions

- Given to country of RESIDENCE in respect of tax suffered in country of SOURCE to avoid double
taxation on inc

- DTA overrides domestic law

- DTA specifies different rates/complete exemption of WHT

- Specific rules to avoid TP issues

PS/ITA/RA
PS/ITA/RA

AIE
International Trading Company

- Incorporated in Msia

- Registered with MATRADE

- Equity holding at least 60% by Msians

- Annual sales turnover > RM10m

- Not > 20% annual sales from trading commodities

- Use local services

Treatment

MITC Exemption AIE Exemption

Export Imported/local good commodities Manufactured/agricultural product
Exporting co Direct/indirect exporting co Manufacturing cum exporting co
Conditions (above) No min sales requirement except export
of prohibited/excluded products
Any lock-in period 5 consecutive years Annual election
Mutually exclusive No, RA may be claimed. Yes.
(RA)
Equity holding At least 60% owned by Msians At least 60% DIRECTLY owned by Msians

LABUAN
Labuan biz activity = Labuan trading/non-trading activity carried on/in/from/through Labuan

- Offence if exclude labuan activity

S132 ITA: Double tax relief

- Labuan entity carrying on biz, resident in Msia at any time where management & control of biz
exercised
- Other labuan entity resident in Msia, management & control of affair exercised by directors,
partners, trustees, controlling authority

S39(1)(r) ITA: Amount not allowed for deduction for payment by resident
- Interest payment: 25%
- Lease rental: 25%
- Other payments: 97%

Treatment

- Treat as Labuan co as carrying on Labuan biz activity only if fulfil min no. of full time employee and
min annual operating exp

- Taxable only on inc from trading activities (banking, insurance, trading, mgmt., shipping, licensing)

- Chargeable profit from audited FS = 3%. If fail to comply = 24%

- Royalty/Inc from intellectual property excluded from chargeable profit

- Under LBATA 1990, taxable on preceding year basis

- Exempt from stamp duty & SST & WHT

Irrevocable Election

- Capital gains not taxable

- Scope of charge = derived & remittance basis (Labuan = world-scope basis)

- Foreign source of inc by NR = tax exempt; Foreign source of inc received in from outside Msia by
residents = tax chargeable

- Resident status = test of management & control

- S12 ITA: Biz source derived from Msia

- Para 12B Sch 6: Single-tier div payment is tax exempt in hands of shareholders

- Tax compliance on e-filing tax estimates & payment by instalments

- Submit tax return within 7 months after close of acc period

HP/LEASING
Hire Purchase

- Treated as owned assets, can claim IBA/CA when brought into use

- Claim capital elements only and when incurred

- Excess = hire purchase charged

- Not tax deductible, capital in nature

Lease
- Treat as operating lease: allowable expense by deducting from gross income, paid when due

- Fixed asset = substance is a premium = capital in nature = for right to use land

- Annual rent exp = revenue in nature = rental source of inc

HP vs Lease

- Lease > HP

- Lease produce even flow of tax relief in shorter period

- Lease accelerates tax reductions

- Leasing turns adj inc to adj loss (offsets against CY inc), full utilisation of IA/AA

R&D (DOUBLE DEDUCTION)

R&D = systematic, investigative, experimental study involving novelty/technical risk to acquire new
knowledge/use results of study for production/improvement of material

- Excludes quality control & routine testing, market research, routine modifications, cosmetic
modifications

- Ongoing exp

- Ineligible exp/EPF/SOCSO may still qualify single deduction

Related Co

- Operations are/an be controlled directly/indirectly by co

- Controls/can control ^

- ^^ by parent co

In-house research

- S34A ITA: Qualifying R&D exp (not capex) = double deduction to gross biz inc in resident

- No DD if R&D exp outside Msia >30% of total exp

- Para 37B, Para 37D Sch 3: CA available for QBE on R&D

- Capex on alteration/renovation of rent premise = in use for biz = eligible for ITA

R&D Company

- S34B: DD for cost of research services of approved R&D status co that provides R&D services in
Msia to related/other co

