Contentsnovella.mhhe.com/.../dl/free/9670761263/1096691/Table_of_Contents.pdfCHAPTER 1 Overview of Malaysian Taxation 1 ... A Breakdown 5 1.2.3 Sources of Malaysian Taxation Law 8

viii viii

Contents

About the Author iii

Preface v

List of Tables xxxvii

List of Charts/Figures xxxix

Abbreviations xl

Table of Cases xlii

Table of Statutes lv

CHAPTER 1 Overview of Malaysian Taxation 1

•1.1 Introduction 1

•1.2 History and Background 21.2.1 Trends in the Malaysian Tax System 41.2.2 Sources of Revenue: A Breakdown 51.2.3 Sources of Malaysian Taxation Law 8

1.2.3.1 Statute Law 81.2.3.2 Case Law 91.2.3.3 Practice of the IRB 10

1.2.4 Implementation of Tax Laws 101.2.4.1 Income Tax 101.2.4.2 Petroleum Income Tax 111.2.4.3 Real Property Gains Tax 131.2.4.4 Stamp Duty 14

1.2.5 Scope of Income Tax 141.2.5.1 Evolution of the Scope of Taxation 151.2.5.2 Classes of Income 161.2.5.3 Exemptions 161.2.5.4 Determination of Chargeable Income 171.2.5.5 Tax Rebates 21

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Contents ix

1.2.6 Business and Corporate Taxation 221.2.6.1 Treatment of Expenses 241.2.6.2 Treatment of Losses 251.2.6.3 Capital Allowances 261.2.6.4 Format for Business Tax Computation 261.2.6.5 Taxation of Companies 28

1.2.7 Tax Administration 281.2.8 Indirect Taxes 28

CHAPTER 2 Tax Administration of Self-Assessment System 30

•2.1 Background 30

•2.2 Official Assessment System in Malaysia 30

•2.3 Vision, Mission Statements and Operational Objectives 31

•2.4 What is Self-Assessment? 31

•2.5 Formal System v Self-Assessment System 32

•2.6 Compliance Costs 32

•2.7 Tax Simplification 32

•2.8 Public, Private and Advance Rulings 332.8.1 Issue of Public Rulings 342.8.2 Withdrawal of Public Ruling 402.8.3 Advance Ruling 40

2.8.3.1 Income Tax (Advance Ruling) Rules 2008 402.8.3.2 Application for an Advance Ruling 402.8.3.3 Assumptions made by the DGIR 412.8.3.4 Form and Nature of Advance Ruling 412.8.3.5 Application not to Affect Obligations or Powers 422.8.3.6 Disclosure of the Advance Ruling in the Return 422.8.3.7 Finality of an Advance Ruling 422.8.3.8 Fees for an Advance Ruling 422.8.3.9 Effective Date 42

•2.9 Impact of SAS on Taxpayers 43

•2.10 Filing Procedure 432.10.1 Electronic Filing 442.10.2 Use of Mobile Devices 44

•2.11 Companies 442.11.1 Filing of Tax Returns 442.11.2 Year of Assessment 45

•2.12 Self-Assessment (Companies) 462.12.1 Filing of Return Form 462.12.2 Assessment 462.12.3 Collection of Taxes 47


x A GUIDE TO MALAYSIAN TAXATION

2.12.3.1 Small and Medium Enterprises (SMEs) 472.12.3.2 Notification of Tax Refundable 502.12.3.3 Revised Estimates 502.12.3.4 Revision of Estimates 522.12.3.5 Removal of Direction to make Payment by

Instalments 532.12.4 Settlement of Balance 532.12.5 Record Keeping 54

•2.13 Self-Assessment Involving “Other Taxpayers” 552.13.1 Basis Periods 552.13.2 Filing of Returns 552.13.3 Instalment Payment Schemes for Persons other

than a Company 552.13.4 Penalty on Overdue Tax 56

•2.14 Filing of Tax Return by Individuals under SAS 562.14.1 Waiver to File Return 562.14.2 Duty to Keep Records 562.14.3 Submission Date 57

2.14.3.1 Submission by Electronic Medium 572.14.3.2 E-Filing by Individual Taxpayers 57

2.14.4 Deemed Assessment 572.14.5 Penalties for Non-Compliance 58

2.14.5.1 Failure to Submit Tax Return 582.14.5.2 Failure to Remit Tax Payable 582.14.5.3 Under-declaration of Taxable Income 58

2.14.6 Circumstances when Assessments are Raised 592.14.7 Tax Deduction Scheme 592.14.8 Due Date of Payment of Taxes 59

•2.15 Returns by Employers 602.15.1 Employer’s Responsibilities for Tax of Employees 612.15.2 Late Notification Penalties: Cessation of Employment 61

•2.16 Forms for Instalment Payment 61

•2.17 Appeal Procedure under Self-Assessment 622.17.1 Appeal Procedure 622.17.2 Appeal against Assessment and Application for Relief 642.17.3 Right of Appeal and Time for Appeal 652.17.4 Right of Appeal 662.17.5 Scope of Appeal and Tax Loss Situation 682.17.6 Appeal against a Deemed Assessment 682.17.7 Dispute Resolution 69

•2.18 Taxation System Review Panel 72

•2.19 Fund for Tax Refund 72

•2.20 Self Amendment of Income Tax Return 74


Contents xi

•2.21 Income Tax Programme for Filing of Returns 75

•2.22 Utilization of Excess Tax Paid 75

•2.23 Time bar to raise assessments reduced to five years 75

CHAPTER 3 Individual Residence Status 77


•3.2 Determining Residence Status 783.2.1 Section 7(1)(a) 783.2.2 Section 7(1)(b) 79

3.2.2.1 Bridging Two Periods 793.2.2.2 Summer Visit is not a “Social Visit” 803.2.2.3 Deemed to be a Resident 81

3.2.3 Section 7(1)(c) 843.2.4 Section 7(1)(d) 84

•3.3 Advantageous of being resident for tax purposes 86

•3.4 60-Day Rule (Paragraph 21 and 22 Schedule 6) 86

•3.5 Certificate of Residence 86

CHAPTER 4 Employment Income 87

•4.1 General 87

•4.2 Definitions 874.2.1 Distinction between Employment and Profession 884.2.2 Was it a “Contract for Services” or “Contract of Services”? 88

•4.3 Basis of Assessment (Section 25) 914.3.1 Exemption for Seafarers [Paragraph 34(1) Schedule 6] 94

•4.4 Gross Employment Income 944.4.1 Section 13(1) 94

4.4.1.1 Public Ruling No. 2/2013 964.4.1.2 Public Ruling No. 2/2006 1004.4.1.3 Public Ruling No. 11/2012 1054.4.1.4 Public Ruling No. 1/2003 1094.4.1.5 Section 32(2)(a) 1134.4.1.6 Section 32(2)(b) 1134.4.1.7 Section 32(3)(c) 113

4.4.2 Sections 13(2) & (3) 117

•4.5 Adjusted Income from Employment 1184.5.1 Nominal Rent Paid by Employee 1184.5.2 Entertainment Expenses 1184.5.3 Travelling Expenses 1194.5.4 Fees to Employment Agencies 120


xii A GUIDE TO MALAYSIAN TAXATION

4.5.5 Initial Cost 1204.5.6 Fees to Professional Bodies 1204.5.7 Purchase of Journals, Magazines and Books 1204.5.8 Cost of Attending Conferences 1214.5.9 Legal Fees 1214.5.10 Club Membership 121

