eKTP 118

Automated Compound Reduction Scheme by Companies Commission of Malaysia (SSM)
Part 2 of 2

eKTP_117.png

Illustration of the Automated Compound Reduction Scheme

SSM issued a compound letter dated 1 August 2019 to Mr. Ang, Director of Ang Sdn Bhd for failure to lodge Company’s Annual Return (AR) under Section 68 (1) of Companies Act 2016 with a fine amounting to RM50,000.00.

Mr. Ang prepared an appeal letter (intend to appeal for a reduction on the amount of fine) and brought along the compound letter to SSM Johor Bahru Branch office. When he reached SSM branch office, the officer notified him there was an automated reduction scheme offer to defaulter without any appeal. The amount of fine under such a scheme works out as below:

eKTP_Post118_Table.png

The SSM officer urged Mr. Ang to pay the fine either in cash, cheque (exclude personal cheque), bank draft, credit card, postal order or money order make payable to “Suruhanjaya Syarikat Malaysia” and receipt will be issued upon payment.

 

eKTP 117

Automated Compound Reduction Scheme by Companies Commission of Malaysia (SSM)
Part 1 of 2

eKTP_117.png

Starting from 1 July 2019, SSM will implement an automated compound reduction scheme as a measure to facilitate the settlement of compound within the period of time.

This approach is to encourage the company under Companies Act 1965 and Companies Act 2016 to take this advantage to enjoy the higher compound reduction rate without having to submit any appeal letter.

The rate of compound reduction will be automated according the following table:

eKTP_Post117_Table.png

This offer is subject to Section 38A(1) of the Companies Commission of Malaysia Act 2001. No appeals will be entertained when there is legal action taken toward the company.

This reduction scheme also EXCLUDE any compound which:

  • settlement out of court or investigation conducted by “

  • expired and re-issued for payment; and

  • successful reduced amount through appealing process.

SSM urge the companies and directors to take this opportunity to make payment through counter at any of the SSM State Offices throughout Malaysia.

Please refer to the following link for further details:
http://www.ssm.com.my/Lists/Press%20Release/DispForm.aspx?ID=142&Source=http%3A%2F%2Fwww%2Essm%2Ecom%2Emy%2FPages%2FPublication%2FPress%5FRelease%2FPress%2DRelease%2Easpx&ContentTypeId=0x010098952881AC48D34C9D9967E0232CDB0B

 

eKTP 116

Important Changes On Form e-C For YA 2019

eKTP_116.png

The IRB recently made available the company income tax return form (Form e-C) for YA 2019 on its website. Significant additional information may need to be disclosed in the worksheets (“Helaian Kerja”) to the YA 2019 Form e-C and certain additional parameters have been included in the Form e-C itself. These matters are discussed below.

Requirement to submit detailed information in Helaian Kerja
The IRB has simplified the Form e-C for YA 2019 in comparison to the YA 2018 Form e-C, by requiring the details of each item / disclosure to be submitted via the Helaian Kerja (HK) instead. It is noted however that more details have been requested via the HK for YA 2019, compared the prior years.

In addition, with effect from YA 2019, the HKs will form part and parcel of the Form e-C, and are to be submitted together with the Form e-C.

1. New HK-F: Summary of absorbed / surrendered / disregarded losses carried forward (including pioneer losses after tax relief period)

The Finance Act 2018, which was gazette on 27 December 2018, restricts the carry forward of unutilized business losses to seven years with effect from YA 2019 (see Special Tax Alert – Highlights of Budget 2019 – Part I, Special Tax Alert – Highlights of Budget 2019 – Part II, Special Tax Alert No.1/2018 and Tax Alert No.25/2018).

To ensure that losses for each YA are properly tracked, companies are now required to complete the new HK-F:

Summary of absorbed / surrendered / disregarded losses and losses carried forward (including pioneer losses after tax relief period), to be submitted together with Form e-C.

2. New JK-N: Information on Controlled Transactions

Companies undertaking controlled transactions within the meaning of Section 139 and 140A of the Income Tax Act 1967 (ITA) are now required to complete the new HK-N: Information on Controlled transactions.

This new HK-N is broadly similar to the existing Form MNE pertaining to information on cross border transaction. Which some taxpayers would be familiar with. Previously, the Form MNE was only required to be completed and submitted by taxpayer upon specific request by the IRB.

With the new HK-N, impacted companies will be required to provide comprehensive details in relation to related party transaction and the parties they are dealing with. Significantly more information will be required as compared to prior Years’ disclosures required in the Form e-C (Part N: Transaction between related companies).

