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Chee Pei Pei & Thin Siew Chi | 27 November 2018
Deloitte TaxMax – The 44th seriesCorporate and Other Taxes, Incentives
Corporate Tax
© 2018 Deloitte Tax Services Sdn Bhd 3
Tax Compliance Issues
Corporate Tax
Compliance Rate
(Individuals)
Compliance Rate
(Companies)
14.9 million
(100%)
1,199,852
(100%)
LabourForce
Registered with CCM2.27 million
(15.24%)
Paying Taxes
5.03 million
(33.76%)
Not Paying Taxes
7.6 million
(51.00%)
Not Registered
195,216
(16.27%)
Registered & Paying Taxes
1,004,636
(83.73%)
Registered But Not Paying Taxes
© 2018 Deloitte Tax Services Sdn Bhd 4
Unexplained Extraordinary Wealth
Corporate Tax
Internal &
Third Party
Information
Means Test/
Capital
Statement
Undeclared
Income?
Audit/
Investigation
Unexplained extraordinary wealth? VOLUNTARY DISCLOSURE
Automatic Exchange of Financial Account Information
Reporting Financial
Institutions
Domestic tax authorities
Foreign tax authorities
in countries of Account
Holders and Controlling
PersonsReporting
Exchange of
information
Due
Diligence
Entity Account
Holders
Controlling
Person(s)
Individual Account
Holders
Reporting
under FATCA
How does it work?
5© 2018 Deloitte Tax Services Sdn Bhd
• FIs to review & identify reportable accounts (based on tax residency of account holders/
controlling parties)
• FIs to report on reportable accounts to the domestic tax authority
• Domestic tax authority will share information with foreign tax authorities
Based on Reportable Jurisdiction list
© 2018 Deloitte Tax Services Sdn Bhd 6
10%
Special voluntary disclosure program (SVDP) with lower penalties
Corporate Tax
SVDP covers voluntary disclosure by taxpayers on:
Effective: 03 November 2018 until 30 June 2019
Income not declared/under declared, expenses over
claimed / not allowed, reliefs / deductions / rebates over
claimed
Proposed Penalty rate on tax payable
• Also applies to cases under tax audit / tax investigation and transfer pricing issues
• Penalty rate for transfer pricing issues – in accordance with existing Transfer Pricing Audit Framework
• Not applicable for withholding tax (penalty stays the same at 10% throughout)
Gains on disposal of real properties and shares in real
property companies
Stamping of instruments not previously stamped
Disclosure and settlement period
15%
03.11.2018 31.03.2019 30.06.2019
80% to 300%
Upon expiry of SVDP
© 2018 Deloitte Tax Services Sdn Bhd 7
Special voluntary disclosure program (SVDP) with lower penalties (Cont’d)
Corporate Tax
Offences Penalty Rate
03.11.2018 –31.03.2019
01.04.2019 –30.06.2019
Failure to submit return on time; or
10% 15%Failure to report the correct income/ gains on disposal of assets
Failure to pay stamp duty on instrument 10%or min RM50
15%or min RM100
Due Date for Payment 01.04.2019 01.07.2019
1IRBM will accept in good faith all voluntary disclosures made during the
Special Program period.
Further review will not be made on the reported information.
2Taxpayer has to provide a letter of full disclosure.
3
© 2018 Deloitte Tax Services Sdn Bhd 8
Special voluntary disclosure program (SVDP) with lower penalties (Cont’d)
Corporate Tax
Failure to
submit tax
return on time
What are the existing penalties?
As a matter of practice, the IRB will impose
penalties ranging from 20% to 35% of the tax
payable for late filing of tax returns.
(Income Tax)
Failure to report
the correct
income
Disclosure/ Discovery
Period from the prescribed deadline
of submission
Rate
Voluntary disclosure before case is selected for audit
≤ 60 days>60 days to ≤6 months> 6 months
10%15.5%35%
Non-disclosure (Discovery of omissionduring audit)
100% or as directed by the DGIR,45% for the 1st offence
SVDP:
(03.11.2018 –31.03.2019)
or
(01.04.2019 –30.06.2019)
10%
15%
© 2018 Deloitte Tax Services Sdn Bhd 9
Special voluntary disclosure program (SVDP) with lower penalties (Cont’d)
Corporate Tax
Failure to pay stamp duty on instrument
What are the existing penalties?
RM25 or 5% of the amount
of the deficient duty,
whichever is greater
< 3 months
> 3 months but
< 6 months
RM50 or 10% of the
amount of the deficient
duty, whichever is greater
> 6 months
RM100 or 20% of the
amount of the deficient
duty, whichever is greater
SVDP:
(03.11.2018 –31.03.2019)
or
(01.04.2019 –30.06.2019)
10% or
min RM50
15% or
min RM100
© 2018 Deloitte Tax Services Sdn Bhd 10
Time limit to carry forward losses and allowances
Corporate Tax
Effective: Year of assessment 2019
7 consecutive YAs from that YA
(Not applicable for dormant companies with substantial change in shareholdings)
7 consecutive YAs upon expiry of qualifying period
7 consecutive YAs upon expiry of incentive period
Reinvestment
allowance /
investment
allowance for
services
Business
losses /
capital
allowances
Pioneer losses
/ Investment
tax allowance
Proposal
Current Position
No time limit to carry forward the losses and
allowances
• Transitional provision: Accumulated losses and allowances until year of assessment 2018 to be carried forward up to year of assessment 2025.