•4.6 60-Day Rule (Paragraph 21 and 22 Schedule 6) 122

•4.7 Section 13(2) - Deemed Derivation of Employment Income 123

•4.8 Section 13(3) – Public Services Employment 123

•4.9 Computing Taxable Employment Income 124

•4.10 Separate Assessment and Joint Assessment 1294.10.1 Background 1294.10.2 Conditions for Electing Joint Assessment 1294.10.3 Choice of Separate Assessment 1294.10.4 Expenditure Incurred by the “Joining Party” shall be

Deemed to be Expended by the Assessed Party 1294.10.5 Recovery of Tax under Joint Assessment 1304.10.6 Submission of Tax Return 1304.10.7 Employer’s and Employee’s Responsibilities 130

4.10.7.1 Amendment to Sec 83 ITA 1314.10.7.2 Employee’s Responsibilities 131

•4.11 Preferential Rates for Returning Experts 131

•4.12 Taxation of Malaysian Employees Seconded Overseas 132

•4.13 Tax Treatment of Foreign Nationals Working in Malaysia 1324.13.1 Public Ruling No. 8/2011 1324.13.2 Scope of Charge 132

4.13.2.1 Short Term Employment 1334.13.2.2 Period of Employment Exceeding 60 Days 133

4.13.3 Double Taxation 1334.13.3.1 Bilateral Credit 1344.13.3.2 Unilateral Credit 134

4.13.4 Filing of Income Tax Return Forms 134

•4.14 Tax Exemption on Employment Income of Non-Citizens 135

CHAPTER 5 Non-Business Income 136


•5.2 Dividends 1375.2.1 Definition 1385.2.2 Derivation of Dividend Income (Section 14) 1385.2.3 Tax Treatment of Unit Trust Holders 1395.2.4 Taxation Treatment of Unit Trust Holders 139


Contents xiii

5.2.4.1 Taxable Distributions 1395.2.4.2 Further Tax Exempt Distributions 1405.2.4.3 Tax Rates 1405.2.4.4 Withholding Tax 1405.2.4.5 Declaration 141

•5.3 Interest 1425.3.1 Definition 1425.3.2 Basis of Assessment 1425.3.3 Interest Income Treated as Business Income 1435.3.4 Deemed Derivation of Interest Income (Section 15) 1445.3.5 Attributable Deductions 1455.3.6 Exempt Interest 1455.3.7 Loans or Advances to a Director by a Company 148

•5.4 Discounts 1505.4.1 Basis of Assessment 1505.4.2 Derivation 1505.4.3 Attributable Deductions 1505.4.4 Tax Treatment of Discounts on Bonds 1515.4.5 Discount for Islamic Securities 151

•5.5 Rents 1515.5.1 Definition 1525.5.2 Basis of Assessment 1525.5.3 Received in Advance 1525.5.4 Derivation 1525.5.5 Attributable Deductions 1525.5.6 Rental from Industrial Building 1535.5.7 Disposal of Industrial Building 1535.5.8 Withholding Tax 1545.5.9 Income from Letting of Real Property 154

5.5.9.1 Deemed Business Source [Sec 4(a) Income] 1545.5.9.2 Non-business Income [Sec 4(d) Income] 1545.5.9.3 Rented to Related Party [Sec 4(a) Income] 1545.5.9.4 Commencement Date 155

•5.6 Royalties 1555.6.1 Definition 1555.6.2 Basis of Assessment 1565.6.3 Derivation of Royalty Income (Section 15) 1565.6.4 Attributable Deductions 1565.6.5 Exemption of Royalty Income for Resident Individuals 157

5.6.5.1 Paragraph 32 ITA: RM10,000 1575.6.5.2 Paragraph 32A ITA: RM12,000 1575.6.5.3 Paragraph 32B ITA: RM20,000 1575.6.5.4 Paragraph 32C ITA: Full Exemption 1575.6.5.5 Paragraph 32D ITA: RM20,000 1575.6.5.6 Paragraph 32E: Full Exemption 157


xiv A GUIDE TO MALAYSIAN TAXATION

5.6.6 Withholding Tax 1575.6.7 Income of Researchers from Commercialization of

Research Findings 158

•5.7 Premium 1605.7.1 Basis of Assessment 160

•5.8 Pensions 1615.8.1 Deemed Derivation of Pension 1615.8.2 Basis of Assessment 1615.8.3 Exempt Pension 161

•5.9 Annuities 1625.9.1 Basis of Assessment 1625.9.2 Exemption of Annuities 1635.9.3 Periodical Payments 163

•5.10 Deferred Annuity 1635.10.1 Definition 1635.10.2 Taxability of Deferred Annuity 1635.10.3 Public Ruling 163

•5.11 Other Gains or Profits [SECTION 4(f)] 164

•5.12 Special Classes of Income 164

•5.13 Tax Treatment on Controlled Transactions 164

CHAPTER 6 Partnership Income 166


•6.2 Determining a Partnership 1676.2.1 Existence of a Partnership 1686.2.2 Transactions Involved Could Constitute a Partnership 1696.2.3 Minor in a Partnership 1706.2.4 Employee or Partner in a Partnership 1706.2.5 Joint Liability 170

•6.3 Types of Partners 1716.3.1 Full Partner 1716.3.2 Salaried Partner 1716.3.3 Sleeping Partner 1716.3.4 Corporate Partner 1716.3.5 Limited Partner 171

•6.4 Assessment of Partnership Business 1716.4.1 Divisible Income and Adjusted Income 1726.4.2 Allocation of Capital Allowances: Partnership Business 1746.4.3 Assets Purchased by Partner and Solely Used by Individual 1806.4.4 Partner’s Statutory Income 1806.4.5 Non-business Income of a Partnership 180


Contents xv

•6.5 Death of a Partner 180

•6.6 Labuan Limited Partnership 181

•6.7 Furnishing a Partnership Return 181

•6.8 Return by Partnership Under Self-Assessment 181

•6.9 Limited Liability Partnership 1826.9.1 Tax Treatment 1836.9.2 Amendments to Accommodate LLPs 1846.9.3 Capital Contribution 1856.9.4 Tax Treatment of Assets Transferred to Newly

Formed LLPs 1886.9.5 Public Ruling No. 5/2015 190

•6.10 Real Property Gains Tax 1906.10.1 Transfer of Assets by Partner to a Partnership 1906.10.2 Transfer of Assets to a Partner by a Dissolved Partnership 190

•6.11 Deductibility of Incorporation Expenses 190

•6.12 AN LLP, Partnership and Company 191

CHAPTER 7 Basis Period 192

•7.1 Introduction 1927.1.1 Assessment Year and Basis Year 1927.1.2 Basis Period 1927.1.3 Meaning of Operation 194

•7.2 Concept of Failure Year 1947.2.1 Failure Year 1947.2.2 Failure Year and Overlapping Period 195

•7.3 Change in Accounting Date 196

•7.4 Commencement of Business and Accounting Periods 1977.4.1 Direction of Basis Periods by the DGIR 197

7.4.1.1 Requirement of Law 1977.4.1.2 Subsidiary Complying with Group’s

Accounting Date 1987.4.1.3 New Business Operations in Addition to Existing

Operations 198

•7.5 Basis of Assessment (Other than a Company, LLP, Trust Body or Co-operative Society) 199

•7.6 Public Rulings Applicable to Basis Periods 2007.6.1 Public Ruling No. 4/2001 – Basis Period for a