Examples of the information which would need to be disclosed in the HK-N include:

i. Specific classification of the taxpayer itself, e.g. whether it is a toll-manufacturer, limited- risk distributor, franchisor, service provider (and if so, the type of service provider), etc.
ii. Disclosure of specific categories of controlled transactions undertaken with parties in and outside Malaysia, including sales, purchases, loans, guarantee fees, advertising, marketing and promotions, research and development, cost contribution agreements
iii. Detailed disclosure of top-10 related party transaction, including the name, country code and business activity of the counterparty
iv. Disclosures of transaction with counterparties in jurisdictions with a lower corporate income tax rate than Malaysia, including the name, country code and business activity of the counterparty
v. Disclosures of business restructuring, research & development activities and cash pooling activities undertaken by the taxpayer

Taxpayers and their advisors would need the ensure that sufficient time and resources are available to accurately compile and analyses the information required, to ensure that HK-N is completed in a correct and consistent manner. Taxpayers may not have all the necessary information required to complete the form HK-N at their disposal and may need to reach out to their associated parties for certain information.

3. New item F8 (Form e-C): Subject to interest restriction under section 140C

The Finance Act 2018 introduced the new Section 140C into the ITA, to legislate earnings stripping rules (ESR) with effect from 1 January 2019 (Special Tax Alert No.25/2018).
Section 140C stipulates that in ascertaining the adjusted income of a person from his business sources, no deduction shall be allowed in respect of any interest expense in a controlled transaction granted directly or indirectly to that person, which is in excess of the maximum amount of interest as determined under any rules made under the ITA. The relevant rules have not yet been released.

In line with the above, item F8 has been incorporated in the YA 2019 Form e-C require taxpayers to specify whether or not the company is subject to “interest restriction” underSection 140C of the ITA.

 

eKTP 115

Labuan Business Activity Tax Act 1990 (LBATA)

eKTP_115.png
  • Labuan business activities are required to be carried out in, from or through Labuan, with non-residents of Malaysia or with another Labuan entity, and in foreign currencies except for specific purposes.

  • A Labuan entity is subject to tax under the LBATA in respect of its Labuan business activity - i.e. in foreign currency with non-residents or other Labuan entities, or in respect of any designated Labuan business activities which then may be transacted with residents or in the Malaysian currency.


Why Labuan international companies are gaining popularity among Expatriates in Malaysia?

  • 100% ownership

  • Low tax of 3% on net profit

  • For investment holding companies, no tax and no audit required

  • Most business do not require trade licenses

  • Flexibility to operate with foreign currencies and Malaysian Ringgit Bank accounts

  • Permissible to deal with Malaysian market, corporate tax is 24%

  • No personal tax for all foreign directors under exemption order 7 2011


Net profit per audited accounts for Labuan trading activities

  • Tax is chargeable only on the net profits per audited accounts in respect of Labuan trading activities (- i.e. banking, insurance, trading, management, licensing, shipping operations and other activity (other than the holding of investments in securities, stock, shares, loans, deposit or other properties.

  • The tax rate is 3% upon the chargeable income from only the Labuan trading activities. This means the income from the Labuan non-trading activities (- i.e. the holding of investments in securities, stock, shares, loans, deposits or other properties) of a Labuan entity is not subject to tax at all.

  • Dividends received from Labuan company which are distributed out of income derived from a Labuan business activity or income exempted from tax and distributions received from a Labuan trust by its beneficiaries are not subject to tax in the hands of the recipients.


Tax return and statutory declaration

  • Labuan entity carrying on Labuan business activities which are Labuan trading i.e. by 31 March of the following calendar year.

  • A Labuan entity may elect (within three months of the start of the year of assessment, in a prescribed form) to be charged to tax of RM20,000 instead of the 3% of net profits.

  • This means that the Labuan entity will not require to submit a tax return for that year of assessment.

  • With Common Reporting System (CRS) by OECD in place and progress, more and more business owners begin to look into and chose Labuan for their international business ventures especially when their business are of Asia Pacific region.

  • CRS aims to provide convenience to individual country tax authorities to access info of individuals and business owners of their wealth or involvement worldwide.

IRB is focusing on taxpayer avoiding paying WHT by using Labuan as a conduit of payments

  • Manipulation of withholding tax using a related Malaysian incorporated company in Labuan as a conduit for payments made to a non-resident person, which otherwise would have been paid directly to the non-resident person and subject to withholding tax, is considered as an avoidance act.

