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How to Determine the Value of a Business?

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Post date May 28, 2020
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How to Determine the Value of a Business?

The value of a business is determined via the process of business valuation. Business valuation is important for organizations because selling and buying businesses is a standard part of the corporate sector and large-scale businesses often have to rely on accounting services to conduct an advance business valuation.

Before diving into the particular method of determining the value of your business, it is important to be familiar with some of the following basics:

What is Business Valuation?

When techniques and resources are employed to evaluate the worth of a business it is called business valuation. This service is used by both sellers and buyers. Sellers use business valuation to set a suitable price for their business, and buyers use it to decide whether to buy a business.

Organizations and different types of businesses make use of the accounting services available in Malaysia for business valuation to either sell or buy a business in a profitable way.

A business valuation includes the determination and use of the latest trends and values of the market to set an appropriate value of the business. It is a complex process that involves thorough research of the market, competitive research and analysis of a business’s financial conditions.

Valuation Calculation

Small-scale businesses make use of the fundamental business valuation to determine the value of their company. A basic valuation can be performed by the internal team of a small company, or even yourself. Large-scale businesses and enterprises, however, have to rely on the accounting services offered by various accounting firms in Malaysia.

There are many different and changing variables in the advance business valuation.

Requirements for Business Valuation

The following are the documents that are essential for business valuations:

Financial statements that contain the details of financial dealings and overall information about the business’s financial history
Copies of tax returns
Legal agreements, licenses, patents and other documents related to the business
The latest full balance sheet of the business

If you have hired an accounting firm, you should provide them with as much information about your business as you can because it will result in an accurate and successful business valuation.

Three Business Values

The total value of a business is the culmination of three different values. These are:

1. Book Value

The book value or the liquidation value is the most straightforward part of the total business value. It is similar to your net worth which means the total value of your business recorded on the books. You can obtain the book value after eliminating all of the liabilities from your business assets.

2. Present Value

Present value is determined using the current and anticipated cash flows, which indicates your business’s cost both in current and future times. A steady company that has a stable stream of earning has the best chance of getting an accurate present value.

3. Fair Market Value

This is the estimated price of your business according to the situation of the market at the time of valuation. As a seller, fair market value is the most important value for you because you use it to set a cost on your business while meeting the potential buyers.

Business Valuation Formula

There are different mathematical as well as conceptual formulas involved in determining the value of a business. You can start the business valuation process using various different steps as all of the following tools will give you a good estimate value of your business, and you can use the acquired number during negotiations.

A) Asset Valuation

Asset valuation includes valuing all of the assets that your business owns and showing them on a well-maintained balance sheet. Assets, for example, land, building, cars, cash, equipment and intellectual properties all have values which should be included.

B) Cash Flow

The majority of buyers are interested in learning about the earnings of your business and how much revenue it can generate. It is possible via a cash flow statement, which gives all of the details about cash coming in and out of business.

C) Seller’s Discretionary Earnings (SDE)

SDE is the most common approach of business valuation implemented by accounting firms all over the world, including Malaysia. Its purpose is to find out the amount of money a business brings to its owner. The following formula can calculate it:

SDE = (Total Non-Taxed Earnings + Personal Salary + Non-essential Expenditures) – Liabilities

In a Nutshell

Business valuation is an essential step in selling or buying a business. Due to the rapidly changing economic conditions of a particular market or country’s economy, it can be quite difficult for firms to evaluate their worth accurately.

Therefore, you can use the accounting services present in Malaysia to determine an accurate value of your business and conduct effective negotiations.

For more information, feel free to get in touch with us.

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7 Reasons Why Cash Flow is More Important Than Profit

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Post date May 19, 2020
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7 Reasons Why Cash Flow is More Important Than Profit

Most small-scale businesses and start-ups begin with the end (profit) in mind. But what they overlook is the importance of cash flow over profit.

Business owners remain unaware of the fact that cash flow is very important for the financial health of their firm. That is why it’s often recommended to seek the help of accounting services, be it in Malaysia or other parts of the world, to profitably handle your firm’s financial matters.

Profit and cash flow are two sides of the same coin. So what difference does it make when both terms mean ‘making money’?

What is a Profit?

Profit is the surplus revenue after deducting business expenses. It determines the position of a firm in the overall competitive market.

The three main types of profit are gross profit, net profit and operating profit.

What is Cash Flow?

Cash flow is the total amount of cash moving in and out of your business. It better determines the present situation of your business. Usually, cash flow is calculated on a monthly basis.

Cash flow positive is when more money is moving into the business rather than going out during a given time. Cash flow negative indicates more money is spent compared to the amount the business receives.

Accounting services operating for businesses aim to maintain positive cash flow to improve sustainability reporting, necessary to keep investors satisfied.

Seven Reasons Why Cash Flow is More Important Than Profit

Here’s why the alluring profit trap isn’t right for your business:

1. Cash Flow Indicates Operational Issues

Positive and negative cash flow fluctuations can indicate operational issues within your firm, something that profit can’t show. For example, if most clients delay responding to invoices or payments, the cash flow can get out of balance. This results in a situation where one month the company experiences loss, while the next month in profit. The source of this trouble lies in the incoming cash flow.

Although your sales are steady, you need to ensure a steady flow of incoming payments as well.