Non-business Source (Individuals and Persons Other than Companies) 200


xvi A GUIDE TO MALAYSIAN TAXATION

7.6.2 Public Ruling No. 6/2001 – Basis Period for a Business Source (Individuals and Persons Other than Companies and Co-operatives) 200

7.6.3 Public Ruling No. 7/2011 – Notification of Changes in Accounting Period of a Company/LLP/Trust Body/ Co-operative Society 200

7.6.4 Public Ruling No. 8/2014 201

•7.7 Change of Financial Year End 2017.7.1 Basis Period of a Company, LLP, Trust Body or

Co-operative Society Following Change of Financial Year End 201

•7.8 Basis Period of a Company, LLP, Trust Body orCo-operative Society for First Year of Assessment 205

CHAPTER 8 Business Income 208


•8.2 Concepts and Definitions 2088.2.1 Employment and Profession 2088.2.2 Vocation 2108.2.3 Business and Trade 210

8.2.3.1 Manufacture 2118.2.3.2 Adventure or Concern in the Nature of Trade and

Isolated Transactions 211

•8.3 Badges of Trade 2128.3.1 Subject Matter 2128.3.2 Period of Ownership 213 8.3.3 Frequency of Transactions 2138.3.4 Supplementary Work Done Prior to Sale 2148.3.5 Organization Set up to Dispose of the Goods 2148.3.6 Motive for the Transaction 2148.3.7 Circumstances Surrounding the Transaction 2148.3.8 Profit Motive as a Factor 215

8.3.8.1 Kirkham v Williams [(1989) STC 333] 2168.3.8.2 KLE Sdn. Bhd. v Ketua Pengarah Hasil Dalam

Negeri [(1995) 2 MSTC 2,245] 2178.3.9 Intention to Trade 2178.3.10 Gains or Profits from Stock in Trade Parted with

Element of Compulsion 220

•8.4 Mutual Transactions 2208.4.1 Transactions that Are Not Entirely Mutual 2218.4.2 Factors Influencing the Mutual Concept 222

•8.5 Income from Illegal Activities 2228.5.1 Illegal Activities and Characteristics of Trade 223


Contents xvii

8.5.2 Summary 224

•8.6 Hobbies 224

•8.7 Gambling 224

•8.8 Commercial Speculation 225

•8.9 Trading in Properties 226

•8.10 Trading in Shares 2268.10.1 Trading, Investing or Gambling? 2278.10.2 Individuals 2278.10.3 Companies 2298.10.4 Gambling and Illegal Income 230

•8.11 Receipt of Grants or Subsidies 2318.11.1 Taxability of a Grant 2328.11.2 Government Grants and Subsidies 233

•8.12 Charge to Income Tax 2348.12.1 Income 234

8.12.2 “Accrued in” and “Derived from” 235

8.12.3 Source of Income 235

8.12.4 Received 236

•8.13 Income and Capital: A Change of Character 237

•8.14 Doctrine of First Receipt 238

•8.15 Evolution of Scope of Charge: Malaysian Context 238

•8.16 Commencement of Business 239

•8.17 New Business or a Continuation of an Existing Business 242

•8.18 Single Trade or Two Separate Trades 244

•8.19 Changes in the Activity of an Existing Trade 247

•8.20 Trading by Executors upon the Death of a Trader 248

•8.21 Cessation of Business: Continuation of Trade or Realization of Assets? 249

•8.22 Advance Receipts 250

•8.23 Indemnity and Compensation 251

•8.24 Taxation of Gains from Foreign Exchange Exposure 2578.24.1 Introduction 2578.24.2 Exchange Gains and Losses 2578.24.3 Distinguishing Capital from Revenue Accounts 2598.24.4 Speculative Activities and Hedging Contracts 2618.24.5 Profits from a Commercial Operation 262

•8.25 Derivative Financial Instruments 2628.25.1 Classification and Tax Treatment 262

8.25.1.1 Hedger 262


xviii A GUIDE TO MALAYSIAN TAXATION

8.25.1.2 Trader 2638.25.1.3 Speculator 263

8.25.2 Currency and Interest Rate Swaps 2668.25.2.1 Foreign Exchange Currency Swap 2668.25.2.2 Interest Rate Swap 266

8.25.3 Forward Exchange Contract 267

•8.26 “Trading With” and “Trading In” Malaysia 2678.26.1 Essential Test 2678.26.2 Factors to be Considered 267

•8.27 Taxation of E-Commerce 2688.27.1 Guidelines on Taxation of Electronic Commerce 2688.27.2 E-commerce (Server and Website) 2688.27.3 Withholding Tax on Royalty 2698.27.4 Double Taxation Agreements 269

•8.28 Permanent Establishment 2718.28.1 Source Principles 2718.28.2 OECD Model 271

•8.29 Income from Letting of Real Property 272

•8.30 Interest Income Treated as Business Income 273

•8.31 Loans or Advances to a Director by a Company 273

CHAPTER 9 Personal Reliefs and Rebates 275


•9.2 Personal Relief [Section 46(1)(a)] 276

•9.3 Medical Expenses on Parents [Section 46(1)(c)] 276

•9.4 Basic Supporting Equipment [Section 46(1)(d)] 277

•9.5 Disabled Person Relief [Section 46(1)(e)] 277

•9.6 Course Fees [Section 46(1)(f)] 277

•9.7 Serious Disease [Section 46(1)(g)] 279

•9.8 Complete Medical Check-up [Section 46(1)(h)] 279

•9.9 Purchase of Books, Journals, Magazines, Etc. [Section 46(1)(i)] 279

•9.10 Purchase of Personal Computer [Section 46(1)(j)] 280

•9.11 National Education Savings Scheme [Section 46(1)(k)] 280

•9.12 Sports Equipment [Section 46(1)(l)] 280

•9.13 Employee’s Contribution to Social Protection Scheme [section 46(1)(n)] 281

•9.14 Parental Care [section 46(1)(o)] 281


Contents xix

•9.15 Deduction for Wife or Former Wife [Section 47(1)(a)] 282

•9.16 Disabled Wife Relief [Section 47(1)(b)] 285

•9.17 Child Relief [Section 48] 2859.17.1 Child’s Total Income [Section 48(5)] 2869.17.2 Child Relief 2869.17.3 Full-Time Instruction 2869.17.4 Expenditure on Child by Two or More Individuals

[Section 48(4)] 287

•9.18 Relief for Insurance Premium and Contributions 2909.18.1 Insurance Premium and Contribution to Approved Funds

[Sections 49 and 49(1D)] 2909.18.1.1 Meaning of “Insurance” or “Deferred Annuity”

[Section 49(3)] 2939.18.1.2 Insurance Premium Must be Paid

[Section 49(1)(a)] 2939.18.1.3 Obligatory Contribution [Section 49(2)] 2949.18.1.4 Taxability of Withdrawals from a Deferred

Annuity Scheme 2959.18.2 Child Education and Medical Insurance [Section 49(1B)] 296

9.18.2.1 Education Policy 2969.18.2.2 Medical Policy 296

•9.19 Special Tax Relief For Middle Income Taxpayers 297

•9.20 Rebates 2979.20.1 Rebates for Individuals [Section 6A(2)] 2989.20.2 Zakat and Fitrah [Section 6A(3)] 299

•9.21 Separate Assessment 3009.21.1 Conditions for Combined Assessment 3009.21.2 Combined Assessment and Reliefs 3019.21.3 Reliefs 3019.21.4 Recovery of Tax Payable under Combined Assessment 3029.21.5 Tax Returns 302

