2012/2013 Malaysian Tax and Business Booklet PP 13148/07/2013 (032730) 2012/2013 MALAYSIAN TAX AND BUSINESS BOOKLET A quick reference guide outlining Malaysian tax legislation and other business information The information provided in this booklet is based on taxation laws and other legislation, as well as current practices, including legislative proposals and measures contained in the 2013 Malaysian Budget announced on 28 September 2012 This booklet incorporates in coloured italics the 2013 Malaysian Budget proposals announced on 28 September 2012. These proposals will not become law until their enactment which is expected to be in early 2013 and may be amended in the course of its passage through Parliament. This booklet also incorporates in coloured italics some other proposals announced recently which have not been enacted to date. This booklet is intended to provide a general guide to the subject matter and should not be regarded as a basis for ascertaining the liability to tax in specific circumstances. No responsibility for loss to any person acting or refraining from acting as a result of any material in this publication can be accepted by PricewaterhouseCoopers. Recipients should not act on the basis of this publication without seeking professional advice. © 2012 PricewaterhouseCoopers. All rights reserved. "PricewaterhouseCoopers" and/or "PwC" refers to the individual members of the PricewaterhouseCoopers organisation in Malaysia, each of which is a separate and independent legal entity. Please see www.pwc.com/structure for further details. Printed in Malaysia by SP-Muda Printing Services Sdn. Bhd. Tel: 03- 62735893, 62742463 CONTENTS TAX INFORMATION AGRICULTURE ALLOWANCES 23 Qualifying expenditure and rates 23 INCOME TAX 1 Scope of taxation 1 DOUBLE TAX TREATIES AND 24 Basis of assessment 1 WITHHOLDING TAX RATES PERSONAL INCOME TAX 2 TAX INCENTIVES 26 Tax residence status of individuals 2 A. Manufacturing / Services / Self-assessment for individuals 2 Trading Sector Rates of tax 3 Pioneer status 26 Personal reliefs 4 Investment tax allowance (ITA) 27 Tax rebates 6 Enhanced pioneer status and 27 ITA EMPLOYMENT INCOME 6 Special incentives scheme 30 Derivation 6 Allowance for increased export 30 Exemption (short-term employees) 7 Approved services project (ASP) 31 Employees of regional operations 7 Food production 32 Types of employment income and 7 Reinvestment allowance 32 valuation Benefits-in-kind (BIK) 8 B. Biotechnology Industry 33 Collection of tax 11 C. Financial Services Sector CORPORATE INCOME TAX 11 Closed-end fund company 34 Residence status 11 Foreign fund management 34 Income tax rates 11 company Self-assessment 12 Insurance and trading of sukuk 34 Profit distribution 14 Issuance of agro-sukuk, retail 35 Losses 14 sukuk and retail bonds Group relief 15 Islamic Banking and Takaful 35 Business profits and deductions 15 Business Transfer pricing 16 Islamic fund management 35 Thin capitalisation 16 Islamic securities 36 Islamic stock broking company 36 CAPITAL ALLOWANCES 17 Listing of foreign companies and 36 Industrial buildings 17 foreign products in Bursa Plant and machinery 18 Malaysia Accelerated capital allowances 20 Real Estate Investment Trust 36 Disposals 22 (REIT) / Property Trust Fund Controlled transfers 22 (PTF) Disposals within 2 years 22 Special purpose vehicle (SPV) 37 Unabsorbed capital allowances 22 for Islamic financing Venture capital industry 37 CONTENTS Treasury Management Centre 39 I. Research and Development (TMC) (R&D) Tun Razak Exchange (TRX) 39 Income tax exemption and 48 Investment tax allowance D. Green Incentives Double deduction 48 Conservation of the 40 Industrial building allowance 48 environment Commercialisation of R&D findings 49 Green Building Index (GBI) 41 Certification J. Shipping Industry 49 Reduction of greenhouse gas 41 emission K. Special Economic Corridors Renewable energy source 41 Iskandar Malaysia (IM) 49 E. Healthcare L. Tourism, Hotels and Exhibitions Private healthcare facilities 42 Conference promotion 50 Health tourism 43 Domestic tours 50 Group inclusive tours 50 F. Information and International trade exhibition 51 Communication Technology 4 and 5 star hotels 51 Cost of developing websites 43 Offshore trading via websites 43 M. Double Deduction 51 in Malaysia INCOME EXEMPT FROM TAX 53 G. Other Incentives Infrastructure allowance 43 REAL PROPERTY GAINS TAX 56 Infrastructure for public use 44 (RPGT) Owners of Malaysian brands 44 Charge to tax 56 Proprietary rights 44 Real property company 56 Private higher education 44 Chargeable person 57 institutions (PHEIs) Withholding of RPGT 57 Private schools 45 Exemptions 57 Pre-School Education 45 Childcare centres 45 SERVICE TAX 58 Sponsorship of arts 46 Basis of taxation 58 Rate of tax 58 H. Regional Operations Taxable person / licensing 58 International Procurement 46 Taxable persons and taxable 58 Centre (IPC) services International trading company 46 Payment of service tax / taxable 61 Operational