CAS MALAYSIA: BUSINESS HIGHLIGHTS...With a headcount of 450, comprising partners and staff from both local and foreign firms, our network international committees, technical taskforces

Welcome to CAS Malay-

sia’s fifth edition of Busi-

ness Highlights.

This publication aims to

share updates and news

on current business is-

sues every six months

with valued clients and

member firms.

In today’s fast-changing

business environment, it

is crucial to focus on the

challenges faced by com-

panies and the response

time in resolving them.

We hope to add value by

sharpening our readers’

business knowledge and

empower them to stay

ahead of the competition.

I take this opportunity to

thank all colleagues for

their contribution to this

Business Highlights.

We hope you find our

third edition of Business

Highlight useful.

We we lcome your

thoughts and feedback on

improvement for future

issues.

Happy reading!

Chen Voon Hann

Managing Partner

CAS MALAYSIA

Chartered Accountants

FOREWORD BY CAS MALAYSIA MANAGING PARTNER

‘Achieving Success Together’

CAS International is a net-

work of accounting and con-

sulting firms serving a wide

range of clients.

Each member firm in CAS

International is an independ-

ent legal entity in its own

territory.

Member firms have access

to an expert team of profes-

sional business advisors,

and provide well-thought and

result-oriented solutions for

clients.

Our partners and profession-

al staff are well-qualified and

possess expertise on a wide

range of business subjects.

They also offer extensive

experience in international

business practice and local

laws and customs, and are

always ready to refer clients

to their wide network of local

business contacts.

With a headcount of 450,

comprising partners and

staff from both local and

foreign firms, our network

operations are supported by

international committees,

technical taskforces and

frequent meetings and semi-

nars, reaping consistently

high service standards for

clients.

EDITOR: YEO CHIOU JIN

CAS MALAYSIA:

BUSINESS HIGHLIGHTS

DECEMBER 2017

Inside this issue:

Reinvestment

Allowance —

Manufacturing

VS Processing

2

Malaysia

Company Audit

Exemption

3

Foreign

Investment in

Myanmar

4

Base Erosion

and Profit

Shifting

6

2/2017

ABOUT CAS INTERNATIONAL

The Inland Revenue Board of Malay-

sia (IRBM) has issued further clarifi-

cation to assist taxpayers in ascer-

taining their entitlement to Reinvest-

ment Allowance (RA).

Among others, IRBM clarified that

Processing Activities do not qualify for

Reinvestment Allowance effective

from YA2009 onwards by amending

the definition below:

Prior to YA2009: a project undertak-

en by a company, in expanding, mod-

ernising or automating its existing

business in respect of manufacturing

or processing or in diversifying its

existing business.

From YA2009: “or processing” has

been removed. Concession allowed

for RA period started prior to YA2009.

Meaning of Manufacturing

Conversion by manual or mechanical

means to a new product by changing

the size, shape, composition, nature

or quality of materials. Changing of

size and shape have been deleted in

YA2016.

Manufacturing that results in change

of character and form or no change in

character but change in form.

It also further explained the mixing of

materials by a chemical reaction pro-

cess including biochemical process

that changes the structure of a mole-

cule by breaking of the intra molecu-

lar bonds or by altering the spatial

arrangement of atom in the molecule.

Manufacturing Flow

Taxpayers need to establish a manu-

facturing flow pertaining to its prod-

uct and identify the following changes

in the manufacturing process.

1. Transformation of raw materials

to finished goods

2. Where labour, machines and

tools functioned

3. Where and how chemical reac-

tion happened

4. Where and how biochemical pro-

cess is in place

5. Where and how the breaking of

intra molecular bonds happened

6. How a molecule structure

changed in a reaction

7. Whether high was technology

involved

Documentation

1. Borang EPS LHDN/BT/RA/2007

2. Manufacturing License

3. Fixed Assets register

4. Manufacturing Flow

5. Project paper/plan

6. Board of Directors’ resolu-

tion/minutes of meeting

7. Manufacturing floor plan, floor

measurement

8. Statistic for additional capacity

9. Paper for change of system/flow

10. Description of new product

Processing

The following are considered

“processing” and do not qualify for

Reinvestment Allowance from

YA2009 onwards.

1. A simple mixing of any products,

where no special skills, machines,

apparatus or equipment is needed

2. Installation of machinery or equip-

ment for the purpose of construc-

tion

3. A simple assembly of parts.

4. Activity in preservation of products

5. Packaging or presenting goods for

resale

6. Cutting, sorting, cleaning, drying,

grinding, mixing or packaging

7. Baking, except that which is car-

ried on in a factory

8. Cleaning, processing, packing or

freezing of product

GRACE YAP

[email protected]

Page 2

REINVESTMENT ALLOWANCE – MANUFACTURING VS PROCESSING

CAS MALAYSIA CHARTERED ACCOUNTANTS (AF 1476)


The purpose of an audit is to furnish

an objective independent verifica-

tion of the financial statements,

which enhances the value and credi-

bility of the financial statements

produced by management and user

confidence in those statements.