•9.22 Deduction Must be Claimed [Section 51] 303

•9.23 Personal Reliefs: A Summary 303

CHAPTER 10 Business Deductions 311


•10.2 Principles of Deduction 31210.2.1 Revenue Capital Expenditure 31210.2.2 Expenditure Incurred by the Taxpayer Carrying on

a Business 31210.2.3 Qualifying Deductions under the ITA 31210.2.4 Timing of the Expenditure 312


xx A GUIDE TO MALAYSIAN TAXATION

10.2.5 Expenditure Wholly and Exclusively Incurred in Production of Gross Income 312

•10.3 Character of Revenue and Capital Expenditure 31310.3.1 Lump Sum Payment 31310.3.2 Magnitude of the Expenditure 31310.3.3 The Accounting Treatment 314

10.3.3.1 Test 1: The Once and for All Test 31410.3.3.2 Test 2: The Enduring Benefit Test 31510.3.3.3 Test 3: The Identifiable Asset Test 31710.3.3.4 Test 4: Fixed Capital and Circulating Capital 31710.3.3.5 Test 5: Business Entity Test 318

•10.4 The Deduction Provision in the Act 31810.4.1 Deductibility under Section 33 of the Act 31910.4.2 Foreign Income and the Territorial Impact 31910.4.3 General Provisions for Deductions 319

10.4.3.1 Outgoings and Expenses 31910.4.3.2 Wholly and Exclusively 320

10.4.4 Approved Donations [Section 44(6)] 33110.4.5 Illegal Expenses 333

•10.5 Deductions Prohibited Under the Act 33310.5.1 Domestic and Private Expenses [Section 39(1)(a)] 33310.5.2 Expenditure Not Wholly Incurred in the Production

[Section 39(1)(b)] 33410.5.3 Capital Withdrawn and Any Sums Employed as Capital

[Section 39(1)(c)] 33510.5.4 Contribution to a Non-approved Scheme

[Section 39(1)(d)] 33510.5.5 Qualifying Mining, Prospecting and Agricultural Expenditure

[Section 39(1)(e)] 33510.5.6 Interest or Royalties Paid to a Non-resident Person

[Section 39(1)(f)] 33610.5.7 Payment for Timber Licence or Permit

[Section 39(1)(g)] 33610.5.8 Bonus Payment [Section 39(1)(h)] (Now Deleted) 33610.5.9 Failure to Remit Deduction from Contract Payment

[Section 39(1)(i)] 33710.5.10 Failure to Remit Deduction from Special Classes of Income

[Section 39(1)( j)] 33710.5.11 Lease Rental [Section 39(1)(k)] 33710.5.12 Entertainment [Section 39(1)(l)] 337

10.5.12.1 Case Law 33910.5.12.2 Principles in Determining Allowable

Entertainment Expenses 34110.5.12.3 Recent Case Law Developments 343

10.5.13 Leave Passage Cost [Section 39(1)(m)] 345


Contents xxi

10.5.14 Remuneration to Partner of Limited Liability Partnership [Section 39(1)n] 346

10.5.15 Failure to Furnish Information as Required by the DGIR [Section 39(1A)] 346

10.5.16 Goods and Services Tax [Sections 39(1)(o) and (p)] 34710.5.17 Payments to Public Entertainers [Section 39(1)(q)] 347

•10.6 Deductible and Non-Deductible Expenses 34710.6.1 Interest 347

10.6.1.1 Incurred in a Year or that Period 34810.6.1.2 Restriction of Interest Expense 348

10.6.2 Interest Expense and Income 34910.6.2.1 Interest Expenses and Leasing 35210.6.2.2 Some Guidance to Deductible and Non-deductible

Interest Disbursement 35410.6.2.3 Interest Paid to Non-residents 35510.6.2.4 Interest Expense and Thin Capitalization 35610.6.2.5 Deduction for Interest on Money Borrowed 358

10.6.3 Rent 35810.6.4 Repairs and Renewals 359

10.6.4.1 Entirety 36110.6.4.2 Replacement 36210.6.4.3 Notional Repairs 36310.6.4.4 Improvement 36310.6.4.5 Distinction between Repairs and Improvement 36410.6.4.6 Initial Repairs and Newly Acquired Assets 36410.6.4.7 Accumulated Repairs and Deferred Repairs 36510.6.4.8 Accounting Treatment of Repairs 36610.6.4.9 Repairs at Termination of a Tenancy 36710.6.4.10 Replacement and Renewals 367

10.6.5 Other Deductions [Section 33(1)(d)] 36710.6.5.1 Income Tax (Deduction of Donations in Kind to

Disaster Relief Funds) Rules 1971 36810.6.5.2 Income Tax (Deduction of Interest Payable on

Loan to a Small Business) Rules 1981 36810.6.5.3 Income Tax (Deduction for Employment of

Disabled Persons) Rules 1982 36910.6.5.4 Income Tax (Deduction of Insurance Premium for

Importers) Rules 1982 36910.6.5.5 Income Tax (Deduction of Premiums for Export

Credit Insurance) Rules 1985 37010.6.5.6 Income Tax (Deduction for Freight Charges)

Rules 1990 37010.6.5.7 Income Tax (Deduction for Participation in an

Approved International Trade Fair) Rules 1991 37010.6.5.8 Income Tax (Deduction for Overseas Expenses

for Promotion of Tourism) Rules 1991 370


xxii A GUIDE TO MALAYSIAN TAXATION

10.6.5.9 Income Tax (Deductions for Approved Training) Rules 1992 371

10.6.5.10 Income Tax (Deductions of Insurance Premiums for Exporters) Rules 1995 371

10.6.5.11 Income Tax (Deduction of Pre-commencement of Business Training Expenses) Rules 1996 372

10.6.5.12 Income Tax (Deduction for Cost of Acquisition of Proprietary Rights) Rules 2002 372

10.6.5.13 Income Tax (Deduction for Advertising Expenditure on Malaysian Brand Name Goods) Rules 2002 373

10.6.5.14 Income Tax (Deduction for Implementation of RosettaNet) Rules 2002 374

10.6.5.15 Income Tax (Deduction for Promotion of Exports) Rules 374

10.6.5.16 Income Tax (Deduction for the Cost of Developing Website) Rules 2003 [PU(A) 101] 375

10.6.5.17 Income Tax (Deduction for Promotion of Export of Professional Services) Rules 2003 376

10.6.5.18 Income Tax (Deduction for Expenditure on Registration of Patent and Trade Mark) Rules 2009 [PU(A) 418/2009] 376

10.6.5.19 Income Tax (Deduction for Participation in an Approved Career Fair) Rules 2012 [PU(A) 129/2012] 376

10.6.5.20 Income Tax (Deduction for Promotion of International or Private School) Rules 2012 [PU(A) 110/2012] 377

10.6.5.21 Income Tax (Deduction for Expenditure to Obtain the 1-InnoCERT Certification) Rules 2012 378

•10.7 Specific Business Deductions under Sections 34 and 35 379

10.7.1 Bad Debts 38010.7.1.1 Distinguishing Bad Debts from Doubtful Debts 38010.7.1.2 Conditions for Deduction 38110.7.1.3 The Specific Date the Debt Becomes Bad 38210.7.1.4 Cessation of a Business 38310.7.1.5 Loans and Advances 38310.7.1.6 Making a Claim for a Deduction 38410.7.1.7 Debts Taken Over When Acquiring Another

