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How Does Transfer Pricing Work In Malaysia

transfer pricing in Malaysia

How Does Transfer Pricing Work In Malaysia

Transfer Pricing Malaysia

Transfer pricing is an accounting practice by which inter-company generally makes reference to companies who are part of the same Group or related companies.

Over the years, Malaysia has become one of the fastest growing business hubs in the world because of her business friendly environment and central location. More than half of the world’s population lives within a 5-hour radius of Malaysia, and several business tycoons are looking to establish their companies on her soil.

Due to this, tax audit activities have intensified especially for Transfer Pricing. Tax payers who are involved in related company transactions must prepare “transfer pricing documents” which needs to be submitted to the tax authorities when requested.

Transfer Pricing Obligations in Malaysia

Malaysia has a list of items that should be included in the Transfer Pricing Documentation as follows:
  • The organizational structure, containing an organization chart which shows the parties involved in any controlled transaction.
  • Nature of business/ industry and market conditions
  • The controlled transaction.
  • Pricing policies
  • Assumptions, strategies, as well as information pertaining to factors influencing the pricing policy established.
  • Functional, comparability, and adequate risk analysis.
  • Selection and Application of the transfer pricing method.
  • Financial information
  • Documents used in developing the transfer pricing system index.
  • Any other relevant information or document for determining price.
Note that all transfer pricing documentation must be written in English or Bahasa Malaysia. Also note that it is not mandatory to submit transfer pricing documentation when filing a tax return. Nevertheless, these documents must be provided to the Malaysian Inland Revenue Board (IRB) within 30 days, and it must be kept in the administration for 7 years.

The Transfer Pricing Guidelines now has two other requirements in addition to the transfer pricing documentation. These are the Country-by-Country reporting, and the Master File.

Country-by-Country Reporting (CbCR)

This applies only to Multinational Enterprises (MNEs) with consolidated revenue of RM3 billion or more in the previous financial year.

In the event that the Malaysian company is the ultimate holding company of an MNE that fulfils the requirement above, the company should prepare and submit the following documents:
  1. Complete the notification for reporting entity to notify the Director General in writing if it is the ultimate holding entity on or before the last day of the reporting FY (i.e. 31 December 2019 if the tax payer’s year end is 31 December 2019). Please note that the notification letter will have to include details of all Malaysian and foreign non-reporting constituent entities
  2. Complete the CbyCR and submit it to the tax authorities on or before 12 months from the last day of the reporting FY (i.e. 31 December 2020 if the tax payer’s year end is 31 December 2019).


Malaysian companies who are subsidiaries of the MNE (either Malaysian based or foreign based ultimate parent) only has to fill up and submit the notification letter to notify the IRB in writing of the identity and tax residence of the reporting entity.

Master File

The IRB has also mandated the submission of a Master File alongside the transfer pricing documentation (also known as Local File) and CbCR. Any MNE which meets the criteria for submitting the CbCR in Malaysia, must also present the Master File.


What would happen when you fail to comply with the rules of transfer pricing Malaysia?


The following penalties or fines will be imposed on you when you fail to comply with the rules:

  • Omission or understatement of income will attract a 45% penalty
  • Failing to provide a contemporary transfer pricing documentation will attract a payable tax of 35%;
  • If transfer pricing documentation is not prepared according to the guidelines, a payable tax of 25% is the fine.

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

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Tips For Auditing Your Malaysian Company For The First Time

tips for auditing your malaysian company

Tips For Auditing Your Malaysian Company For The First Time

Do you own a startup company in Malaysia and wish to have this company registered as a private limited company?

 

If you do, it is worth knowing that it is mandatory and a core requirement under the Companies Act of Malaysia for every private limited company carrying out commercial activities in the country to appoint a qualified and registered independent auditor, audit firm in Malaysia, or accounting firm Malaysia, for auditing the company’s account annually and reporting to the company.

 

An audit in Malaysia involves procedures in order to obtain assurance and clarity as to a Malaysia company’s accounts and financial statements, and certifying that these statements were prepared according to the statutes of Malaysia Private Entities Reporting Standard / Malaysia Financial Reporting Standards for private limited companies and the Companies Act 2016.

 

Auditing is essential and compulsory for every private limited company in Malaysia regardless of the size or age of the company. In other words, whether or not you’re just starting out your company, if indeed you are seeking to have your company registered as a private limited company in Malaysia, you must ensure that you have an auditor in your service to qualify you to have a Malaysia company registration.