2. Cash Flow Helps With Business Growth

A steady, positive cash flow that is invested to expand your business is a far superior strategy than simply hanging on to small profits. Instead, growth due to continual cash flow can lead to heavy profits in future. It’s a sign of the long-term prosperity of the organization.

3. Cash Flow Is Money at Hand to Pay Debts

Counting only on heavy profits and not leaving any money in the bank can increase your debts. When you don’t pay in time, the late fees and overdrafts are added up to the initial amount.

With cash flow, you can pay off the debts and free yourself from the burden in less time. This way, the business continues to have cash in hand to decide upon future investments once the debt is paid off.

4. Cash Flow and Profit Can Convince New Investors

A business that has a steady revenue, net profit and cash flow shows the future potential of a business. Investors would prefer to collaborate with such organizations because they are able to balance their financial graphs well.

5. Positive Cash Flow Indicates Healthy Financial Growth

Profit cannot be predicted, but cash flow helps in predicting the growth of a business. Continuous positive cash flow means you can plan income and investments for the upcoming months as well.

6. Positive Cash Flow Prevents You From Having to Take On Heavy Loans

Taking large loans to manage risky investments seems like a good idea at first but if you have poor cash flow, it can delay the repayments, resulting in an increase in interest. Positive cash flow is a priority as it helps you to manage repayments or even prevent you from needing the loan in the first place.

7. Cash Flow is a Reliable Determiner of Growth

Profit cannot precisely determine where your business stands, while cash flow can. It cannot be manipulated to show business growth when it’s not the case. That’s why owners and investors prefer to determine the health of a business based on the cash flow of an organization.

For more information on cash flow or other accounting services, feel free to get in touch with us.

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Improve Budgeting And Forecasting For Your Business

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Post date May 19, 2020
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Improve Budgeting And Forecasting For Your Business

Budgeting, planning and forecasting (BP&F) are three integrated steps for the smooth running of a company’s fiscal year.

No matter how big or small your business may be, an accurate budgeting and financing process can help a company achieve its financial goals. But how can auditing firm in Malaysia improve forecasting and budgeting?

Here are 7 expert tips to help you budget and forecast for achieving annual financial goals.

1. Ensure Transparent and Clear Goals are Set

Often auditing firms fail to plan and budget the fiscal year accurately. This leads to expectations of unrealizable goals and inaccurate predictions of the future of a business. With clearly-set goals, it becomes easier to follow the plan and understand where the company’s finances are heading.

2. Prepare the Budget According to a Plan

The vacancy tax is being formulated by the Housing and Local Government Ministry (KPKT). It is expected to be imposed on developers who fail to sell properties in a few months during the next few years. The purpose of this tax is to minimize the existence of empty residential units in the country.

Moreover, the Ministry is also expecting that the vacancy tax will prompt developers to become more careful and responsible with their projects, especially high-rise and large-scale developments. The introduction of the vacancy tax does not need Parliament’s approval as it can be implemented without amending the Act.

3. Communicate and Make Informed Decisions

Budgeting and forecasting is basically a team effort. Communicate with each department to provide realistic goals for each month and year. Leaders and teams can be involved in determining realistic budgets for each department. They may offer a different perspective to you for future plans that you can consider.

4. Set Adequate Time for B, P & F

Budgeting shouldn’t be a robotic act of filling in facts and figures for the cloud-computing software to predict. Rather, competitive accounting services in Malaysia consider the previous year revenue, cash flow, budget, payroll and HR services budgets, etc. against the organization’s current situation. This is because budgeting and forecasting lay a framework for future budgets, limiting any major changes to the company’s revenue stream later on.

A strong budget helps to create convincing sustainability reporting for financial investors of the company. Thus, a keen eye is needed to find ways you can achieve positive cash flow and profit for the upcoming year.

5. Prepare a Flexible Budget

For better forecasting and budgeting, it is essential to avoid a static and unchanging budget. Because annual budgets and forecasts can become obsolete and inaccurate within the first 3 to 4 months of the year. Therefore, it should be flexible to allow for unforeseen changes. For example, tax incentives in Malaysia after COVID-19 pandemic require companies to alter their budgets.

Sometimes, inflexible budgets can frustrate employees if they are held accountable for unrealistic goals. In the worst case, this can lead to faulty decisions and plans impacting a company’s financial health.

6. Implement a Rolling Forecast

No matter what, no one can predict the circumstances that may arise during the year. To keep up with equipment failure, industrial trends and internal conflicts, it is necessary to implement a rolling forecast for the business.

After each quarter of the year, keep updating financial forecasts for the upcoming months based on the current situation that can help you predict future profits better. Rolling budgeting and forecasting also let you align the budget with the annual strategic plan while maintaining the accuracy of budgets and forecasts.

7. Simplify the Process

By simplifying the process of budgeting and forecasting, you make the entire job easier and more accurate. But how it can you achieve this? With automated data aggregation and data entry process. Using technology for efficient budgeting and forecasting is an error-free process, far easier than the manual entry of digital data. Once a strong budget is created, all you would need to do is to update it on a quarterly basis to cope with the sudden changes that hit a company from time to time.

However, invest proper time to ensure that all the data entered is important because, without it, the entire automated framework of budgeting and forecasting will turn out wrong.

For more information, feel free to get in touch with us.