© 2018 Deloitte Tax Services Sdn Bhd 11
Time limit to carry forward unabsorbed losses and allowances
Corporate Tax
Transitional provision
Any carry forward losses and allowances up to YA 2018 can be carried forward for up to 7 years
YA 2018 2019 2020 2021 2022 2023 2024 2025 2026
Accumulated losses and allowances until YA2018
1 2 3 4 5 6 7 Unabsorbed losses and allowances will be disregarded in YA 2026
Losses and CA for YA 2019 onwards
YA 2019 2020 2021 2022 2023 2024 2025 2026 2027
Current year losses and CA c/f
1 2 3 4 5 6 7
Losses and CA c/f from YA2019
Unabsorbed losses and CA for YA 2019 will be disregarded in YA 2027
© 2018 Deloitte Tax Services Sdn Bhd 12
Time limit to carry forward unabsorbed business losses and capital allowances (CA)
Corporate Tax
Example
XYZ Sdn Bhd (“XYZ”) started its business operation in year 2016. In YA 2019, XYZ has unabsorbed business losses c/f of RM600,000 from YA 2018.
Business 1: Current year adjusted loss RM(300,000)
Unabsorbed business losses b/f RM(600,000)
Rental income: Statutory income RM250,000
Tax Computation
RM RM
Adjusted business income (Current year loss: RM300,000) Nil
Statutory business income Nil
Statutory rental income 250,000
Aggregate income 250,000
Less: Current year business loss (250,000)
Chargeable income Nil
Unabsorbed business loss c/f (RM300,000 – RM250,000) 50,000
Add: YA 2018 unabsorbed business losses b/f 600,000
Unabsorbed business loss c/f 650,000
Until YA 2026
Until YA 2025
© 2018 Deloitte Tax Services Sdn Bhd 13
Time limit to carry forward losses and allowances
Corporate Tax
Neighbouring countries Restriction to carry forward
Philippines 3 years
Indonesia 5 years (extended to 10 years for certain industries and for operations in remote area)
Thailand, Vietnam, China 5 years
Korea 10 years
Singapore, Hong Kong, Australia No restriction
Likely effects and implications
Restriction on the carry forward of unabsorbed business losses of neighbouringcountries (at a glance):
Deter potential investment in Malaysia as compared to Singapore, Hong Kong and etc as Malaysia may be seen as less favourable
Impact industries with long profit gestation periods as the investment may not generate returns within 7 years after the expiry/end of the incentive period
Increase compliance burden, i.e. to keep track of the year of assessment in which the losses and allowances arose
© 2018 Deloitte Tax Services Sdn Bhd 14
Change of tax treatment for group relief
Corporate Tax
Effective: Year of assessment 2019
Current position No Limits
1. Transfer of losses only applies to start-up companies.
2. Surrendering of losses is restricted to 3 consecutive YAs starting:
• Immediately after the basis period of 1st
YA company in operation, provided that the basis period of the 1st YA is a complete 12 months; or
• Immediately after the YA for the 2nd basis period of a complete 12 months, if the basis period for the YA the company started operation is other than 12 months.
3. No Group Relief is eligible if there is still carry forward ITA/ unabsorbed PS loss.
Proposed Amendment
1st YA commence
its operation
YA lossescan be
surrendered
2015 2019
2016 2019 & 2020
2017 2019 - 2021
Transitional
Provision
© 2018 Deloitte Tax Services Sdn Bhd 15
Change of tax treatment for group relief
Corporate Tax
Example 1: A company commences its operation on 1 January 2019 and closes its accounts on 31 December 2019
2019 2020 2021 2022 2023
Closes accounts: 31.12.2019 31.12.2020 31.12.2021 31.12.2022 31.12.2023
1st YA 2nd YA 3rd YA 4th YA 5th YA
1st Basis Period(12 months)
Group relief of 3 consecutive YAs
Losses can no longer be surrendered from the 5th YA onwards
Commences
operation:
01.01.2019
1st basis period (first commences operations) consists
of a period of 12-months
© 2018 Deloitte Tax Services Sdn Bhd 16
Change of tax treatment for group relief
Corporate Tax
Example 2: A company commences its operation on 1 July 2019 and closes its accounts on 31 December 2019
2019 2020 2021 2022 2023
01.01.2019Closes accounts: 31.12.2019 31.12.2020 31.12.2021 31.12.2022
1st YA 2nd YA 3rd YA 4th YA 5th YA
1st Basis Period(6 months)
Group relief of 3 consecutive YAs
31.12.2023
2nd Basis Period(12 months)
Losses can no longer be surrendered from the 6th YA onwards
Commences
operation:
01.07.2019
1st basis period (first commences operations) consists a
period of less or more than 12-months, and the 2nd basis
period consists of a period of 12-months.