- Related co: same operational control with co by another co who owns at least 20% of OSC. No
deduction for capex

- eligible for ITA for 100% on QCE for 10 YA

- Can claim CA

- If related co has DD, co cannot claim ITA

Contract R&D Company

- Can claim DD & ITA

- Co must not be related co

Double Deduction

S34A & S34B ITA: in Malaysia

- R&D incurred by person resident approved by DGIR

- Contributed by person resident to approved research institute

- Payment “” for use of services of approved research institute

- “” approved research co

- “” R&D co

- “” contract R&D co

STAMP DUTY
S15 Stamp Act 1949: Exemption of stamp duty if comply all conditions

- Liquidating co ceases to be beneficial owner of shares in co within 3 years

- Only way to cease is by liquidation

S15A Stamp Act 1949:

- When both co cease to be associated

- RPC status criteria may be affected

ISLAMIC

EXPORT INCENTIVES
- 30% allowance = qualifying co + at least 50% increase in exports

- 50% allowance = qualifying co + penetrated new market determined by METDC

- 100% allowance = awarded Export Excellence Award (achieved highest increase in export sales)

WHT
S107A ITA: WHT 10% + 3%

- Amount withheld by payer on income earned by NR payee (temp deduction)

- NOT final tax, can be repaid/offset when complied all income tax obligations

- when co has foreign employees employed in Msia

- may apply for refund for WHT after NR employees fulfil liabilities & obligations

TAX ADVANTAGE

- 3%: Co performs monthly tax deductions, NOT contractors = reduce tax deduction (no temp
deduction)

- 10%: On any tax liability for inc derived from biz activity carried out in Msia (can credit WHT against
tax liability, excess repaid to Co)

- 15%: Withhold for interest on load paid, pay to DGIR within 1 month

CO TAX
- Co inc tax = final tax

- Para 12B Sch 6: profits after tax distributed by dividend is tax exempt in the hands of shareholders

- Returns from loan provided to sub = interest income (sub can claim interest as allowable income tax
deduction under S33(1)(a) for money borrowed for purpose of biz)

- Unabsorbed biz loss: c/f against SBI max 10 YAs + co must be actively carrying on biz

Employee Benefits

Item Treatment
Discounted prices for…
- Consumable biz product of employer - Exempt to max RM1000 (if >, excess taxable)
- Services by employer - Fully exempt
- Purchase of investment products - Chargeable
Free consultation service (by employer) - Fully exempt
Benefits received from co within same group of - Chargeable
co
Traditional medicine if: - Exempt
- Given by medical practitioner registered with
certified/registered body by MOH
Complimentary reflexology and spa - Chargeable, NOT traditional medicine
Maternity expenses (pregnancy/child birth) if: - Exempt
- Given by certified doctors in modern med
- Registered with registered/certified bodies by
MOH