Business 38410.7.1.8 Deduction for Loss of Cash and Treatment

of Recoveries 38510.7.2 Employer’s Contribution to an Approved Scheme

[Sections 34(4) and 34(5)] 38810.7.2.1 EPF Contribution by Employers 389


Contents xxiii

10.7.2.2 Initial Contribution to a Special Fund 39010.7.3 Payroll and Turnover Taxes [Sections 34(6)(a) and (b)] 39110.7.4 Mining Allowance [Section 34(6)(c)] 39110.7.5 Replanting Expenditure [Section 34(6)(d)] 39110.7.6 Equipment for Disabled Employees [Section 34(6)(e)] 39210.7.7 Translation and National Language Publications

[Section 34(6)(f)] 39210.7.8 Provision of Library Facilities [Section 34(6)(g)] 39310.7.9 Community Welfare [Section 34(6)(h)] 39310.7.10 Childcare Centre [Section 34(6)(i)] 39410.7.11 Managing Musical or Cultural Groups

[Section 34(6)( j)] 39410.7.12 Sponsorship of Arts, Cultural and Heritage Activity

[Section 34(6)(k)] 39410.7.13 Scholarships [Section 34(6)(l)] 39510.7.14 Halal Certification Expenditure [Section 34(6)(m)] 39510.7.15 Practical Training [Section 34(6)(n)] 39610.7.16 International Standardization Activities

[Section 34(6)(o)] 39610.7.17 Scientific Research Expenditure [Section 34(7)] 39610.7.18 Special Deduction for Scientific Research Expenditure

[Section 34A] 39710.7.19 Contributions and Payments to an Approved Research

Institute or an Approved Research Company [Section 34B] 39810.7.20 Special Provision Applicable to Adjusted Income from a

Discount or Premium (Section 34C) 39810.7.21 Special Deduction for Expenditure on Treasury Shares

(Section 34D) 39810.7.22 Stock in Trade (Section 35) 39910.7.23 Cost of Moving to New Premises 39910.7.24 Tax Deduction for Issuance of Islamic Securities 40010.7.25 Sustainable and Responsible Investment Sukuk 400

•10.8 Deduction of Outgoings and Expenses 40010.8.1 Accountancy Fees 40210.8.2 Advances and Loans 403

10.8.2.1 Advance to Supplier to Secure Source of Supply 40410.8.2.2 Advance of Money to a New Company 40510.8.2.3 Losses Incurred as a Result of Advance to a

Subsidiary 40610.8.3 Advertising Costs 40610.8.4 Bonus 40710.8.5 Books and Periodicals 40710.8.6 Business Acquisition Cost 40810.8.7 Acquisition of Trading Stock on Takeover 40810.8.8 Travelling Expenses 408

10.8.8.1 Travelling between Home and Work 409


xxiv A GUIDE TO MALAYSIAN TAXATION

10.8.8.2 Travelling from Home Which Is Also the Office or Base 409

10.8.8.3 Travel between Places of Work 41010.8.8.4 Travelling in the Course of Work 41110.8.8.5 Travelling to Attend Conferences 414

10.8.9 Trade and Club Subscriptions 41410.8.9.1 Trade Subscriptions 41410.8.9.2 Professional Subscriptions 41510.8.9.3 Club Subscriptions 415

10.8.10 Income Taxes 41710.8.10.1 Tax Appeals 41710.8.10.2 Expenses Incurred for Tax Advice 418

10.8.11 Clothing and Tools 41810.8.12 Company General Meetings and Secretarial Fees 42010.8.13 Trade Exhibitions and Travelling Expenses 42010.8.14 Consumable Aids 42110.8.15 Crop Replanting 42110.8.16 Damages 42110.8.17 Defending Capital Assets 42210.8.18 Devaluation Losses 42210.8.19 Fines and Penalties 42310.8.20 Deductibility of Medical Expenses for Directors of

Companies 42410.8.20.1 Exemption of Medical Benefit 42410.8.20.2 Directors of Controlled Companies 42410.8.20.3 Deductibility of Medical Expenses for Directors

of Controlled Company 42510.8.20.4 Written Disclosure 425

10.8.21 Terminating Redundant Employees 42510.8.22 Legal Expenses Incurred in a Restructuring Exercise 42610.8.23 Audit Fees 42610.8.24 Guarantee Fees 42710.8.25 Stamp Duties 42710.8.26 Insurance Premiums 42810.8.27 Renovation of Workplace for Disabled Employees 43210.8.28 Community Projects 43210.8.29 Employee Recruitment Expenses 43210.8.30 Registration of Patents and Trademarks for SMEs 43310.8.31 Cost of Preparing Corporate Knowledge-based Master Plan 43310.8.32 Franchise Fee 43410.8.33 Secretarial Fees, AGM Expenses and Tax Filing Fees 435

•10.9 Double Deductions 43510.9.1 Interest on Loans to Small Businesses 43510.9.2 Employment of Disabled Employees 43610.9.3 Insurance Premium for Import or Export of Cargo 43610.9.4 Training of Handicapped Persons 436


Contents xxv

10.9.5 Export Credit Insurance Premium 43610.9.6 Freight Charges 43610.9.7 Research Expenditure 43710.9.8 Contributions to Approved Research Institutes 43710.9.9 Overseas Expenses for Promotion of Tourism 43710.9.10 Expenditure for Approved Training 43710.9.11 Expenses Incurred in International Trade Fairs 43810.9.12 Fees Incurred in Packaging Design 43810.9.13 Expenditure on Advertising Malaysian Branded Products 43810.9.14 Expenses on Promoting Brand Names 43810.9.15 Contributions to Low Cost Housing Fund 43810.9.16 Expenses Incurred to Promote Export of Services 43810.9.17 Expenses for Promotion of Exports 43910.9.18 Halal Certification and Quality Systems and Standard

Certification Expenses 44010.9.19 Expenses for Promotion of Higher Education 44010.9.20 Promoting Malaysia as an International Islamic Financial

Centre 44010.9.21 Scholarships for Students at Higher Educational Institutions 44010.9.22 Structured Internship Programme 44110.9.23 Expenses for Participation in Career Fairs Abroad 44210.9.24 Promotional Expenses of International or

Private School 44210.9.25 Maintenance of Childcare Centres 44210.9.26 Expenses to Revive Abandoned Housing Projects 44310.9.27 Expenses Incurred for the Issuance of Agro-Sukuk for

Financing Activities in the Agricultural Sector 44310.9.28 Expenses Incurred for the Issuance of Retail Sukuk and

Retail Bonds 44310.9.29 Tun Razak Exchange (TRX) Marquee Status Company 444

10.9.29.1 Further Deduction of 50% on Rental Payment Incurred by a TRX 444

10.9.29.2 Relocation Allowance 44410.9.30 Company Participating in 1Malaysia Training Scheme

(Skim Latihan 1Malaysia) for Unemployed Graduates 44510.9.31 Expenses Incurred in Implementing Flexible Work

Arrangements 44510.9.32 GST Training Expenses 44510.9.33 Qualifying Expenses for Anchor Companies under VDP 445

CHAPTER 11 Withholding Taxes and Double Taxation Agreements 447

•11.1 Introduction 44711.1.1 Preventive Controls 447

11.1.1.1 Payment of Withholding Tax Due 44811.1.1.2 Payments to Non-residents under Section 4(f) 448


xxvi A GUIDE TO MALAYSIAN TAXATION

11.1.1.3 Penalty on Withholding Tax on Takaful Income Distribution 449

11.1.1.4 Review of Penalty on Withholding Tax 44911.1.1.5 Disallowance on Deduction When Withholding Tax

Has Not been Remitted 44911.1.1.6 Notice to Remit Withholding Tax 449

11.1.2 Punitive Controls 449

•11.2 Taxation on Non-Resident Contractors and Professionals (Section 107A) 45011.2.1 Definitions 45011.2.2 Actual Tax Payable 451