© 2018 Deloitte Tax Services Sdn Bhd 17
Review of Definition of Special Classes of Income
Corporate Tax
Effective: Upon coming into operation of Finance Act 2018
Withholding tax exemption on fees paid for
offshore services still apply!
(ii) amounts paid in consideration of technical advice, assistance or
services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking,
venture, project or scheme;
The scope of Section 4A(ii) of the Income Tax Act 1967 for special classes of income for non-resident will be amended as follows:-
© 2018 Deloitte Tax Services Sdn Bhd 18
Clarification on Derivation of Business Income
Corporate Tax
Effective: Upon coming into operation of Finance Act 2018
Place of extraction (natural resources)
A Place of
Business
Branch/office
Factory
Workshop
Warehouse
Place of management
Proposed – Expansion of Section 12
If that person –
a) carries on supervisory activities in connection with a building or worksite, or a construction, an installation or an assembly project;
b) has another person acting on his behalf who – habitually concludes contract, or
habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification;
habitually maintains a stock of goods/merchandise – delivers goods & merchandise
regularly fills orders
Farm/Plantation
Building site/ Construction
© 2018 Deloitte Tax Services Sdn Bhd 19
Review of corporate income tax rate for small and medium enterprise (SME)
Corporate Tax
Chargeable income Current income taxrate (%)
Proposed income tax rate (%)
Up to RM500,000 18 17
Exceeding RM500,000 24
SME:
Resident company incorporated in Malaysia with paid up capital (ordinary shares) ≤ RM2.5 million
Limited Liability Partnership (LLP) resident in Malaysia with total contribution ≤ RM2.5 million
Such company and LLP – not related to another company or LLP with paid up capital (ordinary shares) / capital contribution of more than RM2.5 million
Effective: Year of assessment 2019
Tax
saving of
RM5,000
© 2018 Deloitte Tax Services Sdn Bhd 20
Restriction of Excessive Interest between Related Parties
Earning Stripping Rules
Country A Country B
Excessive Interest
Loan, interest bearing trade credit, advance, debt or provision of any security or guarantee
• Interest on all form of debts
• Payment economically equivalent to interest (excluding expenses incurred in connection with raising of finance)
Effective: 1 January 2019
Controlled Transaction
Restriction - % of Tax-EBITDA
© 2018 Deloitte Tax Services Sdn Bhd 21
a) Intellectual PropertyBusiness operations depends on the proprietary rights, such as patents, non-patented technological know-how, trademarks, or copyrights, provided by the other person/ third person
b) Business operationBusiness activities (e.g. purchases, sales, receipts of services, provision of services) are specified by the other person, and the prices and other conditions relating to the supply are influenced by such other person
c) Appointment of BODOne or more of the directors or members of the board of directors are appointed by the other person or a third person
Control in Transfer PricingCorporate Tax
Holding
company
Company A
Country A
Country B
> 50%
shareholding
Control
test
Holding
company
Company A
Country A
Country B
> 20%
shareholding
Control
test
Effective: 1 January 2019
CurrentProposed
The existing > 50% shareholding requirement is lowered to ≥ 20% shareholding, if -
a) Intellectual Property
b) Business operation; or
c) Appointment of BOD
© 2018 Deloitte Tax Services Sdn Bhd 22
Effective: 1 January 2019
Bank licensed under Financial Services Act 2013
Islamic bank licensed under Islamic Financial Services Act 2013
Development financial institution under the Development Financial Institutions Act 2002
Interest WMMF
Tax Exemption on Income Received by a Company from Wholesale Money Market Fund (WMMF)
Corporate Tax
Interest
Company
Other than a Company, e.g. Individual, Partnership
Interest WMMF Interest
Exempt
Exempt
Current
Proposed
A wholesale fund invests primarily in short-term money instrument and/or placement in short term deposit.
WMMF
A unit trust scheme offered exclusively to sophisticated investors (e.g. high-net-worth individual, high-net-worth entity, accredited investor).
Wholesale fund
Other than a Company, e.g. Individual, Partnership
© 2018 Deloitte Tax Services Sdn Bhd 23
Tax Deductions for Employer
Corporate Tax
Employer
Double Deduction
Further tax
deduction for
employers hiring
senior citizens and
ex-convicts
Provided the monthly
remuneration does
not exceed RM4,000.
Tax deduction for
settlement of
employee’s PTPTN
loan
Provided the amount
is not recovered from
the employee.
Effective: Years of assessment 2019 to 2020
Effective: For payments made between 1 January 2019 and 31 December 2019
© 2018 Deloitte Tax Services Sdn Bhd 24
Donation
National SchoolsPublic institutions of
higher learning (IPTA)
All donations to national schools and IPTA registered with the Ministry of Education for the purposes of upgrading infrastructure are tax deductible.