However, many small and medium-

sized enterprises (SMEs) are owner-

managed or are run by family mem-

bers; as such, a conventional audit

mandated by law is perceived to

provide negligible value to its users

and hence may not be a justifiable

cost.

On 4 August 2017, the Companies

Commission of Malaysia (SSM)

brought into force audit exemption

for certain categories of private com-

panies. Under section 267(2) of the

Companies Act 2016, dormant, zero-

revenue and threshold-qualified pri-

vate companies are eligible to elect

for audit exemption.

Dormant Company

A dormant company qualified for

audit exemption must have been

dormant from the time of its incorpo-

ration or it is dormant throughout

the current and in the immediate

preceding financial year.

Zero-Revenue Company

A zero-revenue company qualifies

for audit exemption if it does not

have any revenue during the current

and the immediate past two finan-

cial years; its total assets in the

Statement of Financial Position not

exceeding RM300,000 for the cur-

rent and the immediate past two

financial years.

Threshold-qualified Company

A company is considered to be

threshold-qualified if it has revenue

not exceeding RM100,000 during

the current as well as in the immedi-

ate past two financial years; its total

assets in the financial statements

not exceeding RM300,000 for the

current and in the immediate past

two financial years; and it has not

more than five employees as at the

end of its current and in each of its

immediate past two financial years'

end.

Audit exemption may ease the finan-

cial burden of SMEs and enable di-

rectors to focus on business strate-

gy. This would stimulate the growth

of SMEs, further contributing to the

economy.

FOONG WEI HAO

[email protected]

Page 3

BUSINESS HIGHLIGHTS

MALAYSIA COMPANY AUDIT EXEMPTION


Introduction

Myanmar has in the past year under-

gone substantial political and eco-

nomic changes.

Alongside this transformation, new

liberalising legislative frameworks

have been enacted and some others

have been proposed.

This presents an unprecedented

opportunity for foreign investment

into Myanmar; notwithstanding,

some considerable hurdles remain.

Business Structures and Approvals

Business Structures

Under the Foreign Investment Law

(“FIL”), a foreign investor may seek

to conduct business in Myanmar in

any of the following manners:

as a 100% foreign-owned entity;

by way of a joint venture with a

Myanmar citizen or the Myanmar

Government; or

a foreign investor operating in a

contractual relationship with a

local investor.

In addition to setting up a company

with Directorate of Investment and

Company Administration (DICA), a

foreign investor may be eligible for

incentives under the Myanmar In-

vestment Law (“MIL”) unless it is in

a Special Economic Zone (“SEZ”).

MIC Permit

When forming or registering a busi-

ness in Myanmar, generally two op-

tions exist:

i. registration under the Companies

Act, 1914 only, or

ii. registration as a Myanmar Invest-

ment Commission (“MIC”) compa-

ny under the Myanmar Investment

Law, 2016 (with the registration

under the Special Economic Zone

Law, 2014 for businesses located

in a Special Economic Zone as

third option).

Before the enactment of the new

Myanmar Investment Law, 2016,

the additional registration under the

Foreign Investment Law, 2012 was

generally optional for foreign inves-

tors.

Certain business activities such as

manufacturing and infrastructure

projects as well as investments re-

stricted pursuant to Notification No.

26/2016 did, however, require a

Permit issued by the Myanmar In-

vestment Commission.

Under the new Myanmar Investment

Law, 2016, investors must submit a

Proposal to the Myanmar Invest-

ment Commission and apply for a

Permit only for the following busi-

nesses:

businesses / investment activities

that are strategic for the Union;

large capital intensive investment

projects;

projects which have large potential

impact on the environment and

the local community;


which use state-owned land and

buildings; and/or


which are designated by the gov-

ernment to require the submission

of a Proposal to the Myanmar In-

vestment Commission.

Page 4


FOREIGN INVESTMENT IN MYANMAR


Page 5

BUSINESS HIGHLIGHTS

Permit to Trade

The foreign investor must apply to

the Directorate of Investment and

Company Administration to incorpo-

rate or register a foreign company

and obtain a Permit to Trade pursu-

ant to the Myanmar Companies Act,

1914 (“MCA”). The Myanmar Com-

panies Act, 2017 is currently under

review.

Minimum Capital Requirements

Upon obtaining the Permit to Trade,

the MCA states that the foreign in-

vestor must invest a minimum capi-

tal between approximately

USD50,000 and USD150,000, de-

pending on the type of business ac-

tivity.

The FIL, on the other hand, does not

set out the minimum amount of cap-

ital that must be invested by the

foreign investor.

Rather, it provides the MIC with dis-

cretion to determine the minimum

capital that must be invested by the

foreign investor, based on the na-

ture of the business.

Conclusion

Myanmar is in the process of finalis-

ing reforms to the Companies Act,

which covers the rules and regula-

tions surrounding business operat-

ing environments.

Under the proposed reforms, law-

makers will work to ensure that reg-

ulations for companies are brought

in line with international standards.

In doing so, the aim is to reinforce

investor rights, ease restrictions on

foreigners buying shares in local

companies and allow domestic firms

to benefit from FDI.