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Ways To Handle Cash Flow Crisis

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Post date May 19, 2020
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Ways To Handle Cash Flow Crisis

Over 80% of business failures are attributed to cash flow crisis. When there is a greater outgoing cash flow than that entering the business, there is a cash flow crisis that needs to be dealt with intelligently.

Businesses increasing profits over the years seem to be free of cash flow crisis. Profitable companies can also face cash flow problems if investments, finances and operations are not balanced for optimal efficiency.

The key is not to give up on your business early on. Even Phil Knight’s company Nike faced a cash flow crisis but he never gave up. (More on that later)

Taking inspiration from this, here are a few strategies you can implement to improve cash flow:

1. Seek Out Investors

With limited money on hand, that is, more money going out of the business than coming into the business, one way to keep the business running is bringing in more money. This can be achieved by seeking more investors.

Having a strong sustainability report will effectively convince investors to believe in your business idea. That’s how Knight continued his never-ending dream of making Nike an international brand.

Nike’s owner Phil Knight was faced with a similar challenge of balancing innovation and growth while keeping the cash flow positive. Pressurised by his funder to slow down growth, Knight decided to take on more debt instead from another funder who believed in his ideology. The focus on an alternative means of growth to improve cash flow helped Knight get out of the cash flow crisis.

However, be sure of interest rates and also consider alternative options to weigh against it. Also, businesses having an intrinsic cause of cash flow crisis should avoid taking on more debt. It will only make the situation worse.

2. Boost Your Receivables

A cash flow crisis often occurs when your receivables are a little behind your payables in schedule. The faster the money starts flowing into the business, the quicker the problem is solved. To accelerate receivables, you can:

Accept pre-orders for your products
Ask for 50% advanced payment before providing the service
Send early and regular invoices to get on-time payment
Offer incentives for on-time payment
Make the payment process (through mobile or electronic means) easier for clients.

Accounting services in Malaysia and all over the globe are usually particular about monitoring cash inflow through these means to balance payments.

3. Reduce Your Payables

To limit the outgoing cash flow, mainly payables, you can negotiate costs with suppliers by signing a long-term contract with them. Vendors and suppliers having a loyal relationship can have the benefit of delay in payments and a little leverage in other things as long as they are stuck in cash flow crisis.

If a few bills go unpaid, strategically devise how you will counter it. Plus, skipping on and neglecting the payroll and HR services can have serious ramifications making it difficult for businesses to retain their key employees. This can be damaging to the company in the long run.

4. Reconsider The Budget Plan to Increase Profit

Entering a cash flow crisis should draw your attention first to the yearly plan—the income, expenses, processes and operations. Determine whether the cause of the crisis is intrinsic or extrinsic. Reconsider the budget plan to reduce or prevent future shortages.

Based on job costings, figure out the profit and loss statements as well as profit margins of your business to find out the areas of your business that are profitable or not. Let go of clients, assets and leases that are only bundling up the costs with less profit for your business.

Re-plan your pricing structure for optimal profits and increased cash flow. All these minor details can help you understand where the problem is occurring and how you can overcome it without losing your business.

For example, Malaysian businesses can employ strong accounting services available locally to create a new business plan.

5. Cut Down Expenses

Alert and updated business owners scrutinize their accounts very carefully—especially the expenses. When in a cash flow crisis, it is imperative to manage your expenses and cut down unnecessary expenses.

Spend only on the costs that keep your products and services at the top. The aim is to keep the business operational and generate continuous revenue to increase incoming funds.

6. Increase Sales Market

A practical solution to increase cash flow is to increase income sources by expanding your business. Some of the ways to increase income sources include:

Add new products and services in your market after doing product research.
Increase incentives to make customers buy more.
Increase prices on products that sell more.
Create a new marketing strategy to expand your business avenues.
Keep your loyal customers within the loop to increase product value and figure out what products are benefiting your company.

Brainstorm ideas to increase the incoming cash flow for your business to balance the costs and expenses. For more information, feel free to get in touch with us.

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How to Avoid Another Great Depression: Effects of Covid-19

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Post date May 19, 2020
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New York, NY, USA - April 6, 2020: A black man wearing protective mask man crossing 6th Avenue of Americas in Midtown Manhattan deserted because of the city lockdown caused by COVID-19 pandemic.

How to Avoid Another Great Depression: Effects of Covid-19

It’s almost the sixth month of the year, and we’re still trying hard to wrap our heads around the scale and scope of the global impact of the Covid-19.

With billions of people around the world still under some sort of lockdown, and more than 200 countries affected, and the number of new cases and deaths growing significantly, a second crisis seems to be rearing its ugly head — in the form of another great depression.

In as much as we want to leave this crisis behind as soon as possible — to go back to our social and economic life — we must give optimum focus on public health. However, it comes at a high price.

Government and business collaboration — working with the latest scientific evidence — is our best bet in preventing this short-term recession from becoming a great depression.

Governments and big corporations who can bend the curve can carefully start initiatives to get part of social and economic life going again, monitored by public health officials of course.

Signs that signal an impending economic

A) Increased unemployment rate

An increased unemployment rate is usually a common sign of impending economic depression.

B) Rising inflation

Inflation can be a good sign that demand is higher due to wage growth and a strong workforce. However, too much inflation will discourage people from spending, which can result in low demand for products and services.

C) Declining property sales

In a stable economy, consumer spending is usually high, including the sale of homes. But when sales of properties start to drop, just like currently is, it may signal an impending economic depression.