Loans to Directors

S140B Anti-avoidance provision: Co is deemed to have derived inc from loan

Prerequisite:
- Source from external funds

- Rate of interest charged by co < rate borne by employer

- Interest free loan is quantifiable monetary benefit

NOT S140B:
- Holds > 20% OSC

- Sourced from internal funds

- No tax benefit

Loans to Employees

- No ownership of shares

- S140B Anti-avoidance provision does NOT apply

- Interest incurred = staff benefit = tax deductible

Tax Efficiency

Tax Advantage
Subscriptions (health/fitness) Staff cost (taxable to employee)
Entrance fee to acquire asset of enduring nature CAPITAL (depends on entrance fee amount vs
emp marginal tax rate)
Premiums from insurance policies invested for Deemed tax deduction as staff cost, taxable as
employee perquisite
Car (fuel + running cost provided by co) Annual tax benefit on scale basis (1/2 off if > 5
years)
Petrol benefits = Tax exempt
Running costs = Tax deductible as employee cost
CA restricted to lease tax deductions
Director taxed at BIK value, Co gets tax relief
Interest-free car loan to employee Tax benefit if cost of interest paid by employer
Leave passages Tax exempt BIK if:
- Restricted to employees & their immediate
family members
- Do not exceed once outside Msia (not
 >RM3000) or 3 times within Msia
Childcare allowance Exempt of RM2400 if child < 12yo
Excess taxable at 13%
Co full deduction
Monthly entertainment allowance Employee = claim deduction limit to amount
given to be incurred W&E on entertaining on
behalf of employer
Co = 50% deduction
Monthly travelling allowance Employee official duties = exempt RM6000
Co = fully tax deductible
Share option scheme Taxable benefit when employer exercises option
Co = no acquisition cost
Incorporate and transfer old asset to new co - Factory/plant/machinery/trading stock
liquidated into shares for new co
- Goodwill on cash consideration for liquidated
assets payable to new co
Debtors & Creditors - New co can be appointed as agent for debt
collection
New share subscriptions in new co - Capital can pay for old co indebtedness
Gift of shares from parent to child - No tax implication
No Tax Advantage
Deduct cost of employee leave passage [S39(1)m ITA]
Vouchers Regard as tax requisite
Insurance policies invested in name of co Deemed to acquire an asset
Exercisable share options Price employee pays vs exercisable mv
= Lower of share value exercisable vs exercised –
employee price paid = tax benefits
Leave passages Co cannot deduct cost of leave passage (no
relief)
Free childcare facilities Employee = Non-taxable BIK
Co = Provision & maintenance of childcare
centre, allowable deduction (excludes land and
building exp)
Transfer of debtors and creditors - Difficulty in valuation
- Debts may become irrecoverable to person
which debt arose
Transfer of goodwill - Fixed capital = consideration received = capital
receipt = no tax

VS Ind. Tax

Company Individual
Status Separate legal entity Person
Income Tax Final tax Final tax
Director remunerations - Cannot tax at co level - Salary, bonus, fees taxed as
personal inc
Rate 24% Gradual
Reduced Rate 17% up to 600k for asme -
Personal reliefs - Yes
Eligible for incentives Yes, PS/ITA/RA/AIE -
EPF Deduction for contribution to Non-taxable for co portion
approved retirement fund tax RM3000 relief for contribution
deductible, max 19% by self
Basis period Any 31 December
Instalment payments Statutory scheme Non-statutory schemes
Distribution of profits Single-tier div (Para 12B Sch 6) Whenever required
Director/proprietor benefit Taxable to DGIR public ruling Disallowed in computing
adjusted biz inc

Difference in Income Tax Instalment Payments

S107B S107C
Estimated by: DGIR Co, e-filed in prescribed form
Instalments 6 bi-monthly No. of month in BP of YA
Revisions Not later than 30 June 6th/9th month or both (e-filing)
Payment by: 30 days from due date 15th day each month
Penalty for excessive No penalty for excessive Penalty
difference + no revisions made difference

Treatment

Rental inc received - Under rental source (S4(d))

- Biz source only if provide maintenance &
support services (S4(a))
Director’s fee Co: partial deduction of permitted expense
(never exceed 5% gross inc)
Employee: fully taxable as personal inc
Feasibility studies & Other preparatory expenses If extension, treat as part of the same biz of
producing for export = claim as expenses against
biz income
If under new co, treat as pre-op & preliminary
exp = not deductible
Loan interest to set up internal project Deductible as interest is incurred on money
borrowed, laid out for assets used in biz
If form new company, treat investment as equity
(int not deductible against single-tier div)
If loan lent to new co, int exp is deductible
against any int received = charge market rate to
avoid TP issue
Capital allowances Deductible against profit of combined biz
operations
C/f if initial losses results in tax inefficiency
Initial losses Single source: offset against profits of existing biz
Separate source: deduct CY loss as adjusted loss
from other source in AI

Cyberbusiness

- Engage in profit-making intentions (All vital biz activities, manufacturing, advertising, shipping, debt
collection)
- Biz carried on in Msia, treated in basis period of YA