The tax deductibility for donations to other schools and institutions of higher learning registered with the Ministry of Education will be evaluated on a case-by-case basis.
Effective: 1 January 2019
Tax deduction on donations to national schools and IPTA
Corporate Tax
© 2018 Deloitte Tax Services Sdn Bhd 25
Current
Deduct from aggregate income (net of current year loss) in arriving at total income:-
An amount equal to any gift of money to the Government, a State Government, a local authority or an institution or organization or a fund approved by the Director General on the application of the institution or organization concerned, not exceeding
a) 7% of aggregate income for any person other than a company;
b) 10% of aggregate income for a company.
Proposed
It is proposed that social enterprises be added to the list of the approved organizations, institutions and funds.
The definition of “social enterprises” is to be confirmed.
Effective: To be confirmed
Sub-section 44(6)
Tax Deduction for Contribution to Social Enterprises
Corporate Tax
© 2018 Deloitte Tax Services Sdn Bhd 26
Definition of Research and Development (“R&D”)
Corporate Tax
Effective: Upon coming into operation of Finance Act 2018
No definition of R&D in the ITA.
“R&D” means any systematic, investigative and experimental study that involves novelty or
technical risk carried out in the field of science and technology with the object of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce, or processes, but does not include –
(a) Quality control or routine testing of materials, devices or products;
(b) Research in the social sciences or the humanities;
(c) Routine data collection;
(d) Efficiency surveys or management studies;
(e) Market research or sales promotion;
(f) Routine modifications or changes to materials, devices, products, processes or production methods; or
(g) Cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods
Application:
Public Ruling No. 5/2004 applies definition of R&D as per Promotion of Investment Act 1986
Current Proposed
Malaysia’s Participation in Forum of Harmful Tax Practices (FHTP) by OECD
© 2018 Deloitte Tax Services Sdn Bhd 28
Malaysia’s Participation in Forum of Harmful Tax Practices (FHTP) by OECD
Identified jurisdiction which provide preferential regimes for mobile geographical services related to IP and non-IP
Labuan @ Identified for FHTP evaluationForum on
Harmful Tax Practice (FHTP)Malaysia Signed Inclusive Framework –
Jan 2017
Related legislation to be gazetted by 31 Dec 2018
What is Harmful Tax
Practices ?
Ring Fencing – no distinction on tax treatment including transaction
and currency restrictions between residents and non-residents
Transparency – Incentives that comply with FHTP’s requirement
must be gazette by 31 Dec 2018
Substantial Activities i. Adequate investment amount or annual business operating
expenses incurred in Malaysia; andii. Adequate number of full-time job employment in Malaysia
1
2
3
© 2018 Deloitte Tax Services Sdn Bhd 29
Changes relating to FHTP requirement
Effective: 1 January 2019
Proposed
Abolishment of current conditions and
allowed to conduct transactions:
o in Ringgit Malaysia
o with residents of Malaysia
Labuan
Trading
Activity
3% of audited
net profit
RM20,000
or
Current
Subject to the following conditions: Transactions in currencies other
than Ringgit Malaysia Transactions are restricted to be
carried out between :o Labuan entity and non-
resident; oro Labuan entity and other
Labuan entity Certain exceptions are available,
e.g Labuan leasing companies, banks and Labuan insurance companies
Taxed at:
Fixed Tax Rate/ Labuan Entity & Labuan Business Activity
Abolishment of election to be taxed
at RM20,000
Labuan
Trading
Activity
3% of audited
net profit
RM20,000
New requirement imposed
Adequate number of full time employees in Malaysia
Adequate amount of annual operating expenses in Malaysia
© 2018 Deloitte Tax Services Sdn Bhd 30
“Intellectual Property Right” means –
A right arising from any patent, utility innovation and discovery, copyright, trade mark and service mark, industrial design, layout-design of integrated circuit, secret processes or formulae and know-how, geographical indication and the grant of protection of a plant variety, and other like rights, whether or not registered or registrable.