  • Local company issuing payment to Labuan company is not subjected to WHT.

  • Labuan company making payment to a Singapore or Indonesian company will not be subjected to WHT.


Review of the Labuan International Business Financial Centre

  • Labuan entities carrying on Labuan trading activities can no longer have the option of electing to pay a flat tax of Rm20,000 (regardless of its income level) instead of a 3% tax on its chargeable profits.

  • As from 1 January 2019, all Labuan companies (carrying out both Labuan trading and Labuan non-trading activities) falling under LBATA will be subject to the 3% tax rate on net profits and will have to file the requisite tax returns.

  • Restrictions on transacting in Ringgit and on transaction conducted between Labuan entities and residents of Malaysia is abolished.


Substance requirements for Labuan Enterprise

  • For the purpose of Labuan business activity, required to have adequate number of full-time employees in Labuan and adequate amount of annual operating expenditure in Labuan.

  • Details will be as prescribed under the regulations to be made by the Minister of Finance.


Requirements for Labuan business activity – PU(A) 392/2018

  • A Labuan entity carrying on a Labuan business activity shall have the number of full-time employees and an amount of annual operating expenditure as specified in the schedule.

eKTP_Post115_Table1.png


Income tax deductions for payment made to Labuan Company by residents – PU(A) 375/2018

  • Section 39(1)r ITA 1967 with effect from 1.1.2019

eKTP_Post115_Table2_1390.png
  • Section 4 of the LBATA is amended to exclude royalties and income derived from ‘intellectual property rights’ will now be taxed under the ITA.

 

eKTP 114

Withholding Tax In Malaysia
Part 2 of 2 

eKTP_113-114.png

Types of Payments that is subject to
Withholding Tax

A) Contract Payment → S107A → 10%(Contractor’s liability) + 3%(Payment as employee’s liability) – Form 37A

  • Services under a contract → performing or rendering of any work or professional services

  • Contract project → Include any undertaking , project or scheme carried on, carried out or performed in Malaysia. For example: Construction project, computerization projects, ERP software (6mths developer)


B) Special Classes of Income → S109B → 10% – Form 37D

4A(i) → Services rendered in connection with use of property, installation/operation of plant. For example: Installation and commissioning services,Provision of personnel for advisory or supervisory services.

4A(ii) → Technical or management services.
For example: Technical services, Specially tailored training course, IT maintenance/supportservice IT, Consultancy services, Legal services, Management services, Marketing services, Testing/caliberations services.

4A(iii) → Rental of moveable properties
For example: Slot hire/charter, Leasing of ships/aircraft, Time charter fees.


C) Interest → S109 → 15% – Form 37

  • Return or consideration for use by any one party of money belonging to another party

  • Compensation for retention or non-payment of money (or compensation for delayed payment)


D) Royalty → S109 → 10% – Form 37

  • Copyrights, artistic/scientific works, patents, design/models/plans, secret processes/formulae, trademarks, tapes for audio/television broadcasting, motion pictures films/video tapes, know-how/information concerning technical and etc

Latest development of withholding tax

Use or right to use / Income from alienation

  • Copyrights, patents, trademarks, etc

  • Know-how

  • Tapes, movie films


Reception / Right to receive

  • Software

  • Radio frequency spectrum license

  • Visual images or sounds

  • Forbearance


E) Public Entertainer → 109A → 15% – Form 600FA

  • Individual who uses his intellectual, artistic, musical, personal or physical skill/character. For example: Model, Compere, Circus performer, Lecturer, Speaker, Sportsperson


F) Other gains / Profits failling under S4(F) → 10% – Form 37F

  • Criteria to consider whether a payment is subject to S109F or S109B

i) Revenue and not capital in nature
ii) Not income that falls under paragraphs 4(a) to 4(e) and S4A of the ITA
iii) In the nature of miscellaneous income (i.e. casual in nature)
iv) Isolated transaction
v) Absence of repetition of transaction

When Withholding Tax is due

  • Within one month after paying or crediting the NR

  • WHT due date hinges on when the amount is paid or credited to the non-resident WHT


* Crediting:

  • More than a mere journal entry or an accrual of the liability in the accounts of the payer and an amount is considered as having been credited if the amount is available to or for the benefit of the non-resident payee

  • Contra situation means a situation in which the amount is made available to offset any amount owing by the non-resident payee in the company’s records

  • Date of crediting → refers to the date the amount is paid or the date the amount is credited in the bank account of the recipient or the date of a contra entry