- Debts arising from sales outside Msia = gross inc of biz carried on in Msia

INTEREST VS RENTAL
S33(2) ITA: Interest disallowed is apportioned to investments financed by borrowings

Paragraph 12B Sch 6: No deduction of single-tier div, exempt from income tax

- Bonds issued by Gov = derived from Msia = taxable on Interest inc

- Tax resident + responsible to pay interest + rental loan produces rental inc = derived from msia &
taxable on rental inc
- Loan to foreign co, NR in Msia = interest income derived = foreign inc = taxable only when received
in Msia

Interest Expense

- Int exp payable MUST be DUE to be PAID (if not due, no tax deduction)

- When DUE to be paid -> claim tax deduction in arriving at adj inc

- Notify DGIR in writing: of sum not later than 12 months from end of BP when sum due to be paid

- DGIR can reduce relevant YA to allow interest deduction after informed and submission of revised
tax comp

Rental Deductions

- Loss on shophouse/terrace house = Non-biz loss

- Not eligible for relief, cannot c/f

- Public Ruling 12/2018 allows rental inc to tax as biz/rental source as single source

LIHC/UIHC/IDC
IHC: activities consist mainly of holding of investments & constitutes > 80% of gross income

Avoiding IHC Status

- Withdraw money from fixed deposit = investments fall below 80%

- Sub do not make div payments, only parents

- Parent wholly acquires sub for business income-generating purpose (from investment to biz inc)

LIHC vs UIHC vs IDC

LIHC UIHC IDC

Investment income Deemed biz inc S4(c), (d), (f) Non biz S4(a) biz inc
(Interest/div/rental) S4(a) biz inc inc
Deduction of exp Restricted to gross inc S60F permitted exp Trading co
deductions
Loss relief Eligible - Claimable as biz loss
Relief of capex (Sch 3 Claimable & can c/f - Claimable
allowance) CA/IBA unutilised amount
Profit on sale of inv Taxable as biz source Cap gains Rev gains taxable as biz
source
Bona fide/genuine biz Eligible to claim loss - -
source relief
Eligibility for two-tier Eligible if OSC & gross 24% on entire If PUOSC < RM2.5m
tax rate biz inc fulfilled chargeable inc 17% on first RM600000
Excess at 24%

UNIT TRUST

REIT
- Adjusted loss from biz source disregarded (cannot set-off/ c/f against other inc)

- Unabsorbed CA cannot c/f

S109D: Listed co is tax exempt when distribute to NR shareholders (10% or 24%)

ESTATE TRUST
- Distribution to beneficiaries are capital distribution

- S4(e): Payment of annuity assessed as income

- Cut-off point = date trust body formed

- No self relief RM9000 if deceased died domiciled outside Msia

- Deceased died domiciled in Msia = RM9000 self relief, income taxed at scale rate, no bilateral credit
& foreign tax

LLP
Partnership:

- Association/JV

- Both parties have combined their rights, powers, property, labour, skill for purpose of carrying on
biz

- Sharing of profit/loss (public ruling that if sharing of profit/loss not normal level = NOT partnership)

- NOT biz, as no master-servant relationship exists

SME
- Not required to submit tax estimate & instalment payments for first 2 YA

- Submit tax estimate (Form e-CP204) before 1 March YA (no penalty if not don e

- Instalment payments on fifteenth day every month, 3 months from submission of tax estimate

Criteria of SME

- PUOSC not > RM2.5m

Tax Efficiency

TAX ADVANTAGE

- if co is profitable: full tax deduction on rent payable

- sufficient rental inc: full tax deduction for interest payable

- sufficient income to fully offset interest charges & CA for commercial vehicle

- lower income tax rate at 17% for first RM600000, excess at 24%

- exempt from submitting tax estimates/making instalment payments first 2 YAs (2.5m not exceed at
beginning of basis period)

- Claim deduction of incorporation exp if capital does not exceed 2.5m

- Claim CA for small value assets (usual limit RM20000 each year)

NO TAX ADVANTAGE

Not deemed SME

- PUOSC exceed RM2.5m on 1st day of basis period

- > 50% PUOSC of SME owned by related co or vice versa, or both owned by another company

- Therefore required to submit tax estimate & instalment every fifteenth day monthly starting 3
months later

Treatment

- Estimated income tax paid by 12 equal instalments on 15th day each month from beginning of 2nd
month

- May revise estimated income-tax by e-filing Form e-CP204A), excess from revised paid in equal
proportion.