The two supportive strategies to help prevent further growth of the virus, which will enable governments to make decisions on how to restart social and economic life, and steer us away from an impending depression include serological testing and rapid antigen tests.

Here are some of the ways to prevent another economic depression

1. Expansionary Monetary Policy

The policy involves cutting down interest rates to encourage investment and borrowing. When the interest rates are lower, consumers will enjoy more value for their money and will be motivated to spend more.

2. Expansionary Fiscal Policy

3. Financial Stability

This involves the government guaranteeing bank deposits, which will promote the credibility of banks.

The world has managed to keep an economic depression at bay for decades. However, there’s always a chance for it to happen again if all sectors of the economy and countries do not work together to prevent it.

4. Serological Testing

This is simply looking for specific coronavirus antibodies in the general population. In doing this, you can check the fraction of the people that have been in contact with the virus and may be immune.

5. Rapid Antigen Tests

This has to do with developing a reliable test system to quickly diagnose people who carry the virus, without or with light symptoms, and install contact tracing to effectively identify contacts of infected people that could be quarantined to prevent further spread.

Combining all strategies may be the best chance of getting the economy running again. The sectors they choose to get running first between opening schools, workplaces, shops, and restaurants, should be a choice left to the individual countries.

As soon as best practices become clear, countries should be willing to learn and coordinate with each other. The only way to get out of this is to work together. To know more about how your company economy is affected by Covid-19 pandemic, it’s important for you to consult an accounting agency. They will provide you with a clear record and ensure you take the right steps in recovering from this economic slope.

For more information, feel free to get in touch with us.

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Tax Credit and Incentive for Corporates in Malaysia

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Post date April 28, 2020
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Tax Credit and Incentive for Corporates in Malaysia

Malaysia offers a vast range of tax incentives that cover the majority of the industrial sectors. There are different forms of tax incentives in Malaysia as they can be granted in the form of tax exemption or allowances. Usually, tax is exempted, which means that shareholders’ income is not taxed.

The following schemes and incentives cover different corporates in Malaysia.

Pioneer Status (PS) And Investment Tax Allowance (ITA)

Businesses operating under the manufacturing, tourism, agricultural and any other industrial sector are eligible for PS and ITA. Such industries are responsible for the production of products.

Industries with pioneer status are exempted 70% of the tax on income for five years. Payable taxes for PS and ITA also depend on the type of business. For example, a project that involves a large amount of investment and has great importance in the development of a nation is given a huge tax incentive. Similarly, manufacturing companies, the IT industry and specialized machinery production are given special status under the PS or ITA.

Special Incentive Schemes

Any local business in Malaysia that wants to expand, introduce automation and modern machinery is eligible for the reinvestment allowance. The terms of this scheme are:

The allowance is specified up to 15 years from the first year of claiming the tax credit.
An allowance of 60% of QCE sustained must be used against 70% of legal income. The unsettled 30% is taxed at the usual CIT rate.
Ministry of Finance has the right to withdraw the allowance if a company fails to comply with taxation rules.

Regional operations

A principal hub is a local organization in which Malaysia is used as the base of conducting both regional and international business activities and operations. Such functions may include risk management, strategic decision making, controlling and supporting the key shares related to the company.

Some of the other incentives available for regional operations of businesses are:

Absence of ownership conditions
Flexible rules for foreign exchange
Customs duty exemption for certain products like raw materials, repackaging materials and other finished products.

International trading companies

International trading companies are excused for five years on the income of 20% of the total export revenue, up to a maximum of 70% of income.

To avail the tax incentive, an international trading company must fulfil the following three conditions:

A company must have a branch in Malaysia, and 60% ownership of the businesses must be Malaysian.
The minimum revenue of the organization must be MYR 10 million per annum.
Business operations must make use of the local services of Malaysia, for example, hiring an accounting firm in Malaysia, banking, financing and insurance must be done locally.

Financial services sector

Since 2007, a ten years tax exemption is given to:

Islamic banks operating under the Islamic Financial Act of 2013. It includes Islamic banking performed in foreign currencies as well.
Islamic insurance services (Takaful) that are registered under the Islamic Financial Act 2013 are exempted from the tax.

Petroleum sector

The petroleum sector is given the following tax incentives:

Quick allowance is provided on the total amount of finance invested from the year of assessment 2010 to 2024 for the working of petroleum industries.
An investment allowance of 60% is given.
A significant portion of the income is exempted from the tax payment, which brings down the total tax rate from 38% to 25%.

Sabah Development Corridor (SDC)

SDC is also a tax scheme which can be availed by companies. Under SDC, an organization can enjoy the following benefits:

100% income tax exemption for five years in the shipping sector.
100% income tax exemption for ten years in the production, hotel and education sector.

The incentive for rural areas

Tax incentives are designated for less-developed regions as well. Such schemes make sure that small businesses are able to flourish in small areas and play a role in the development of backward areas. They include:

100% tax exemption for up to 15 years for companies that create employment and meet a set target of revenue.
Tax exemption on land or building lease.
Accounting firms in Malaysia that are based in rural or less-developed areas are also given tax exemption.
Customs duty exemption on raw materials, machines and other equipment needed in small industries.

Green Incentives

Green incentives refer to the tax exemptions provided to companies that are part of the green energy research and playing a role in the development of modern technology for clean energy.