 

And before appointing an auditor, ensure the financial statements of your company are in accordance with the statutes of Malaysia Private Entities Reporting Standard / Malaysia Financial Reporting Standards for private limited companies and the Companies Act 2016.

1. How do you get a qualified or approved auditor?

The Companies Act of Malaysia stipulates that the annual audit of your private limited company must be done by an approved company auditor, audit firm or accounting firm in Malaysia. An approved company auditor is an auditor certified by the Malaysian Ministry of Finance. Whoever you appoint to audit your companies account must be approved and certified by this Ministry and if not, your audit will not be valid.


Any applicant wishing to be your company’s auditor must be an approved member of the Malaysian Institute of Accountants (MIA) and must be able to present a valid certificate of academic qualification, as well as an audit licence approved by the Ministry of finance, and must have relevant professional experience.


Note that whoever you appoint as your company auditor must be external or independent, and not an employee in your company’s payroll. An audit firm or an accounting firm in Malaysia may be appointed as auditors in the firm’s name.

2. What to expect from the auditor's report

The auditor’s report following the financial statements issued in a company’s yearly report gives the guarantee to users of the financial statements that these statements are free from errors. In Malaysia, the MIA stipulates that audits must be performed in accordance with the approved auditing standards to ensure quality of work.


Whatever the auditor encounters while auditing the financial statements must be documented as required by the standard on Audit Working Papers, but these documentation used to be kept secret from the users of audit reports. What users get is simply a conclusion or opinion of the auditor. But this practice changed when MIA introduced ISA 701, Communication of Key Audit Matters (KAM) into the auditor’s report for listed issuers.


The auditor’s report is now required to include an additional paragraph at the bottom, disclosing salient issues of the greatest significance during the audit process. This will enlighten the users involved in the critical areas of the audit, as well as why and how the auditor arrived at his/her conclusion.

Even at that, the public still clamors for the audit process to be more transparent.


All in all, ever since MIA issued ISA 701 in 2016, it has been a new dawn in Malaysia auditing process. Information that was hitherto privy to only the auditor and his or her client, is now required by law to be included at the end of the auditor’s report. This information is regarded as the most critical or significant point of the auditing process, and such information must be disclosed to you, being in charge of the company.


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

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Sustainability Reporting For Malaysian SME

sustainability report

Sustainability Reporting For Malaysian SME

Several top-listed companies in Asia are carrying out sustainability reporting, but these companies or organizations still have a long way to go when it comes to enhancing the quality of their reports. Sustainability reporting comes with several benefits. With sustainability reporting, companies can now consider the impact they have on an extensive array of sustainability issues.This helps them to have a clearer insight of the dangers and opportunities they encounter.

 

The term sustainability reporting is seen as the ideal initiative for imparting sustainability performance and effects. A sustainability report shouldn’t be seen as a complicated document; this report is simply about the environmental and social performance of a company or an organization. A sustainability report is very significant, thus it’s recommended that all organization prepares one. Internationally, there are calls for organizations to enhance their sustainability practices and reporting.

Is Sustainability Reporting Mandatory?

In some countries, sustainability reporting is mandatory. In Malaysia, for instance, this report is currently mandatory for listed issuers. It, however, offers organizations a wide array of benefits. A sustainability report is also beneficial to SME, and most SMEs in Malaysia adopt it to measure, grasp, and discuss their economical, social, governance performance, and then set aims, and handle change in an effective way.

 

Accounting firms in Malaysia aren’t left out as well; they also embrace sustainability reporting which helps improve their accounting services in Malaysia and also help them to provide real and genuine proof of their sustainability level.

 

As several firms have accepted sustainability reporting, the most used framework has been the Global Reporting Initiative (GRI) sustainability reporting framework. This term is very similar to various terms for non-financial reporting, corporate social responsibility (CSR) reporting, and triple bottom line reporting. Breeding trust in governments and businesses as well as maintaining the reputation, it is significant to accomplish a sustainable economy.

 

Each day, several decisions are made; these decisions always have a direct effect on their stakeholders, like civil society, financial institutes, labor organizations, and how much they trust them. These decisions aren’t only based on just financial details; they are also based on an appraisal of various dangers and opportunities by adopting information on several current and future problems.

 

However, there is a rising trend around the world to regard SMEs as a congregated group when considering sustainability issues. SMEs in Malaysia aren’t left out in this latest trend. Although, having this consideration should be regarded as one of the most significant issues in the business world of today, managements of most SMEs are not aware of the significance of sustainability reporting to business activities in the recent economic world.

What Should a Sustainability Report Contain?