- may revise in 6th/9th month

- Deemed notice of assessment date = date income tax return (Form e-C) submitted

- Final income tax due & payable on last day after closing of accounts

IND TAX

Disallowable expenses Allowable expenses

- Proprietor’s salary - Employee’s salary (test of
- Proprietor’s EPF contribution reasonableness of duties)
- Contribution to unapproved fund - Bonus/EPF
[S39(1)ITA]
-

TAX COMPLIANCE (CO DIRECTOR)

S75 ITA: Responsibility on directors and secretaries to do all acts on behalf of company, including:
- E-filing submission of annual income tax return (Form e-C/e-E)
- Routine tax compliance (Submission estimated tax return, payment of monthly instalments/tax
balance/tax appeals)
- Monthly tax deduction from employee remuneration -> remit tax -> deduct to DGIR
- Notify DGIR not<30 days in prescribed form of employee starting/leaving co
- Deduction of certain payments to NR -> remit WHT to DGIR
- Completion and issue of Form CP58 to co’s agents, dealers, distributors
- S107D Deduction of tax for monetary payment to resident individual agents, dealers, distributors

S75A ITA: Director is jointly and severally liable during tax payable period if he occupies position as
director and own/control with/w/o associate of at least 20% OSC of co.

Gratuity
- Retirement gratuity (full tax exempt): aged 55 above + at least 10 years with same employer
- Retirement gratuity (partial exempt): aged 55 above + RM1000 each year of service

TAX ADVANTAGE
-
NON-TAX ADVANTAGE
- Wife overtaxed, husband(owner) undertaxed = transfer property to wife to increase rental inc (no
RPGT)

Tax Efficiency for Ind by way of Co

- Set up SME Co
- Appoint person & wife as director
- Draw monthly remuneration at max limit (max 19% as co contribution to EPF)
- Claim tax deduction as co for EPF up to 19%

CAPITAL STATEMENT
- Used to compare financial position at periodic intervals (whole period under suspicion)

- All assets and liabilities (biz + personal) included

- Compare net totals to identify resources increased each year

- Difference is adjusted for changes in finance (declared income, tax payments, living costs)

- Adjusted difference if surplus = undeclared income

- DGIR make proposals on undeclared inc & agree on declared inc = settlement

(Amount of tax undercharged + max penalty of 100%) + full disclosure cert + admission of offence +
request to compound offence + written agreement -> DGIR issue composite agreement
SETTLEMENT

SST
Treatment

- Portion related to out-of-pocket expense (OPE) as part of prof fees = taxable

Independent consultant’s service - Taxable service

Legal fees - Taxable service
- Not eligible for exemption under B2B
exemption
- Not paid to person in same profession

RPT

GROUP TAX
Treatment

Loan used to finance Investment of wholly-owned sub

acquisition of entire sub - dividend income treat as single-tier exempt div
= not tax deductible (capital)
Loan to acquire inventory Inventory used in carrying out business activity
- Argued as part and parcel of business
= tax deductible (revenue) wholly & exclusively incurred in
production of gross income
Adjusted loss & CA - Utilised against biz inc of sub unless acquired by parent (absorbed
by parent if treated as expansion)
- Complete loss if liquidated
RPGT - Sub shareholders face liability to RPGT on disposal of RPC shares
- Acquiring co continues RPC

Inventory Valuation

- Cost of purchasing inventory = exp in income statement

- Control of asset remains with sub = sub expenses initial cost of inventory upon commencement of
biz