Companies dealing with renewable energy, energy efficiency, waste management and green energy research are eligible to apply for Green incentives.

For more questions regarding tax credit and incentive for corporates in Malaysia, feel free to get in touch with us.

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Tax Incentives in Malaysia: 2024 Guide

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Post date April 28, 2020
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Types of Business Tax Incentives in Malaysia

There are various kinds of tax schemes present in Malaysia, which includes tax incentives and exemptions for different types of businesses. They also include allowances and tax deductions on a certain income.

What Are Tax Incentives?

Tax incentives are reductions or exemptions from taxes provided by the government to encourage economic activities. In Malaysia, these incentives aim to attract foreign investments, promote specific industries, and support startups and SMEs. They can take the form of tax holidays, allowances, or deductions.

Types of Business Tax Incentives in Malaysia

Malaysia’s tax incentives are broadly categorized into pioneer status, investment tax allowance, and special industry-specific incentives. Below, we’ll dive into each type:

Pioneer Status (PS)

This incentive provides companies with partial or full income tax exemption for up to five years, extendable in certain cases. It targets businesses in industries that the government aims to develop.

Benefits:

70% to 100% exemption on statutory income for up to 5 years.
Eligible companies can extend the tax exemption period.

Who Qualifies? Industries such as:

Manufacturing
Agriculture
Biotechnology
Renewable energy

Companies must apply through the Malaysian Investment Development Authority (MIDA) to enjoy Pioneer Status.

Investment Tax Allowance (ITA)

For businesses not qualifying for Pioneer Status, ITA offers an alternative form of tax relief. This allows companies to offset their capital expenditures against taxable income.

Benefits:

60% to 100% allowance on qualifying capital expenditure for 5 years.
The unused allowance can be carried forward until fully utilized.

Eligibility:

Applicable to industries like automation, modern agriculture, and environmental conservation.
Companies must demonstrate their commitment to innovation or productivity improvement.

Reinvestment Allowance (RA)

Businesses looking to reinvest in expansion, automation, or modernization can benefit from the RA.

Benefits:

60% of qualifying capital expenditure is exempted from taxable income.
Available for a period of 15 consecutive years.

Industries Covered:

Manufacturing
Agricultural processing

Incentives for Small and Medium Enterprises (SMEs)

SMEs play a critical role in Malaysia’s economy, and the government provides tailored tax incentives for them.

Key Incentives:

Reduced corporate tax rate of 17% on the first RM600,000 of chargeable income.
Various grants and allowances under the SME Digitalization Initiative.

Industry-Specific Incentives

Some industries receive exclusive tax benefits to spur their growth and global competitiveness:

(a) Halal Industry Incentives

100% tax exemption for halal-certified companies.
Focused on businesses in the food, cosmetics, and pharmaceutical sectors.

(b) Green Technology Incentives

Green Investment Tax Allowance (GITA) for renewable energy projects.
Green Income Tax Exemption (GITE) for service providers.

(c) Tourism Tax Incentives

Tax deductions for building or renovating tourism-related facilities.

Types of Business Tax Incentives in Malaysia Based on Industry

1. Trading Sector

Industries related to the production of goods, tourism sector, hoteling, manufacturing and other commercial businesses can avail pioneer status (PS) or investment tax allowance (ITA). Under PS, companies’ tax is exempted from 70% of the income for five years since the formation of the business.

According to ITA, 60% of the capital expenditure is excused on 70% of the legal income.

2. Special Incentive Scheme

Businesses that are based in Malaysia and generating income from approved businesses through the Ministry of Finance are qualified for this scheme.

It provides a tax exemption on 70% of the total income. Companies that involve heavy import-export businesses are also eligible for this special tax incentive scheme.

3. Food Production

Food production companies can claim significant tax concessions, especially if they are operating under a large corporate enterprise. Moreover, 100% tax exemption can also be availed under certain conditions if the subsidiary industries are approved through the Ministry of Finance under the list of food production industries.

4. Biotechnology

Biotechnology is rapidly rising in the scientific technology sector. Therefore, Malaysia offers several tax incentives to the companies related to biotechnology that are approved through Biotechnology Corporation, Malaysia.

The following incentives are provided to biotechnology organizations:

Start-ups and new organizations are provided with a 100% tax exemption for up to 10 years.
Expanding businesses are given a 100% exemption for up to 5 years.
Up to 20% concession is provided on the taxes after a period of 10 years.
An organization with a separate building for biotechnology research is provided with an industrial building allowance of 10% for 10 years.
Import duty charges are exempted from the biotechnology sector. Since the export of samples and modern machinery is essential in efficient biotechnology business, tax incentive on custom duty is a huge advantage.

5. Education

Private higher education institutions are exempted from the majority of the taxes, for example, development of new curriculum, modification in a course(s), and annual training of the teachers.

Non-profit schools are also provided with tax incentives in Malaysia. However, they must be registered and approved by the Ministry of Education (MOE). There is a certain amount of tax that is exempted. It depends on the scale and strength of the school.

International schools are usually profit-oriented. No tax is collected from these schools for a period of 5 years since their establishment. After this period is over, a certain amount of tax is set, which depends on the number of students studying at the school and the fee structure. Equipment needed in such schools is usually imported, which is made tax-free.