•11.3 Interest and Royalty Payments to Non-Residents (Section 109) 45211.3.1 Interest Payments 45211.3.2 Royalty Payments 453

11.3.2.1 Patents and Copyright 45511.3.3 Double Taxation Agreements 45611.3.4 Exemption for Franchised Education Schemes 45811.3.5 Exemption for Labuan Companies 458

•11.4 Earnings of Non-Resident Public Entertainers (Section 109A) 459

•11.5 Payments for Technical Services and Rental Payment (Section 109B) 46011.5.1 Deemed Derivation of Income (Section 15A) 46011.5.2 Exemption from Withholding Tax 462

11.5.2.1 Income from the Rental of ISO Containers 46211.5.2.2 Income Received from an Approved MSC Status

Company 46211.5.2.3 Income from Providing Training in Expert Areas,

Crafts and Performing Arts 46311.5.2.4 Income of a Non-resident Individual Who Is an

Expert in Islamic Finance 46311.5.3 Applicability of Section 4A 46311.5.4 Ambiguous Situation: The Case of Erria Shipping

Pte. Ltd. 46411.5.5 Can the Burden of the Withholding Tax be Passed

Back by the Payee to the Payer? 46511.5.6 Reimbursements of Out-of-pocket Expenses 46511.5.7 Withholding Tax Payable by Regional Hubs 46611.5.8 Public Ruling No. 1/2014 (Withholding Tax on Special

Classes of Income) 46611.5.8.1 Services Performed Abroad 46611.5.8.2 Services Performed Within and Outside Malaysia 46711.5.8.3 Definition 46911.5.8.4 Disbursements Reimbursement or

Out-of-pocket Expenses 470

•11.6 Interest Received by Individuals (Section 109C) 471


Contents xxvii

•11.7 A Summary 472

•11.8 Interpretation of the Term “Crediting” 474

•11.9 Tax Exemption on Royalty Under Franchised Education Scheme 475

•11.10 Tax Exemption on Income from Provision of Training 475

•11.11 Tax Exemption on Rental Paid toNon-Residents for Rental of Ships 475

•11.12 Exemption for Iskandar Development Region (IDR) 475

•11.13 Income Tax (Exemption) (No. 3) Order 2008 476

•11.14 Filing of CP 204 477

•11.15 Appeal to the Special Commissioners 477

•11.16 Public Ruling No. 1/2014 (Withholding Tax on SpecialClasses of Income) 47711.16.1 Deposits and Advance Payments Are Subject to

Withholding Tax 47811.16.2 Payments Not Subject to Withholding Tax 47811.16.3 Double Taxation Agreements 478

•11.17 Double Taxation Agreements 47811.17.1 Advantages of Double Taxation Agreements 47911.17.2 Double Taxation Agreement: Law of the Land 48011.17.3 Malaysian Double Taxation Agreements 480

CHAPTER 12 Capital Allowances 484

•12.1 Introduction 48412.1.1 Allowances for Mining Expenditure (Schedule 2) 48412.1.2 Allowances for Prospecting Expenditure (Schedule 4) 48512.1.3 Capital Allowances and Business Source 485

•12.2 Meaning of Plant and Machinery 48512.2.1 What are Plant and Machinery? 48612.2.2 Persons Eligible for Capital Allowances 49512.2.3 Qualifying Expenditure (Schedule 3, ITA) 497

12.2.3.1 10% Rule 49812.2.3.2 Fish Pond, Animal Pens, Etc. 49812.2.3.3 Capital Expenditure on Machinery or Plant Used

for Research 49812.2.3.4 Qualifying Expenditure for Motor Vehicles Not

Licenced for Commercial Use 49812.2.3.5 75% Rule 49912.2.3.6 Date Qualifying Expenditure Is Incurred 499

12.2.4 Types of Capital Allowances 499


xxviii A GUIDE TO MALAYSIAN TAXATION

12.2.4.1 Initial Allowances 50012.2.4.2 Annual Allowances 500

12.2.5 Rates 50112.2.5.1 Increased Annual Allowance 50112.2.5.2 Residual Expenditure 50512.2.5.3 Balancing Allowance and Balancing Charge 50612.2.5.4 Unabsorbed Capital Allowance 50712.2.5.5 Treatment of Unabsorbed Capital Allowances 507

12.2.6 Assets Owned for Less than Two Years 51012.2.7 Treatment of Small Value Assets 51212.2.8 Tax Incentives for Small and Medium Enterprises (SMEs) 512

12.2.8.1 Effective Date 51312.2.8.2 Income Tax (Accelerated Capital Allowance)

(Plant and Machinery) Rules 2008 [PU(A) 357/2008] 513

12.2.9 Costs of Dismantling and Removing Assets and Restoring the Site 514

12.2.10 Review of Capital Expenditure and Capital Allowance 51412.2.11 Accelerated Capital Allowances (All Plant Expenditure) 51412.2.12 Automation Capital Allowance Incentive for Manufacturing

Industries 51512.2.13 Public Ruling No. 6/2015 515

•12.3 Industrial Building Allowances 51512.3.1 Meaning of Industrial Building 51612.3.2 Building Prescribed by a Minister 51612.3.3 Types of Industrial Buildings 516

12.3.3.1 Meaning of Factory 51812.3.3.2 Meaning of “Factory” and “Mill” 51812.3.3.3 Workshop 51912.3.3.4 Meaning of “Manufacturing” and “Processing” 52012.3.3.5 Meaning of “Manufacturing” 52212.3.3.6 Building Used for Storage of Goods and

Materials 522

12.3.3.7 Meaning of “Within the Same Curtilage” 523

12.3.3.8 Dock, Wharf, Jetty or Other Similar Building 524

12.3.3.9 Warehouse 524

12.3.3.10 Water, Electricity and Telecommunication Undertakings 524

12.3.3.11 Working of a Farm 524

12.3.3.12 Working of a Mine 52512.3.3.13 Factory (Other Parts of a Building) 52512.3.3.14 Living Accommodation (Constructed or

Purchased Building) 52612.3.3.15 Building for Childcare Facilities 527

12.3.3.16 Other Buildings Qualifying as Industrial Buildings 527


Contents xxix

12.3.3.17 Buildings under Privatization and Private Financing Initiatives 530

12.3.3.18 Part of a Building 53112.3.4 Plant and Machinery (Deemed Industrial Building) 53212.3.5 Persons Entitled to Industrial Building Allowance 53212.3.6 Qualifying Expenditure 53412.3.7 Meaning of “Purchased” 536

12.3.7.1 Meaning of “Relevant Interest” 53712.3.7.2 Change of Lease Interest (From Leasehold to

Freehold) 537

12.3.7.3 Expiry of Lease Interest 53812.3.8 Initial Allowance (Constructed Building) 53912.3.9 Special Allowances (Constructed Building) 540

12.3.9.1 Annual Allowance (Constructed Building) 54112.3.9.2 Annual Allowance (Public Roads, Ancillary

Structures and BLT Projects) 54112.3.9.3 Qualifying Building Expenditure for Purchased