- Cost deductible = cost to acquire inventory – bal of unsold inventory

- S35(3) ITA: Basis of valuation at market value

- If physical tangible asset = can elect to value at inventory at cost + expenses

Initial Losses

1. If parent acquires whole sub = sub incurs initial 12 months loss, c/f unabsorbed loss to offset SI for
max 10 years

2. If parent acquires inventory (treat as part & parcel or separate biz source)

- Part & parcel = grouped, net off against biz inc

- Separate biz source = initial loss constitute CY biz loss deducted from AI, unabsorbed amount c/f for
max 10 years

Group Relief Loss

- Only adjusted loss can be surrendered to related co

- Restricted to 70% of adjusted loss (for max 3 YAs)

- Remaining 30% must be c/f

- Must be resident

- Claimant co cannot enjoy tax incentives

Tax Efficiency of Bank Loan

Interest on bank loan to sub - Deductible in arriving at adjusted inc

- Used for acquisition of assets used/held for
 production of gross biz inc
Interest on bank loan to shareholders - Deductible in arriving at adjusted inc
- Used for acquisition of assets used/held for
production of gross biz inc
- No tax relief for shareholders bc single-tier div
tax exempt

TAX ADMIN
Tax Administration

Treatment Penalty
Changes in acc date: Notify DGIR in prescribed Form S120(1)(i) ITA: conviction,
- new acc < 12 months, closed e-CP204B 30 days before end of fine between RM200 &
before end of ori acc period new acc period. RM20,000/imprisonment
- after end of ori acc period not exceeding 6
Then, furnish tax estimates Form months/both
e-CP204 to DGIR not later than Increased sum from S107C
30 days before beginning new and penalties under S112(3)
basis period owed to DGIR
Request for variation of By 30 June, no changing due
instalments dates.
Late monthly tax payable S103(1) ITA: Income tax payables Penalty 10% on monthly
payment must be paid despite any appeal instalment
Amendment of tax return not Allowed increased sum amended
later than 6 months from due fixed at 10%
date
Late submission of co tax return Penalty not > 300% of
(Form e-C) income tax charged before
set-off, repayment, relief
Failure to submit income tax DGIR makes best judgment
return (Co) assessment, issue notice to
comply.
If still fail, S120(1)(i) ITA
applies.
If convicted, DGIR issues
further order to comply
within 30 days on provisions
of ITA
Error/mistake in tax return S131 ITA: Can claim for relief if:
- Error made before assessment
became final & conclusive
- made within 5 years after YA
- DGIR consider application to
reject/relief
- taxpayer has right to appeal to
SC
Appeal against assessment - 30 days from notice of
assessment
- S103 ITA: income tax assessed
must be paid within 30 days
notwithstanding appeal
DGIR request for extension on - appeal to MOF not more than 6
finalisation of appeals months, not later than 30 days
before expiry of 12 month period
Appeal on assessment due to - Submit Form Q within 30 days
compliance of additional public from date of deemed
ruling assessment
Failure to submit tax return for 2 - Fine: not < RM1000, not >
years of more (Ind) RM20000, imprisonment
max 6 months or both
- S112(1A): Special penalty-
3x amount determined by
DGIR best judgment
Early declaration of income for Treat as submission of incorrect S113(1) ITA: Offence on
omission of tax returns tax returns omission of understatement
of income is tried by court,
min fine RM1000 max
RM10000 + special penalty
of double of tax
undercharged
S113(2) ITA: No prosecution,
penalty = tax undercharged
(cannot be tried under
S113(1))
Failure to declare income + Treat as wilful evasion, offence S114: Fine of RM1000 max
Evasion of tax RM20000, imprisonment
max 3 years + special
penalty of 3x tax
undercharged

Public Ruling

- DGIR Board’s view on interpretation

- NOT law

- If language of statute is ambiguous, court adopts one FAVOURABLE to TAXPAYER

Conditions to Increase Income Tax Payable (increased sum by 10%)