Kindergarten schools registered with MOE are eligible for the education tax incentive scheme. For a period of 5 years, tax exemption is provided to the pre-schools based on their total income. Moreover, building allowance is given to kindergarten schools.

All private pre-schools and kindergartens registered with the MOE are eligible.

6. Green Incentives

Green incentives deal with companies related to renewable and green energy. Any modern technology related to green energy adoption and research in clean energy is covered in such incentives and exempted from customs duty.

Moreover, allowance can be claimed by the companies for the successful purchase of state-of-the-art equipment needed for green energy research. Revenue generated through green technology and services is also exempted to some extent.

7. Healthcare and Wellness

Medical and pharmaceutical industries wishing to expand and modernize their operation are provided allowances by the concerned authorities. Moreover, a 100% tax exemption of QCE is given for a period of 5 years.

8. Information and Communication Technology

The IT industry has become a major part of people’s daily lives. Development of the IT industry is essential for the smooth flourishing of other industries like the latest software, applications, hardware and websites are used by the majority of the other types of businesses.

E-commerce websites are given a 20% tax exemption on the initial charges of web development for a period of 5 years. Moreover, offshore trading has also become a huge business in Malaysia because it enjoys a huge tax incentive, depending on the total revenue.

9. International Trading Companies

International companies that have established branches in Malaysia, has 60% Malaysian ownership and make at least RM10 Million are provided with tax incentives under the foreign business rules. They are provided with a 20% tax exemption of the 70% legal income for a period of 5 years.

10. Shipping

A tax exemption is given on 70% of the income to organizations and people involved in the transportation of business cargo through Malaysian ships.

The aforementioned highlighted the different types of business tax incentives in Malaysia. If you have any doubt left regarding business taxes, please feel free to get in touch with us.

Eligibility Criteria for Tax Incentives in Malaysia

To qualify for these incentives, businesses must meet specific requirements, including:

1. Registration and Compliance

The company must be registered in Malaysia and comply with local tax laws.

2. Investment in Target Sectors

Tax incentives often focus on industries that align with the government’s strategic economic goals.

3. Application Process

Applications must be submitted to relevant authorities such as MIDA, IRB, or specific industry regulators.

2024 Updates on Tax Incentives in Malaysia

The Malaysian government has introduced new updates and revisions to tax incentives in 2024 to keep up with global economic shifts and enhance local industries.

Key Updates:

1. Enhanced Pioneer Status for Digital Economy

Businesses involved in cloud computing, AI, and digital content are now eligible for extended tax holidays.

2. Expansion of Green Technology Incentives

More sectors are eligible for GITA and GITE, promoting sustainable practices.

3. Tax Incentives for Startups

New measures include tax deductions for angel investors and seed funding for tech startups.

4. Targeted SME Reliefs

Increased tax reductions for SMEs, particularly those adopting digital transformation.

Why Tax Incentives Matter

Understanding and leveraging tax incentives can significantly impact a business’s financial health. By reducing tax liabilities, businesses can reinvest savings into growth opportunities, enhance their competitiveness, and contribute more effectively to Malaysia’s economy.

Benefits Include:

Boosting cash flow.
Lowering operational costs.
Supporting long-term growth strategies.

How to Apply for Tax Incentives in Malaysia

Applying for tax incentives requires thorough documentation and adherence to guidelines set by relevant authorities.

Steps:

Identify the applicable incentive based on your business activity.
Gather necessary documentation, including business plans, financial statements, and investment plans.
Submit the application to the appropriate body, such as MIDA or the IRB.
Monitor and maintain compliance throughout the incentive period.

Conclusion

Tax incentives in Malaysia are a powerful tool for businesses and investors looking to maximize their potential in a competitive market. By understanding the different types of incentives, their benefits, and the latest 2024 updates, you can strategically position your business for growth.

Whether you’re an SME or a large corporation, taking advantage of these incentives can lead to significant financial benefits.

Frequently Asked Questions about Malaysia Tax Incentives in Malaysia

What are the key tax incentives for SMEs in Malaysia?

SMEs can enjoy reduced corporate tax rates and various allowances like the SME Digitalization Grant.

How do I know if my company qualifies for Pioneer Status?

You’ll need to review MIDA’s guidelines and submit an application to determine your eligibility.

Are there incentives for adopting green technology?

Yes, GITA and GITE offer tax exemptions and allowances for businesses in the green technology sector.

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Who Needs to Register for Tax File?

Post author By admin
Post date April 28, 2020
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Who Needs to Register for Tax File?

1. What is e-Daftar?

e-Daftar is an application that facilitates taxpayers through online registration of tax file in Malaysia. Income tax files of companies, employers, individuals, partnership and limited liability partnership (LLP) can be registered via e-Daftar.

2. Who must register Income Tax File?

The following entities and accounting firms in Malaysia must file their taxes:

Individual who has income which is taxable
A businessperson with taxable income
An employee who is subject to monthly tax deduction
Unregistered companies with IRBM
A business or company which has employees and fulfilling the criteria of registering employer tax file
The partnership which are not yet registered with IRBM
Limited Liability Partnership (LLP) which are not yet registered with IRBM

3. What are the documents required for tax registration?

The documentations vary from different categories as discussed below:

Individuals without Business Income

National Identification Card
Identification can also be proven through Armed Forces card, Police card, or Passport

Individuals with Business Income

National Identification Card
Identification can also be proven through Armed Forces card, Police card, or Passport
Business Registration Certificate

Local company (Private Limited Companies and Limited Company)

Notice of registration of the company under section 15 Companies Act 2016 or certificate of incorporation of a company under section 17 Companies Act 2016 (if available)
Notification of Change In The Register Of Directors, Managers And Secretaries under section 58 Companies Act 2016

Foreign Companies

Notice of registration of the foreign company under section 562 Companies Act 2016
Particulars Of Change Or Alteration Relating To Foreign Company under subsection 567(1) Companies Act 2016

Partnership

Copy of the partnership business registration certificate issued by the Companies Commission of Malaysia (SSM)
Complete list of partners and any required documents like their ID papers.