Imposition of new
conditions
Labuan activities carried out in Labuan is subject to substantive conditions as determined by a
committee
Income from intellectual property assets held by a Labuan entity is subject to tax at prevailing
corporate tax rate under the Income Tax Act 1967
A resident of Malaysia who transacts with a Labuan entity is only entitled to a tax deduction of
3% of the allowable expenditure
Effective: 1 January 2019
Changes relating to FHTP requirement
Labuan Entity & Labuan Business Activity
© 2018 Deloitte Tax Services Sdn Bhd 31
Limitation of Expenses Incurred by Resident in relation to Payment to Labuan Entity
Changes relating to FHTP requirement
Likely tax effects and implications
Adverse impact on industries such as banks and insurance companies who have significant transactions with their Labuan branches or entities
Impact on leasing companies structuring leases via Labuan
Labuan entity
Resident of
Malaysia
Profits of Labuan entity taxed at
3% of audited net profits
Tax deduction on expenditure paid to Labuan entity
restricted to 3%of the allowable expenditure
Reduced the tax deduction by 97%
© 2018 Deloitte Tax Services Sdn Bhd 32
New tax rate
Inward Reinsurance & Inward Retakaful/ Offshore insurance & Takaful
Changes relating to FHTP requirement
5%
Tax rate
Current Proposed
24%
General Reinsurance
Standardization of tax rate of Reinsurance/ Retakaful
Inward Reinsurance & Inward Retakaful
General Reinsurance
8%
Life Insurance
Inward Reinsurance/ Retakaful
8% Life Insurance
Effective: Year of assessment 2019
3%
16%
Reason for the change
Ring-fencing – unequal treatment due to special tax treatment to offshore risk only
Absence of substantial activity requirement
1
2
5%
Offshore Insurance & Takaful
24%
Offshore insurance &
takaful
19%
Abolishment of preferential tax rate for offshore insurance/ takaful
© 2018 Deloitte Tax Services Sdn Bhd 33
Foreign Fund Management (FFM) Companies
Changes relating to FHTP requirement
Tax rate
Current Proposed
Abolishment of preferential tax rate for FFM companies
24%
Effective: Year of assessment 2019
10%
FFM in respect of income from fund
management services provided
to foreign investors
14%
10%
YA 2019 – YA 2020
YA 2021 onwards
FFM in respect of income from fund
management services provided
to foreign investors
© 2018 Deloitte Tax Services Sdn Bhd 34
Contract Research & Development Companies (“R&D”)
Changes relating to FHTP requirement
Contract R&D
A company which provides R&D
services in Malaysia only to a company
other than its related company
Income received
in relation to
exploitation of
intellectual
property right
will be taxed @
24%
Non-IP
Regime
o Companies
granted PS on
or before
16/10/2017 –
new conditions
apply starting
1/7/2021
o Companies
granted PS
after
16/10/2017 –
new conditions
apply starting
1/1/2019
Grandfathering
period
For issuance of
Pioneer Status
Certificate – to include
substantive activity
New requirement
Substantive activity
Adequate number of full time job employment in Malaysia
Adequate investment amount or annual business operating expenses incurred in Malaysia
Effective: 1 January 2019
Tax Incentive
© 2018 Deloitte Tax Services Sdn Bhd 36
Tax incentives
2019 Budget – Key Tax Proposals
Tax Reforms
Reviewing the existing reliefs and incentives under the various tax acts to make them relevant and cut down leakages
Reviewing the over 130 types of fiscal schemes to support investments with the intention to expire incentives which are no longer relevant or are duplicates
© 2018 Deloitte Tax Services Sdn Bhd 37
Tax incentive for INDUSTRY4WRD Policy
Tax Incentive
Type of tax deduction Criteria Effective date
Deduction on expenses incurred for I4.0 RA
Paid to Malaysian Productivity Corporation
Capped at RM27,000
YAs 2019 to 2021
Income tax incentive for Industry 4.0 (I4.0) readiness assessment (I4.0 RA)
Income tax incentive for Industry4WRD Vendor Development Program (VDP)
Type of tax deduction Criteria Effective date
Further deduction on qualifying operating expenses (QOEs) incurred by Anchor Companies to implement industry4WRD VDP
The QOEs refer to expenses foro Product developmento Upgrading capabilities of
vendorso Skills training of vendors
The QOEs have to beo Verified by the MITIo Capped at RM1,000,000 per
year for 3 consecutive YAs
For Memorandum of Understanding signed between the Anchor Company and MITI from 01.01.2019 to 31.12.2021
© 2018 Deloitte Tax Services Sdn Bhd 38
Tax incentive for INDUSTRY4WRD Policy
Tax Incentive
Type of tax deduction Criteria Effective date
Double deduction on scholarship provided by companies to students pursuing studies at technical and vocational levels, diplomas and degrees in the fields of engineering and technology
“Student” refer to o A full time student who is a
Malaysian and resident in Malaysia
o Has no means on his own; and
o Whose parents or guardian have total monthly income not exceeding RM8,000 per month
YAs 2019 to 2021
Double deduction on expenses incurred by companies participating in the National Dual Training System Training Scheme for I4.0