Headquarters 47 period (OHQ) company Refund of service tax on 61 Regional Distribution Centre 47 doubtful debts or “bad debts” (RDC) CONTENTS SALES TAX 62 Stamping 69 Basis of taxation 62 Penalty 69 Value of goods 62 Relief / Exemption / Remission 69 Rates of tax 62 from stamp duty Class of goods 62 Taxable goods 62 OTHER BUSINESS INFORMATION Goods exempted 63 Licensing 63 ECONOMIC INDICATORS AND 73 Exemption from licensing 63 DIRECTIONS Tax-free raw material 64 Drawback 64 FINANCIAL REPORTING 78 Payment of sales tax / taxable 64 period EMPLOYEES’ PROVIDENT FUND 79 Refund of sales tax on doubtful 64 Scope of EPF 79 debts or “bad debts” Rates of contributions 79 Members' accounts 80 IMPORT DUTIES 64 Withdrawals 80 Rates of duties 64 Tariff rate quota 65 EMPLOYMENT GUIDELINES 81 Value of goods 65 Guidelines for employment of 81 Exemptions 65 expatriates Prohibition of imports 65 Employment of foreign workers 83 LICENSED MANUFACTURING 66 EMPLOYEES’ SOCIAL SECURITY 84 WAREHOUSE FUND Scope of SOCSO 84 FREE ZONE 66 Rates of contributions 84 FREE TRADE AGREEMENTS 66 HUMAN RESOURCE 85 DEVELOPMENT FUND (HRDF) EXPORT DUTIES 66 Scope of HRDF 85 Rate of contribution 86 EXCISE DUTIES 67 Financial assistance 86 Basis of taxation 67 Rates of duties 67 FOREIGN EQUITY GUIDELINES 86 Excise licensing 67 Manufacturing sector 86 Payment of duty 67 Other sectors 87 Exports 67 Liberalisation measures 87 STAMP DUTY 68 EXCHANGE CONTROL 88 Basis of taxation 68 Remittances abroad 88 Rates of duty 68 Non-resident controlled 90 companies CONTENTS Purchase of immoveable 91 properties by non-residents Borrowings in foreign currency 91 by a resident Borrowings in ringgit by a 91 resident Foreign currency accounts 92 Non-resident accounts 92 Exports from Malaysia 93 MSC Malaysia companies 93 Approved Operational 94 Headquarters (OHQ) IMPORTANT 94 FILING / FURNISHING DATES INCOME TAX 1 INCOME TAX Scope of taxation Income tax in Malaysia is imposed on income accruing in or derived from Malaysia with the following exception: • A resident company carrying on a business of air/sea transport, banking or insurance is assessable on a world income scope. However with effect from (w.e.f) 1 January 2003, income attributable to a Labuan business activity of the branch or subsidiary of a Malaysian bank in Labuan is not subject to tax under the Income Tax Act 1967 but is subject to the provisions of the Labuan Business Activity Tax Act 1990. W.e.f year of assessment (YA) 2008 (under the Income Tax Act 1967), a Labuan company can make an irrevocable election to be taxed under the Income Tax Act 1967 in respect of its Labuan business activity. • In respect of Malaysian owned banks, insurance companies and takaful companies, the profits of newly established overseas branches or remittances of new overseas subsidiaries are tax exempt for 5 years, for applications received by Bank Negara Malaysia not later than 31 December 2015. Basis of assessment Income is assessed on a current year basis from YA 2000. The year of assessment is the year coinciding with the calendar year, for example, the YA 2013 is the year ending 31 December 2013. The basis period for a business source is normally the financial year ending in that particular YA. For example the basis period for the YA 2013 for a business which closes its accounts on 30 June 2013 is the financial year ending 30 June 2013. From YA 2001, all non-business sources of income of a company are also assessed on the basis of the financial year. W.e.f YA 2004, all income of persons other than a company, co- operative or trust body, are assessed on a calendar year basis. Also, from that year of assessment, cooperative societies and trust bodies are assessed in the same way as companies, i.e. on the basis of the financial year ending in that particular YA. PERSONAL INCOME TAX 2 PERSONAL INCOME TAX Tax residence status of individuals • An individual is regarded as tax resident if he meets any of the following conditions, i.e. if he is in Malaysia for at least 182 days in a calendar year; in Malaysia for a period of less than 182 days during the year (“shorter period”) but that period is linked to a period of physical presence of 182 or more “consecutive” days in the following or preceding year (“longer period”). Temporary absences from Malaysia for certain specified reasons during the shorter or longer period are counted as part of the consecutive days, provided that the individual is in Malaysia before and after each temporary absence; in Malaysia for 90 days or more during the year and, in any 3 of the 4 immediately preceding years, he was in Malaysia for at least 90 days or was resident in Malaysia; resident for the year immediately following that year and for each of the 3 immediately preceding years. Self-assessment for individuals Self-assessment for individuals was implemented from YA 2004. Under the Self Assessment System (SAS), the responsibility for correctly assessing a person’s tax liability is transferred from the Inland Revenue Board (IRB) to the taxpayer. The prescribed Form B/BE/M for YA 2012 will be issued to individual taxpayers in January 2013 or earlier and will be due for submission not later than 30 April 2013 except for those who derive business income such as sole proprietors and partnerships where the deadline for tax filing is 30 June each year. The submission of the Form B/BE/M is deemed to be a notice of assessment for which tax is due and payable on the same date as the filing deadline. Under the SAS, the IRB monitors taxpayers’ compliance with the law through field audits. [...]