Once ratified, the new act will put

foreign investors on a more level

footing with Myanmar citizens, giving

them the opportunity to buy into the

domestic economy and reinforcing

their confidence in their legal rights.

CHAK WINNIE

[email protected]


Base Erosion and Profit Shifting

(“BEPS”) refers to tax planning strat-

egies that exploit gaps and mis-

matches in tax rules to artificially

shift profits to low or no-tax locations

where there is little or no economic

activity.

Whilst international tax planning is

not illegal, tax authorities around the

globe are certainly not prepared to

lose their fair share of tax collection.

The Inclusive Framework on BEPS

brings together over 100 countries

and jurisdictions to collaborate on

the implementation of the Organisa-

tion for Economic Co-operation and

Development (“OECD”) / G20 BEPS

Package. [Started in year 2013]

The BEPS Package consists of 15

actions which encompass the follow-

ing:

1. model provisions to prevent trea-

ty abuse (including treaty shop-

ping) by impeding the use of con-

duit companies to channel invest-

ments through countries and ju-

risdictions with favourable tax

treaties in order to obtain re-

duced rates of taxation;

2. standardised Country-by-Country

Reporting that will give tax admin-

istrations a global picture of

where the profits, tax and eco-

nomic activities of Global Multina-

tional Enterprise (“MNE”) are

reported, and the ability to use

this information to assess Trans-

fer Pricing (“TP”) and other BEPS

risks, so that tax administrations

can focus audit resources where

they will be most effective;

3. a revitalised peer review process

to address harmful tax practices,

including patent boxes where

they include harmful features, as

well as a commitment to trans-

parency through the mandatory

spontaneous exchange of rele-

vant information on taxpayer-

specific rulings which, in the ab-

sence of such information ex-

change, could give rise to BEPS

concerns;

4. an agreement to secure progress

on dispute resolution, with the

strong political commitment to

the effective and timely resolu-

tion of disputes through the Mu-

tual Agreement Procedure.

The BEPS Package aims to end the

use of shell companies used to

stash profit offshore or unduly claim

tax treaty protection and neutralise

all schemes that artificially shift prof-

it offshore.

On 23 December 2016, Malaysia

issued the Income Tax (Country-by-

Country Reporting) Rules (“CbCR

Rules”), which came into effect on 1

January 2017.

The CbCR Rules are in line with the

OECD’s recommendations contained

in Action 13 of the BEPS initiative.

These Rules shall apply to an MNE

where:

a. its ultimate holding company is

incorporated and resident in Ma-

laysia;

b. any of its constituent entities has

cross border transaction with its

other constituent entities;

c. the total consolidated group reve-

nue in the financial year preceding

the reporting financial year is at

least MYR 3 billion;

d. its constituent entities are incorpo-

rated or registered and resident in

Malaysia or any other jurisdiction.

The CbCR requires the aggregate

information for each jurisdiction the

MNE group operates in, as follows:

Revenues

Stated Capital

Income Tax paid

Income Tax accrued

Profit or Loss before Income Tax

accumulated earnings

number of employees

Tangible Assets other than cash or

cash equivalents.

BASE EROSION AND PROFIT SHIFTING


Page 6


Page 7

BUSINESS HIGHLIGHTS


The CbCR also requires each constit-

uent entity in the MNE group to be

identified as follows:

the jurisdiction where the entity is a

tax resident;

the tax jurisdiction in which the

entity is organised if different from

the tax jurisdiction of residence;

and

the nature of the main business

activity or activities.

The CbCR must be filed no later than

12 months after the end of the finan-

cial year.

The proposed penalty to be imposed

on taxpayers who do not comply with

the CbCR rules are a fine of between

MYR20,000 and MYR100,000 or

imprisonment for a term not exceed-

ing 6 months or both.

The Director General may use the

CbCR for the purposes of assessing

high-level TP risks and other BEPS

related risks in Malaysia, including

assessing the risk of non-compliance

by constituent entities of the MNE

with applicable TP rules, and where

appropriate for economic and statisti-

cal analysis.

The CbCR is not a substitute for a

detailed TP analysis for the purpose

of TP adjustments.

CHAN KAR MUN

[email protected]

C A S M A L A Y S I A P L T C H A R T E R E D A C C O U N T A N T

( L L P 0 0 0 9 9 1 8 - L C A ) ( A F 1 4 7 6 )

B-5-1, IOI BOULEVARD,

JALAN KENARI 5,

BANDAR PUCHONG JAYA,

47170 PUCHONG, SELANGOR.

Tel : 03 - 8075 2300 / 80 / 81

Fax : 03 - 8082 6611

Website : www.cas.net.my

Enquiry : [email protected]

Other offices: Alor Setar, Ipoh,

Johor Bharu and

Tawau

Page 8


CAS EVENTS

BADMINTON DAY COMPANY TRIP TO TAIWAN

CAS INTERNATIONAL ANNUAL CONFERENCE 2017 AT BANGKOK

15TH ANNIVERSARY DINNER


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CAS MALAYSIA: BUSINESS HIGHLIGHTS...With a headcount of 450, comprising partners and staff from both local and foreign firms, our network international committees, technical taskforces