The program has to be approvedby the Ministry of Human Resources
For programs implemented from 01.01.2019 to 31.12.2019
Income tax incentive for Human Capital Development
© 2018 Deloitte Tax Services Sdn Bhd 39
Tax incentive for INDUSTRY4WRD Policy
Tax Incentive
Type of tax deduction Criteria Effective date
Single deduction on expenses incurred byPrivate Higher Education Institutions for development of new I4.0 technology and engineering courses
The new courses have to be verified by the Ministry of Education
YAs 2019 to 2021
Double deduction on expenditure incurred by companies on training program to upgrade and develop their employees’ technical skills in I4.0 technology
The training programs have to be approved by the MIDA
For companies participating in the Readiness Assessment Intervention Plan from 01.01.2019 to 31.12.2019
Income tax incentive for Human Capital Development (Cont’d)
© 2018 Deloitte Tax Services Sdn Bhd 40
Tax incentive for INDUSTRY4WRD Policy
Tax Incentive
Type of tax deduction Criteria Effective date
Double deduction on expenditure incurred by companies in conducting internship program for undergraduate students in the fields of engineering and technology
The internship program has to be approved by the Ministry of Human Resources
YAs 2019 to 2021
Single deduction on equipment and machinerycontributed by companies to Skills Development Centres, Polytechnics or Vocational Colleges
The contributions have to be certified by the Ministry of Human Resources or the Ministry of Education
For contributions made from 01.01.2019 to 31.12.2021
Income tax incentive for Human Capital Development (Cont’d)
© 2018 Deloitte Tax Services Sdn Bhd 41
Tax incentive for production of environmentally friendly plastics
Tax Incentive
Effective: To be confirmed
• Pioneer status 70% exemption of statutory income
• Investment tax allowance – 60% on qualifying capital expenditure
Companies which produce
environmentally friendly plastics
based on bio-resin and biopolymer be
granted tax incentives for 5 years
© 2018 Deloitte Tax Services Sdn Bhd 42
Tax incentive for GITA
Tax Incentive
Effective: To be confirmed
Expand to 40 green assets in the MyHijau Directory
Green
Technology
Assets
Investment Tax Allowance (ITA) of
100% of qualifying capital
expenditure incurred on green
technology asset from the year of
assessment 2013 until 2020.
Green Technology Investment Allowance (GITA)
The purchase of green technology assets as listed in MyHijau Directory can qualify for this tax incentive.
© 2018 Deloitte Tax Services Sdn Bhd 43
Enhancement of tax incentive for Principal Hub
Tax Incentive
Effective: To be confirmed
Existing Principal Hub tax incentive
A company that uses Malaysia as a base for conducting its regional and global business operations serving at least 3 to 5 countries outside Malaysia may qualify for income tax exemption on statutory income for a period of 5 years (with extension of another 5 years)
Proposed enhancement
The companies already participating in the Principal Hub will be charged a
concessionary 10%income tax rate on
the overall statutory income
related to Principal Hub activities for a
period of 5 years
Reduced corporate tax rate of 0%, 5% or 10% for Tier 1, 2 and 3 companies respectively (based on level of commitment)
New companies
Full tax exemption on Value Added income
Existing companies
© 2018 Deloitte Tax Services Sdn Bhd 44
Clawback of Investment Tax Allowance (ITA)
Tax Incentive
Effective: Year of Assessment 2019
Where capital expenditure is
incurred on acquisition of any
asset and such asset is
disposed of at any time
within a period of 2 yearsfrom the date of acquisition,
the ITA for such capital
expenditure shall be deemed
to have not been given to the
company to which it would
otherwise be entitled.
5 years
Section 30A of PIA, 1986
Proposed
© 2018 Deloitte Tax Services Sdn Bhd 45
Extension of tax incentive for issuance of Sukuk Ijarah, Sukuk Wakalah, Retail bond and Retail Sukuk
Tax Incentive
Income Tax (Deduction for Expenditure on Issuance of Sukuk) Rules 2015
Deduction for issuance cost of sukuk under the principles of Ijarah and Wakalah and a further deduction on additional issuance costs incurred on such sukuk.
Income Tax (Deduction for Expenditure on Issuance of Retail Debenture and Retail Sukuk) Rules 2016
Double deduction on additional issuance costs of retail bonds and retail sukuk under the principles of Mudharabah, Musyarakah, Istisna’, Murabahahand Bai’ Bithaman Ajil based on Tawarruq.
Current Position
The above incentives are applicable for years of assessment 2016 to 2018.
Proposed Extended for another 2 years (YA2019-2020)
© 2018 Deloitte Tax Services Sdn Bhd 46
Extension of period for application on venture capital tax incentive
Tax Incentive
Venture
Company
(VC)
Individuals
Companies
Venture Capital Company (VCC)
Invest
Venture capital management corporation (VCMC)
Manage on behalf
Tax exemption available
Tax exemption available
Tax deduction available
Tax deduction available
All of the above incentives are given for application received by the SC from 1 January 2018 until 31 December 2018.