... withholding tax on dividends paid by Malaysian companies Fees for technical and management services rendered in Malaysia are liable to Malaysian income tax There is a restricted double tax treaty with Argentina and the United States of America which deals with the taxation of air and sea transport operations in international traffic TAX INCENTIVES Malaysia offers a wide range of tax incentives ranging from tax. .. companies are collected by means of withholding tax The withholding tax is payable within one month of crediting or paying the non-resident company OME Profit distribution From YA 2008, the imputation system of taxation was replaced by a single-tier system of taxation which came into effect from 1 January 2008 Under this system, tax on a company’s profits is a final tax and dividends are exempt in the hands... petrol usage 10 CORPORATE INCOME TAX Annual value of driver provided: RM7,200 Collection of tax Taxes are collected from employees through compulsory monthly deductions from salary under the Monthly Tax Deduction (MTD) system Individuals receiving non-employment income are required to pay by compulsory bi-monthly installments CORPORATE INCOME TAX Residence status A company is tax resident in Malaysia if... used as living accommodation or for welfare of a person employed in working a farm Any other building 23 Rates % 50 50 50 20 10 DOUBLE TAX TREATIES AND WITHHOLDING TAX RATES DOUBLE TAX TREATIES AND WITHHOLDING TAX RATES The following countries have concluded double tax treaties with Malaysia: Treaty countries Interest Albania Australia Austria Bahrain Bangladesh Belgium Bosnia & Herzegovina * Brunei... not eligible Business profits and deductions Business profits are computed on the basis of normal accounting principles as modified by certain tax adjustments Generally, deduction is allowed for all outgoings and expenses wholly and exclusively incurred in the production of income Deductions which are specifically disallowed include: Domestic or private expenses Income tax or similar taxes Preliminary... – Tax Treatment Co-operative Society Gratuity Bilateral Credit And Unilateral Credit 12 Date 16 Nov 2011 16 Nov 2011 5 Dec 2011 20 Dec 2011 CORPORATE INCOME TAX Ruling 12/2011 1/2012 2/2012 3/2012 * 4/2012 5/2012 Subject Tax Exemption On Employment Income Of Non-Citizen Individuals Working For Certain Companies In Malaysia Compensation For Loss Of Employment Foreign Nationals Working In Malaysia – Tax. .. furnish estimates of tax payable or make installment payments if the basis period for the year of assessment in which the company commences operations is less than 6 months The balance of tax payable by a company is due to be paid on the last day by which the return must be submitted (see “Submission of returns and assessment” above) In general, tax on all income other than income from a business or employment... Technical or management service fees Interest Dividends – single tier – franked Business Income other than the above 10 10 10* 15 Exempt 25 25 10 * Only fees for technical or management services rendered in Malaysia are liable to tax Where the recipient is resident in a country which has a double tax treaty with Malaysia, the tax rates for specific sources of income may be reduced Interest paid to a non-resident... allowances based on capital expenditure and enhanced tax deductions These tax incentives are generally available for tax resident companies A MANUFACTURING / SERVICES / TRADING SECTOR Pioneer status Eligibility: Companies intending to engage or commenced operations less than a year in a promoted activity or to produce a promoted product in the 26 TAX INCENTIVES manufacturing, food processing, agricultural,... shareholders Companies are no longer required to deduct tax at source from dividends distributed to shareholders A transition period of 6 years is provided for implementation of the single-tier system All companies will move to the single-tier tax system on 1 January 2014 even though they may still have unutilized franking-credits as at 31 December 2013 Losses Business losses can be set off against income from . 2012/2013 Malaysian Tax and Business Booklet PP 13148/07/2013 (032730) 2012/2013 MALAYSIAN TAX AND BUSINESS BOOKLET . reference guide outlining Malaysian tax legislation and other business information The information provided in this booklet is based on taxation laws and