Limited Liability Partnership (LLP)

Copy of the notice of registration of the LLP or copy of the certificate of registration of the LLP (if available) under section 11 of the Limited Liability Partnership Act 2012

Copy of the notice of registration of the conversion to LLP under section 32 of the Limited Liability Partnership Act 2012 (if relevant) issued by the Companies Commission of Malaysia (SSM)

Complete list of partners and any required documents like their ID papers.

4. How to send the documents for tax registration?

Tax registration can be done with the help of an auditing firm in Malaysia as it will guide you throughout the process of tax registration and tax filing and inform you about the tax incentives available in Malaysia. However, the tax registration can also be done individually as well because the whole process is smooth and efficient.

After you have filled the forms and attached the required documents, they can be sent via:

The online website of e-Daftar
Fax: 03-8922 1676
You must state the application number when faxing the documents.
For any queries, issues, or comments can contact the IRBM’s line at 03-8913 3800

5. When will you receive the Reference Number of Income Tax?

After you have completed the application and the submission is accepted online, you will get the reference number in 3-4 working days.

How to check the application status?

The application status can be examined online by entering your application number in e-Daftar.

Tax Rates

In Malaysia, the rates without availing any tax incentives are:

Individual Tax Rate (Resident): 0% to 28% for year of assessment 2019 (0% to 30% for year of assessment 2020)
Company Tax Rate (Resident): 17% and 24% for Small Medium Enterprise (SME) for year of assessment 2019 onward (24% for non-SME)

In terms of the income tax system, Malaysia has adopted a unique territorial system of taxation. Any person or company, local and foreign, are subject to income tax for any income accruing in or derived from Malaysia or received in Malaysia. However, certain exemption from income tax is available for certain type of income.

For example, foreign source income received in Malaysia is exempted from income tax as stated in the local tax law except for banking, insurance companies and air/sea transportation companies. Meanwhile, capital gain is not subject to income tax but certain gain may subject to Real Property Gains Tax in Malaysia.

Individual tax have to be paid by the local residents as well as non-residents of Malaysia for income generated from Malaysia. According to the law, generally, a person who has lived in Malaysia for at least 182 days is declared a tax resident in Malaysia.

Petroleum Tax

Petroleum operations business in Malaysia is subject to petroleum income tax, which is about 38% of the total revenue generated through fuel operations and income tax rate of 24% applies to petroleum functions in fields.

Local Income Tax

In Malaysia, no state, provincial, or local government has imposed taxes on income.

Small-scale Businesses

Small companies, as well as auditing firms, if fulfilled certain criterias, would be able to enjoy massive tax incentives in Malaysia. Company incorporated in Malaysia with shareholder’s funds not exceeding RM 500,000 and has at least 60% of Malaysian ownership is eligible for certain tax incentive such as Pioneer Status which company can get a 100% tax exemption for a period of five years so it can thrive in the competitive market.

Another available tax incentive is the Investment Tax Allowance where 60% of the qualifying capital expenditure incurred within five (5) years can be offset against its statutory income. A sole proprietor or partnership is eligible to apply for the incentives provided that a new private limited/limited company is formed to take over the operations/activities of the existing production/activities.

Have more questions regarding the registration of company tax file in Malaysia? Feel free to get in touch with us.

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e-Filling in Malaysia

US Individual income tax return. Accountant working with US tax forms

e-Filling in Malaysia

The Inland Revenue Board of Malaysia (IRBM) had introduced a system for submission of the income tax return called e-Filing. It is the easiest and the fastest method, an online system for all those who are required to file tax return under the rules and regulations made by the IRBM. Around 1.7 million tax return forms have been received by Inland Revenue Board through the e-Filing system since the year 2018.

Due to the recent COVID-19 outbreak, the IRBM has issued an amended tax filing program for the year 2020 where the deadlines to file and pay income taxes for certain category of taxpayers have been given an additional extension of time. This submission include Form E, BE, B, P, BT, M, MT, TF, TP, TJ and C (for certain financial year end). The extension given are differentiated based on types and submission method. Let us guide you with further details:

E / e-E

It refers to the return of employer for the year of remuneration 2019. The statutory deadline to submit Form E is on 31 March 2020. For a company or Labuan company employers, the form must be submitted by e-filing only whilst for non-company and non-Labuan company employers, the form can be submitted either by e-filing, postal delivery or hand delivery.

Based on the amended tax filing program, the deadline to submit Form E for all type of taxpayers is extended for two (2) months.

BE / e-BE, B /e-B, P / e-P, BT / e-BT, M / e-M, MT / e-MT, TF / e-TF, TP / e-TP, TJ

It refers to the tax return for Individuals, Partnerships, Associations, Deceased persons’ estate and Hindu Joint Families for the year of assessment 2019. The statutory deadline for taxpayers under this category who do not carry on business is 30 April 2020 whilst for taxpayers who carry on business is 30 June 2020.