Application extended
for another year
Administrative Matters
© 2018 Deloitte Tax Services Sdn Bhd 48
Notice of Appeal
Administrative Matters
Current Position
Appeal must be done by submitting Form Q
Proposed Amendment
Appeal must be done by submitting Form Q + Income Tax Return Form
In the case of a person who has not furnish a return [Section 90(3)]
Timeline? - Not later than 30 days after the notice of assessment is received
Effective: Year of Assessment 2019
© 2018 Deloitte Tax Services Sdn Bhd 49
Requirement of Audited Accounts by IRBM
Administrative Matters
Effective: Year of Assessment 2019
CurrentThe return furnished by a company shall be based on accounts audited by a professional accountant [Section 77A(4)]
Companies Act
2016
Certain private
companies are
eligible to elect for
audit exemption
Examples:
Dormant, zero-
revenue and
threshold-qualified
private companies
Proposed Amendment
Unaudited accounts for companies under audit exemption
© 2018 Deloitte Tax Services Sdn Bhd 50
Person Responsible to Act for Limited Liability Partnership and Business Trust
Administrative Matters
Current Position
Compliance Officer
i. Appointed amongst the partners; or
ii. Any one or all of the partners (if no compliance officer is appointed)
Proposed Amendment
Compliance Officer
i. Appointed amongst the partners or person qualified to act as Secretaries under Companies Act 2016
ii. Any one or all of the partners (if no compliance officer is appointed)
Effective: Upon coming into operation of Income Tax (Amendment) Act 2018
The responsibility for doing all acts and things required to be done by or on behalf of a limited liability partnership (Section 75B):
© 2018 Deloitte Tax Services Sdn Bhd 51
Penalty for Breach of Confidence
Administrative Matters
Current (Section 117)
Any classified person who in contravention of Section 138-
a) communicates classified material to another person; or
b) allows another person to have access to classified material,
shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding four thousand ringgit or to imprisonment for a term not exceeding one year or to both.
Effective: Upon coming into operation of Income Tax (Amendment) Act 2018
Proposed AmendmentExpanding definition of “classified person” -
Any person receiving the classified material and uses it or exposes the classified material to other person.
Real Property Gains Tax
© 2018 Deloitte Tax Services Sdn Bhd 53
Review of Real Property Gains Tax (RPGT) rate
Real Property Gains Tax
Period of disposal Company Others Non-citizen and non-PR
Within 3 years 30% 30% 30%
In the 4th year 20% 20% 30%
In the 5th year 15% 15% 30%
In the 6th and subsequent years
10% (5%)
5%
5% (5%)
0%
10% (5%)
5%
Effective: 1 January 2019
Not applicable for disposal of low cost, medium low and affordable residential home valued RM200,000 and below
Stamp Duty
© 2018 Deloitte Tax Services Sdn Bhd 55
Re-definition of “Banker” and “Small and Medium Enterprise”
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Banker Any person licensed under the
Islamic Banking Act 1983 [Act 276] or the Banking and Financial Institutions Act 1989 [Act 372] to carry on the business of banking in Malaysia
Any person licensed under:
(a) Financial Services Act 2013 [Act 758]
(b) Islamic Financial Services Act 2013 [Act 759]
(c) A development financial institution prescribed under Development Financial Institution Act 2002 [Act 618]
Sm
all a
nd
Mediu
m
Ente
rpri
se Manufacturing activities:
• Full-time employees ≤ 150 people; or
• Annual turnover ≤ RM25 million
Services and other sectors:
• Full-time employees ≤ 50 people; or
• Annual turnover ≤ RM5 million
Manufacturing activities:
•Full-time employees ≤ 200 people; or
•Annual turnover ≤ RM50 million
Services and other sectors:
•Full-time employees ≤ 75 people; or
•Annual turnover ≤ RM20 million
Current Proposed Amendment
© 2018 Deloitte Tax Services Sdn Bhd 56
Authorized person to compound instrument
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Current
Suruhanjaya Syarikat Malaysia (SSM), Tenaga
Nasional
Bank, stock broker companies, insurance
companies
Duty payers
Collector
Collect payment
from
Remit to
Any authorized person by the notification of Gazette
Proposed amendment
© 2018 Deloitte Tax Services Sdn Bhd 57
Relief from stamp duty – reconstructions or amalgamations of companies
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Existing
company
Transferee
company
Reconstruction, amalgamation, liquidation or Government Policy
on capital participation
ConsiderationAcquisition / undertaking / Shares
Current
Existing company/ Transferee should remain as beneficial owner of shares issued/acquired for at least 2 years
Proposed amendment
Existing company/ Transferee should remain as beneficial owner
of shares issued/acquired for at least 3 years
© 2018 Deloitte Tax Services Sdn Bhd 58
Relief from stamp duty – reconstructions or amalgamations of companies
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Transferee
company
Scheme of reconstruction or amalgamation
Current
Shall be treated as if it has increased its nominal share capital pursuant to subsection 15(2)
Proposed amendment
Subsection 15(2) – deleted
Substitution of “Nominal Share Capital” with “Issued Share Capital” – in line with changes to the Companies Act
Issued any unissued share
capital
© 2018 Deloitte Tax Services Sdn Bhd 59
Relief from stamp duty – reconstructions or amalgamations of companies