Building 54112.3.9.4 Residual Expenditure 541

12.3.10 Residual Expenditure (Public Road and Ancillary Structures) 54212.3.10.1 Balancing Allowance and Charges 54312.3.10.2 Meaning of “Disposal” 54312.3.10.3 Disposal Value 54312.3.10.4 Computation of Balancing Allowance and

Charges 54312.3.10.5 Disposal of Public Buildings and Ancillary

Structures 54512.3.10.6 Building (Temporary Disuse) 54512.3.10.7 Building Owned for Less than Two Years 54612.3.10.8 Tax treatment on Transfer of Buildings to

Real Estate Investment Trust (REIT) 54612.3.11 Capital Allowance Incentives for Tun Razak Exchange

(TRX) 54612.3.11.1 Industrial Building Allowance 54612.3.11.2 ACA on Renovation Costs 547

•12.4 Mining Allowances 54712.4.1 Qualifying Mining Expenditure 548

12.4.1.1 Residual Expenditure 54812.4.1.2 Estimating Life of Mine 54812.4.1.3 Two or More Mines (Paragraph 16, Schedule 2) 54912.4.1.4 Recovered Expenditure (Paragraphs 6 and 7,

Schedule 2) 54912.4.1.5 Surplus Residual Expenditure 54912.4.1.6 Control Sales and Transfers 54912.4.1.7 Cessation of a Mine 55012.4.1.8 Actively Engaged 551


xxx A GUIDE TO MALAYSIAN TAXATION

12.4.1.9 Review of Estimated Life 55112.4.1.10 Accounts of a Mining Company 55112.4.1.11 Qualifying Mining Expenditure 55212.4.1.12 Extent of Allowances 552

•12.5 Prospecting Expenditure 55512.5.1 Qualifying Prospecting Expenditure 55512.5.2 Claim for Deduction 556

•12.6 Agriculture Allowance 55812.6.1 Qualifying Agriculture Expenditure (Paragraph 7,

Schedule 3, ITA) 55812.6.2 Definitions (Section 18, ITA) 55912.6.3 Rate of Agriculture Allowances (Paragraphs 21 and 23) 55912.6.4 Allowance on Disposal or Transfer

(Paragraph 24, Schedule 3) 56112.6.5 Agriculture Charge (Paragraph 26, Schedule 3) 56112.6.6 Election Made under Paragraph 27 56212.6.7 Public Ruling No. 1/2016 565

•12.7 Forest Allowance 56512.7.1 Definition 56512.7.2 Qualifying Forest Expenditure [Paragraph 8(1)] 56512.7.3 Rate of Forest Allowance [Paragraphs 28 to 30] 56612.7.4 Cessation of Business (Paragraph 31) 56612.7.5 Forest Charge (Paragraph 32, Schedule 3) 56612.7.6 Public Ruling No. 11/2014 (Forest Allowances and

Expenses Relative to Timber Extraction) 569

•12.8 Part of an Asset no longer used for Business 570

CHAPTER 13 Taxation of Companies 571

•13.1 Theory of Company Taxation 57113.1.1 Classical System 57113.1.2 Fiscal Transparency System 57213.1.3 Two-tier System 57213.1.4 Imputation System 572

•13.2 Single Tier Tax System 57313.2.1 Impact on Share Valuation 57413.2.2 Reasons for Migration to the Single Tier System 574

13.2.2.1 Simplify Tax Compliance 57413.2.2.2 Removes Restrictions on Distribution of

Dividends 57413.2.2.3 Lower Administrative Cost for the IRB 574

13.2.3 Implications of the Single Tier System 57513.2.3.1 Corporate Tax Rates 57513.2.3.2 Utilizing Sec 108 Credit 576


Contents xxxi

•13.3 Corporate Residence 57613.3.1 Management and Control 57713.3.2 Control by Whom 57813.3.3 Control of Subsidiaries by Parent Company 57913.3.4 Dual Residence 58013.3.5 Dual Residence and Double Taxation Agreement 58113.3.6 Public Ruling No. 5/2011 (Residence Status of

Companies and Bodies of Persons) 581

•13.4 Transfer Pricing 58213.4.1 Definition 58213.4.2 Transfer Pricing Guidelines 58313.4.3 Overview of the 2012 Transfer Pricing Rules 58313.4.4 Application of Transfer Pricing Rules 58413.4.5 Procedure to Apply Transfer Pricing Methods 58513.4.6 Comparability of Transactions 58513.4.7 Determining the Transfer Price for Separate and

Combined Transactions 58613.4.8 Transfer Pricing Documentation 58613.4.9 Prescribed Form (Form C) 58613.4.10 Failure to Maintain Contemporaneous Transfer Pricing

Documentation 58613.4.11 Powers of the DGIR 58713.4.12 Intra-group Services 58713.4.13 Interest on Financial Assistance 58813.4.14 Permanent Establishment 58813.4.15 Summary 58913.4.16 Case Law 58913.4.17 Tax Treatment on Controlled Transactions and

Transactions between Relatives 59013.4.18 Extending time for raising assessment or additional

assessment 591

•13.5 Base Erosion and Profit Shifting (BEPS) 592

•13.6 Self Amendment of Income Tax Return 592

•13.7 Advanced Pricing Arrangement 59313.7.1 Definition 59313.7.2 Categories of APA 593

13.7.2.1 Unilateral APA 59313.7.2.2 Bilateral APA 59413.7.2.3 Multilateral APA 594

13.7.3 APA and DTA 59413.7.4 Advance Pricing Arrangement Guidelines 2012 595

•13.8 Company Tax Computation 595


xxxii A GUIDE TO MALAYSIAN TAXATION

CHAPTER 14 Investigations and Tax Audit 611


14.1.1 Tax Evasion 611

14.1.2 Tax Avoidance 612

14.1.3 Tax Planning 613

14.1.3.1 Malaysian Courts’ Attitude towards

Tax Planning 613

14.1.4 Tax Non-compliance 616

•14.2 Tax Investigations 617

14.2.1 Objectives of an Investigation 617

14.2.2 Procedure Flow Chart 618

•14.3 Necessity for an Immediate Response 619

•14.4 Indicators of Fraud 620

•14.5 Sources of Information 620

•14.6 Investigation of Companies 621

•14.7 Computing Understated Income 621

14.7.1 Period of Investigation 621

14.7.1.1 Investigation Procedures 622

14.7.2 Methods of Computing Omitted Income 622

14.7.2.1 Capital Accretion or Net Worth Method 623

14.7.2.2 Accounting Basis 638

14.7.2.3 Technical Adjustment 643

14.7.3 Terminating an Investigation 643

14.7.4 Composite Assessment 643

•14.8 Tax Audit 643

14.8.1 Tax Compliance Strategies 644

14.8.2 Process of Tax Audit 644

14.8.3 Providing Reasonable Facilities and Assistance 647

14.8.4 Audit Surveillance Units 648

14.8.5 Categories of Audit 648

14.8.5.1 Source Verification Audit 649

14.8.5.2 Desk Audit 649

14.8.5.3 Field Audit 649

14.8.5.4 Industry Audit 649

14.8.5.5 Monthly Tax Deduction Audit 650

14.8.5.6 Business Survey 650

14.8.6 Differences between Tax Audit and Investigations 650

14.8.6.1 Adjustments Made in a Tax Audit 651

14.8.7 Tax Audit Framework 651

14.8.7.1 Nature of Tax Audit Framework 652

14.8.7.2 Penalty Provisions 653

14.8.8 Statutory Audit 653

Contents xxxiii

•14.9 Scope for Back Duty Inquiry 65414.9.1 Criminal Tax Investigation 65514.9.2 Civil Tax Investigation 655