All tax returns under this category can either be submitted by e-filing, postal delivery or hand delivery except for Form TJ where e-filing is not available. Based on the amended tax filing program, the deadline to submit all of the tax returns under this category is extended for two (2) months.

e-C

It refers to the tax return for companies for the year of assessment 2019. The statutory deadline for companies is seven (7) months from the date of closing the accounting period. The Form C must be submitted by e-filing and the grace period for submitting the Form C by e-filing is one (1) month as per the initial tax filing program issued by the IRBM.

However, based on the amended tax filing program, additional extension of time is given for companies with accounting year ended 31 July 2019 until 30 November 2019, where the deadline is extended for two months.

Acceptance of e-Filing

More than 4.2 million corporate taxpayers have accepted to submit tax return forms via e-Filing system. The Chief Executive Officer of IRBM, Dato’ Dr. Sabin bin Samitah, encouraged the taxpayers to submit their returns as soon as possible so that the procedure of refund (if any) can start immediately. He also added that this system has been introduced to facilitate the taxpayers.

Accounting firms in Malaysia are providing more information to the taxpayers that they can submit for example, the Form BE by using a smartphone or even a tablet. This activity is performed via Mobile Filing Application (m-Filing / m-BE). The submission using a mobile application is more efficient for taxpayers who have a busy schedule. Now they can submit their tax return forms all by themselves.

All taxpayers are encouraged to furnish their Income Tax Return Forms (ITRF) within the grace period mentioned by IRB. It is important to submit the tax return within the stipulated time to avoid the penalty charges that can be imposed if the income tax return is filed after the grace period.

Almost every accounting firm in Malaysia is providing services for tax return filing that is helpful to generate and complete the taxpayer’s Income Tax Return Forms electronically. e-Filing is an easy procedure and everyone can file tax return through this system. All information can be accessed within a few clicks on the IRBM’s official portal.

Hence, all taxpayers are strictly advised by the IRBM to submit Tax Return Forms within the given limited period through the e-Filing system (where available). In case of any query, IRBM is always contactable through the online system, the Live Chat of HASIL and Help Line of HASIL at 03-89111000.

If you have any doubt regarding your tax returns and would like to seeks professional accounting advice, do feel free to get in touch with us.

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Why You Need An Accounting Firm To Help With Your Tax?

Post author By admin
Post date March 10, 2020
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Why You Need An Accounting Firm To Help With Your Tax?

As a business owner, there are certain things you can’t do by yourself either because you lack the expertise to execute the task or because you have a tight schedule. One of those things is handling your taxes.

Filing your taxes can be quite challenging. For example, filling out a W-2 is quite easy, provided you have the time and some little knowledge regarding how it is done. However, in situations whereby you have a very complicated tax return, you might have to consider hiring an expert, a person who can save you the time, stress and the money.

An accountant from an audit firm in Malaysia or an accounting firm in Malaysia (if you reside in Malaysia) can help you take care of those complicated tax returns. The following are a few reasons why you need an accounting firm to assist you with your taxes.

1. You own a small enterprise or a side job

If you are a business owner, you will be faced with many tax write-off, and an expert can help you handle them without you wasting your time.

Also, if you have a particular side-hustle be it driving Uber, selling products on sites such as Etsy or racing horses, for instance, you might not have time to take care of your 1099s.

2. You get contacted by the IRB

If you get contacted by the IRB, and they request for something as basic as substantiation of expenses linked to a car you purchased, you will need the help of an accounting firm.

You might say it’s quite simple and choose not to contact an accountant from an accounting firm in Malaysia or wherever you reside, but you must be aware that if you decide to handle it yourself and you do so incorrectly, you might transform a basic issue to something huge.

A professional tax accountant fully understands the language of the IRB and would be able to assist you with that supposed “basic” issue.

3. You want your kids to go to college, and you are planning towards it

If you have a child who is mature for college and you are making preparations towards filling out the Free Application for Federal Students Aid (FAFSA), you would need help.

You will want to ensure that no unwanted assets or income are attached to your child’s name, for instance. That alone can end up hurting them for financial assistance, though this might be ideal for tax planning.

Therefore, if your child has a 529 plan or Coverdell ESA, or even if they have a little stake in your business, it would be great if you solicit for the assistance of someone who understands FAFSA.

4. You are a rental property owner

A tax return on real estate investment can be dicey along the way, and an expert (in-person of an accountant from an accounting firm) can help you determine the type of deductions you may be entitled to.

You should seek advice from a professional during your first year of owning a rental property.

5. You are self-directing your retirement

Your Roth IRA or 401(k) is not restricted to traditional investments in stocks, bonds, including mutual funds. With retirement vehicles, you can invest in other options like bitcoin and real estate. That is self-directing.

Taking it upon yourself to fill your return on these investments might be challenging. Therefore, you need to seek help from the right source. An accounting firm can help you with that.

In a Nutshell

Generally, the Accountants can assist you with your taxes. When you are making plans regarding who to hire, ensure you take into consideration how complex your return is. Aside from handling tax returns, accountants can also prepare transfer pricing documents and offer payroll and HR services.

For more information, get in touch with us.