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Existing
company
Transferee
company
Responsibility to notify the Collector
Notify the Collector
within 30 days from the date the breach has
occurred
No more the beneficial owner
of the 90% shares so
issued/acquired within 3 years
1) Declaration or other evident furnished in support of the claim is untrue
2) No more the beneficial owner
© 2018 Deloitte Tax Services Sdn Bhd 60
Relief from stamp duty – transfer of property between associated companies
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
Stamp duty relief
Current
Transfer of property between associated companies (90% shareholding) will be exempted from stamp duty
Proposed amendment
Additional conditions:
Has to achieve greater efficiency in operation
Transferee company must be
incorporated in Malaysia
Must remain associated for 3 years
Must hold the property for 3 years
Company A
Company B Company C
Transfer of property
90% 90%
© 2018 Deloitte Tax Services Sdn Bhd 61
Standardise treatment and requirement of Section 15 with 15A
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
1Companies that are granted relief under this Section, if declaration is found to be
untrue will be charged with duty & interest of 6% per annum
2Make mandatory for the companies who are enjoying
the relief to notify the Collector if any changes in subsection 15(5) in a period of 30 days from the date of the changes
3Requirement for statutory declaration to be submitted to the Collector by:
- Advocate & Solicitor (Peninsular Malaysia)
- Advocate of High Court (Sabah & Sarawak)
© 2018 Deloitte Tax Services Sdn Bhd 62
Consequential amendment to Companies Act 2016 –introduction of Item 29A, First Schedule
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
First Schedule
Item 10 Articles of Association – RM100
Item 53 Memorandum of Association – RM100
Item 29A Constitution of a Company – RM200
Deleted
New addition
© 2018 Deloitte Tax Services Sdn Bhd 63
Clarification of stamp duty treatment for Item 22(1), First Schedule
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
First Schedule, Item 22
(1) Being the only or principal or primary security for any annuity (except upon the original creation thereof by way of sale or security, and except a superannuation annuity), or for any sum or sums of money at stated periods, not being interest for any sum secured by a duly stamped instrument, nor rent reserved by a lease or tack -
(a) For definite and certain period so that the total amount to be ultimately payable can be ascertained
(b) For the term of life or any other indefinite period –
For every RM100 and also for any fractional part of RM100 of the annuity or sum periodically payable
Proper stamp duty
The same ad valorem duty as a charge or mortgage for such total amount
RM1.00
© 2018 Deloitte Tax Services Sdn Bhd 64
Duty to be imposed on Hire Purchase Agreement
Stamp Duty
Effective: Upon coming into operation of Finance Act 2018
• No specific provision to charge hire purchase (conventional) agreement under this Act
Hire Purchase
Agreement
Being the security for securing the payment or repayment of money for the purchase of goods (within the meaning given) under the First Schedule of the Hire Purchase Act 1967 in accordance with Conventional Hire Purchase and SyariahPrinciple
RM10
Current
Proposed amendment
© 2018 Deloitte Tax Services Sdn Bhd 65
Stamp duty rates on value of real property in excess of RM1 million
Stamp Duty
Effective: 1 January 2019
Price / Market value of real property Current Proposed
First RM100,000 1% 1%
RM100,001 – RM500,000 2% 2%
RM500,001 – RM1,000,000 3% 3%
RM1,000,001 and above 3% 4%
Stamp duty rates
© 2018 Deloitte Tax Services Sdn Bhd 66
Stamp duty exemption for purchase of first residential home
Stamp Duty
Value of first residential home
Sale and purchaseagreement executed in the period
Type of instrument
Stamp duty exemption
Up to RM300,000 01.01.2019 – 31.12.2020 Instrument of transfer & loan
agreement
100%
RM300,001 – RM1,000,000(purchase from housing
developer)
01.01.2019 – 30.06.2019 Instrument of transfer
100%
RM300,001 – RM500,000 01.07.2019 – 31.12.2020 Instrument of transfer & loan
agreement
• 100% (on first RM300,000 of the price of home)
• Balance subject to stamp duty at prevailing rate
© 2018 Deloitte Tax Services Sdn Bhd 67
Stamp duty exemption for purchase of first residential home
Stamp Duty
Example:
• Value of residential property: RM400,000
• Stamp duty exemption: o 100% (on first RM300,000 of the price of home) o Balance subject to stamp duty at prevailing rate
Price / Market value of real property
Stamp duty rate
Stamp duty chargeable(RM)
Stamp duty exemption on first RM300,000
(RM)
First RM100,000 1% 1% x RM100,000 = RM1,000 1,000
RM100,001 – RM500,000 2% 2% x RM300,000 = RM6,000 RM200,000 / RM300,000 x RM6,000 = RM4,000
Total RM7,000 RM5,000
Stamp duty payable = RM2,000
© 2018 Deloitte Tax Services Sdn Bhd 68
Stamp duty exemption for Perlindungan Tenang products
Stamp Duty
Effective: For policies / certificates issued from 1 January 2019 to 31 December 2020
Insurance
policiesPerlindungan Tenang
products
• Launched in 2017
• Yearly premium / contribution not
exceeding RM100 Takaful
certificates
Stamp duty
exempted
Proposed amendment
Currently, insurance policy and Takaful Certificates are subjected to stamp duty of RM10. The stamp duty is exempted for policies less than RM5,000.
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© 2018 Deloitte Tax Services Sdn Bhd