•14.10 Penalties and Criminal Proceedings 65514.10.1 Penal Provisions 660

14.10.1.1 Section 114(1A) ITA 66314.10.1.2 Reasonable Facilities and Assistance 664

14.10.2 Recovery of Tax from Individuals Leaving Malaysia 664

•14.11 Best Judgement Assessment 66514.11.1 Basis of Raising a Best Judgement Assessment 66514.11.2 Specific Source of Income Need not be Identified 665

•14.12 Fraud, Wilful Default or Negligence 666

•14.13 Inland Revenue Board and AMLATFA 66714.13.1 Tax Offences 66714.13.2 Legal Document for Prevention of Money Laundering 66714.13.3 Enforcement Agency 667

•14.14 Offences of Money Laundering 668

CHAPTER 15 Real Property Transactions 669


•15.2 Taxation of Capital Gains from the Disposal of Real Property 66915.2.1 Concepts and Definitions 67015.2.2 Chargeable Person 670

15.2.2.1 Body of Persons and Partnership 67115.2.2.2 Co-proprietorship 67115.2.2.3 Incapacitated Persons 67115.2.2.4 Non-resident Persons 67115.2.2.5 Ruler and Ruling Chiefs 67115.2.2.6 Companies 67115.2.2.7 Hindu Joint Family 67115.2.2.8 Executor 67115.2.2.9 Trustees 67215.2.2.10 Joint and Several Liability of Trustees and

Executors 67215.2.2.11 Director’s Liability 672

15.2.3 Exemptions (Sections 8 and 9, Schedule 4, RPGTA) 67215.2.4 Treatment of Gifts 67415.2.5 No-gain No-loss Situations 67615.2.6 Chargeable Gains 67715.2.7 RPGT Rates 677

15.2.7.1 Schedule 5, RPGT Act 67715.2.8 Allowable Loss (Section 7) 678


xxxiv A GUIDE TO MALAYSIAN TAXATION

15.2.9 Acquisition Price (Paragraph 4, Schedule 2) 679

15.2.10 Disposal Price (Paragraph 5, Schedule 2) 680

15.2.11 Date of Disposal and Acquisition (Paragraph 15,

Schedule 2) 682

15.2.12 Transfer of Assets between Companies

(Paragraph 17, Schedule 2 RPGTA) 684

15.2.13 RPC and Disposal of Shares 685

15.2.14 Submission of Return 686

15.2.14.1 Recent Developments 687

15.2.15 RPGT Forms 688

15.2.16 Investigatory and Penal Measures 688

•15.3 Taxation of Property Developers 688

15.3.1 Commencement Date 689

15.3.2 Pre-commencement Expenses 689

15.3.3 Revenue Recognition 690

15.3.4 Treatment of Expenses 692

15.3.5 Stock Withdrawal for Own Use 692

15.3.6 Transfers of Assets into Trading Stock 693

15.3.7 Disposal of Real Property – Whether Carrying on

a Business 693

•15.4 Property Development and Construction Contracts 695

15.4.1 Introduction 695

15.4.2 Definitions 695

15.4.3 Commencement of Business 696

15.4.3.1 Property Development 696

15.4.3.2 Construction Contract 696

15.4.4 Basis of Assessment 697

15.4.4.1 Percentage of Completion Method 697

15.4.4.2 Completion of Contract Method 697

15.4.5 Recognition of Income for the Business of Property

Development 697

15.4.5.1 The Progressive Payments Basis Formula 698

15.4.5.2 Build-then-sell Method and the “10/90 Scheme” 699

15.4.6 Withdrawal of Purchases 700

15.4.7 Date of Completion of a Project or Contract 700

15.4.8 Final Accounts 700

15.4.9 Tax Treatment upon Completion of Project or Contract 700

15.4.9.1 Progressive Payments Basis 700

15.4.10 Outgoings and Expenses of Property Developers and

Construction Contractors 701

15.4.11 Provision for Liquidated Ascertained Damages 702

15.4.12 Retentions 702

15.4.13 Allocation of Common Infrastructure Costs 702

15.4.14 Interest Expense Incurred by a Property Developer 703

15.4.15 Interest Expense Incurred by a Contractor 703

15.4.16 Guarantee Fee 703

Contents xxxv

15.4.17 Valuation of Stock and Stock Transfers 70315.4.17.1 Transfer of Land as Fixed Asset to Trading

Account 70415.4.18 Joint Venture Project 70415.4.19 Expenses during Defect Liability Period 705

•15.5 Income Tax (Construction Contracts) Regulations 2007 70515.5.1 Definitions 70515.5.2 Regulations 70615.5.3 Effective Date 708

•15.6 Income Tax (Property Development) Regulations 2007 70815.6.1 Definitions 70815.6.2 Regulations 70915.6.3 Effective Date 712

•15.7 Public Ruling No. 12/2013: Rescuing Contractor andDeveloper 71215.7.1 Special deduction for outgoings and expenses 71215.7.2 Types of outgoings and expenses 71215.7.3 Double deduction for loan expenses 713

CHAPTER 16 Goods and Services Tax 714


•16.2 GST Orders, Regulations and Relief Order Guides 71616.2.1 List of GST Orders 71616.2.2 List of GST Regulations 71616.2.3 Relief Order Guides 717

•16.3 Value Added Concept 71716.3.1 Tax Invoices 71916.3.2 Tax Fraction 720

•16.4 Tests for GST 720

•16.5 Concepts, meaning and definitions under the GST Act 2014 72116.5.1 Taxable Person 72116.5.2 “Business” and “Supply” 72116.5.3 Exported Services 72216.5.4 Place of Supply of Services 72216.5.5 Nature of Supplies 72216.5.6 Time of Supply Rule 729

•16.6 Registration for GST 73316.6.1 Taxable Turnover 73416.6.2 Criteria for Registration 73416.6.3 Late Registration 73516.6.4 Exemption from Registration 73516.6.5 Deregistration 735


xxxvi A GUIDE TO MALAYSIAN TAXATION

16.6.6 Electronic or Manual Registration 73616.6.7 Group Registration 736

•16.7 Tax Invoicing 73616.7.1 Types of Tax Invoices 73716.7.2 Computing the GST 74016.7.3 Credit Note Adjustments 74016.7.4 Significance of Input Tax 741

•16.8 Duty to Keep Records 742

•16.9 Taxable Period 743

•16.10 Special Cases 743

•16.11 Special Schemes 74616.11.1 Second-hand Scheme 74616.11.2 Tourist Refund Scheme 746

•16.12 GST Guides 746

•16.13 Tax incentives for implementation of GST 747

•16.14 Offences and Penalties 74716.14.1 Late Registration 74716.14.2 Not Maintaining Full and True Records 74716.14.3 Failure to Pay Tax Due 74816.14.4 Incorrect Returns 74916.14.5 Evasion of Tax and Fraud 74916.14.6 Offences in Relation to Goods, Invoices and Receipts 74916.14.7 Tax Collected by Unauthorized Persons 75016.14.8 Calculation of Penalties and Payment of Instalments 750

•16.15 Right of Appeal 750

•16.16 Accounting Systems 750

•16.17 Time for Payment of Refund 751

•Appendix 1 752


Documents

Contentsnovella.mhhe.com/.../dl/free/9670761263/1096691/Table_of_Contents.pdfCHAPTER 1 Overview of Malaysian Taxation 1 ... A Breakdown 5 1.2.3 Sources of Malaysian Taxation Law 8