Sustainability reporting lacks a standardized format but typically involves disclosing a company’s environmental, social, and governance (ESG) goals, along with detailing the company’s progress and efforts in achieving these goals. Beyond ESG initiatives, sustainability reporting also encompasses financial elements. This type of reporting provides stakeholders, such as investors, with valuable insights into a company’s performance that extend beyond traditional financial metrics.

Sustainability reporting for Malaysia SMEs comes with lots of benefits which are highlighted below:

  • High comprehension of several businesses risks and opportunities
  • Emphasizing the connection between financial performance and non-financial performance
  • Affecting business plans, including long-term management techniques
  • Comparing achievements internally, and between companies and other sectors
  • Preventing issues like being implicated in publicized environmental, and governance failures
  • Streamlining several procedures, mitigating costs and enhancing efficiency
  • High comprehension of several businesses risks and opportunities
  • Emphasizing the connection between financial performance and non-financial performance
  • Affecting business plans, including long-term management techniques
  • Comparing achievements internally, and between companies and other sectors
  • Preventing issues like being implicated in publicized environmental, and governance failures
  • Streamlining several procedures, mitigating costs and enhancing efficiency

Examples of sustainability reports:

  • Reducing the negative impact of environmental, social and governance activities, as well as enhancing reputation and loyalty of brands
  • Making external stakeholders grasp the genuine value of the organization, including real and unreal assets.
  • Proving how organizations control, and are controlled by expectations regarding sustainable growth

In a Nutshell

In fact, it’s advisable for all businesses to have sustainability reporting, which comes with several benefits, such as allowing a company to stay away from danger and be responsive to any oncoming opportunities.

 

To find out more about sustainability reporting, please feel free to get in touch with us.

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Choosing The Right Accounting Firm For You

choosing the right accounting firm

Choosing The Right Accounting Firm For You

Each passing year legislators alter tax laws, leaving the averaged individual puzzled when confronted with financial choices such as selling investment properties or obtaining a tax deduction for a home office.

Accounting firms in Malaysia are accustomed to the new tax laws, and many of these firms provide excellent advice and assist people, including little business, make necessary budgets and set reachable financial targets. Immediately you decide that it’s high time you require the help of an accounting services in Malaysia, the next thing to do is to select the accountant to hire.

It’s crucial that you take your time to search for the right accounting firm in Malaysia, and there exist some few things you would like to consider before doing this. You’ll need to look at things like the geographical location of the accountant, the workload division, and the type of accounting software you adopt.

Also, ensure you go for an accounting firm in Malaysia that is well accustomed to the various Tax Incentives in Malaysia. Carefully consider the rate of the accountant, and whether they can help in solving your financial issues. If you are trying to choose between the vast amounts of accounting firms in Malaysia, here are five points to have in mind.

What Qualifications Do They Have?

Every accountant has to be qualified; this is a must!

You must scrutinize the qualifications of individuals working at any prospective accounting firm in Malaysia. Most accountants have taken a finance-related bachelor’s degree, while some own a postgraduate degree as well.

Also, accountants in Malaysia must belong to one of the seven accounting bodies:

 

To become a member of these accounting bodies, an individual would have to undertake some professional exams or courses prepared by the respective accounting bodies, to prove their skill level.

 

When your accountant boasts one of these memberships, it offers you greater confidence and security. If peradventure an issue arises, you can make a complaint with that body directly.

Do They Offer A Range Of Accounting Services?

For businesses especially, you will need an accounting firm in Malaysia that offer a range of accounting services, like financial management, auditing, succession planning and cash flow analysis.


A firm like this will effectively complete your tax returns; they can offer you the best advice concerning the financial situation of your business.

Are They Familiar With Your Industry Or Individual Situation?

When you contact a prospective accounting firm, ask them about their current customers. Have they handled individual business? You’ll have to find an accounting firm that is well accustomed to your industry or personal problem, as this denotes that they are equipped with the necessary experience to provide you with the best accounting services.

What Are Their Fees Like?

Fees are a very significant consideration, after all the fees your accountant charge you will have to conform to your budget. Most accounting firms calculate their fees in either per hour or at a fixed rate.


How these fees are evaluated, and the general amount charged hinges on the accounting firm, so ensure that you know the cost of everything before agreeing to use their services.

Conclusion

When hiring an accountant, it is paramount that they have access to crucial information regarding your finances. It is therefore significant that you hire the services of a genuine and trustworthy accounting firm in Malaysia. Ensure that you like whoever you eventually choose, to build a good relationship.

 

To find out more about our services, please feel free to get in touch with us.

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