- Co fails to submit tax estimate

- DGIR no submit directions for instalment payment

- No prosecution under S120 for failure to furnish estimates

DGIR Time Bars

- DGIR has max 5 years after expiration of YA to raise assessment

- Tax audit performed does not defer after 5 years

- NO max if there’s fraud, wilful default, negligence

Advanced Ruling

Revoked if:

- Arrangement materially different vs stated in ruling

- Material omission/misrepresentation in application of ruling

- DGIR assumes assumption on future event that proves advanced ruling incorrect

- Person fails to satisfy DGIR conditions

Tax Enforcement

S78 ITA: IRB prescribes forms of records that taxpayers must keep to ascertain inc/exp of operations

S91 ITA: DGIR can raise additional assessment during institutional proceedings which do not relieve
liability for payment of tax/penalty if no/insufficient assessment

- Co entitled to appeal against additional assessments (DGIR not acted dishonestly in exercising
judgment). Onus on Co to prove assessments are excessive.

S91(3) ITA: No time limit for making assessments where fraud, wilful default or negligence
committed. (Normal = 5 years after relevant year)

S124 ITA: DGIR may reduce penalty amount if admitted offence in writing

STOCK
S2 Stock-in-trade: property of any description, movable/immovable, sold in ordinary course of biz

Treatment (Inventories)

S35(3): valuation as market value unless taxpayer elects for cost basis
Immovable properties/stocks/shares/marketable securities = lower of cost or mv (fair value or
estimated selling price)

Treatment (Closing stock)

- Sold or transferred trading stock = sale price

- Any part of sale consideration (not cash) = valued at market value

- Stock not sold = market value when biz ceased

Treatment (Withdrawn for own use)

- Include market value in gross income

- No longer forms stock upon transfer to recreational activity & no inc brought to biz

- Payment received for trade to income tax must form part of biz operation to product inc &
necessary by law

Treatment (Opening stock)

- Transferor = cease to trade

- Actual consideration = treat as exp = cash sum

Treatment (Transfer of trading stocks)

- S35(5) Cessation of business: transfer price of stock = value of asset

- Ascertained by just and reasonable valuation and appointment

GRANT/ SUBSIDY
Gov Grant

- Specifically tax exempt

- Any exp incurred is reimbursed (full/part), no tax deduction

- Exp covered by grant/subsidy not eligible for tax, no QCE, no CA

Subsidy

- Income Tax Exemption Order 2006 only for Gov/State

- Other grant & subsidy follows normal tax treatment

- Subsidy on replacement/acquisition of capital assets = not taxable = capital in nature

- Subsidy to compensate for rev loss = taxable = revenue in nature

- Subsidy to cover high material cost = taxable = revenue in nature

ANTI-AVOIDANCE
S140B Anti-avoidance provision: Co is deemed to have derived inc from loan

Types

General Anti-Avoidance Provision Specific Anti-Avoidance Provision

- Catch-all unspecified form of tax avoidance - Leaves no doubt in scope of provision

- Discretion of DGIR - Mandatory in application

AGRICULTURE
Treatment

TRANSFER PRICING
- If internal process = No need for transaction at price = NO TP

- If 2 separate entities = TP = pricing structure must account for market value & made available within
14 days upon request by DGIR

Arm’s Length Principles

- Comparable Uncontrolled Price Method: compare selling price to product from related enterprise +
reasonable accurate adjustments – material differences

- Resale Price Method: Acquired from associated enterprise then resold to independent enterprise +
profit margin in independent transaction

- Cost Plus Method: Sells to associated enterprise, start from cost to manufacturer + mark-up from
similar sale in independent market

PERMANENT ESTABLISHMENT
- Branch/PE taxed using co tax rates or two-tier if gross Biz inc < RM50m
- Must be resident to apply tax incentives

PE

- Place of management/ branch/ office/ factory/ workshop/ extraction of natural rss

- Supervisory activities on construction/installation/assembly project

- Biz activities carried on > 6 months

- Authority to regularly fill orders and maintain keeping of stocks and books & conclude contracts

- Habitually exercises such authority