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Optimizing Losses During a Pandemic from Transfer Pricing Perspective

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Post date May 28, 2020
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Optimizing Losses During a Pandemic from Transfer Pricing Perspective

It has been about six months since the coronavirus pandemic started and it has affected the world economy in various ways. Along with numerous efforts and stimulus packages, the Malaysian government and the central bank are working hand in hand to minimize the impact of COVID-19 on the economy.

Many of the businesses are being asked to operate within the same old transfer pricing rules which have really affected the organization’s growth and working procedures.

The majority of companies are affected by the COVID-19 pandemic because the supply chain and production have become affected by the crisis. New market trends are indicating that parent companies of local brands are at a higher risk of suffering financial losses.

If your business has also been affected by COVID-19 and the MCO (movement control order) period, read on to find out more about some implementable tips and solutions to common issues being faced by companies. Challenges associated with tax treatment, loan schemes, rapidly changing rules and regulations of the working environment, and other tax subsidiary schemes are prevalent among businesses in Malaysia.

Determining the Losses for Transfer Pricing

In recent years, transfer pricing has become an essential concept for multinational enterprises (MNEs). Such large organizations depend on transfer pricing documents to implement a return on the sales pricing model for local branches.

Malaysian tax authorities also prefer the transfer pricing model when they provide a possible financial upside. However, during increased financial risk and low sales, such models are not preferred.

There is no definite answer to the question of whether losses should be shared among all local branches of an MNE. It depends on the type of MNE and the nature of the losses suffered by the company. The COVID-19 outbreak has led to losses in many departments of businesses, and such losses were not predicted at the start of the year.

Through transfer pricing, Malaysian companies should find out the loss and recovery period and make strategies to overcome the losses as soon as they can. The MNE can decide the nature of the analysis depending on their business sector and scale. Generally, a thorough review of the industry, financial records, future projects and the latest trends need to be examined in order to come out of the loss period stronger and better.

Another major part of transfer pricing documentation should be the research and comparison of competing businesses in specific markets. It is important to compare the effect of the economic crisis on different markets and find out some common steps that can be useful to implement throughout the business sector.

Financial Impact

After examining the impact of COVID-19 pandemic and economic challenges on a whole organization, it is highly recommended that you determine the effect on each entity of a company.

In other words, separate teams should be responsible for conducting the financial analysis of different departments of an organization and create thorough transfer pricing documentation in compliance with the regulations of transfer pricing in Malaysia.

Other than the usual strategy of comparing the results of financial analysis with other companies in the market, your business should focus on equating the results with a maximum unaffected business period. It will clearly indicate the losses suffered by your organization.

It is also important to note that most companies have to bear a higher amount of money spent on selling, hiring, marketing and administration during an economic downturn.

Even though businesses do not require the same number of assets to run their businesses during a crisis, they are still legally bound to certain obligations like leases, salaries and offices rent. Such legal contracts cannot be changed on a short-term basis, and hence, the companies continue to suffer losses due to minimum profits and regular responsibilities.

In a Nutshell

By the end of the COVID-19 pandemic, the economy of Malaysia will be completely transformed, just like the rest of the country. Many organizations will have to rely on loans provided by the government. Large organizations, in particular, may have more transfer pricing implications linked to the circulation of cash handouts within the numerous subsidiaries under the control of an organization.

Large-scale companies are under a lot of pressure to act quickly and form strategies to control the effects of COVID-19 on the business and its partners. However, it is also essential that such actions fulfil the requirements of transfer pricing documents as failure to accomplish transfer pricing policies in Malaysia can lead to severe tax-related issues.

Business owners need to find a balance between quick and effective change to ensure their strategies are beneficial for the company and economy in the long-term.

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

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The Effects of Covid-19 on Sustainable Reporting

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Post date May 28, 2020
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The Effects of Covid-19 on Sustainable Reporting

Businesses are being scrutinized all around the world, including Malaysia, in the wake of the COVID-19 pandemic. The crisis has brought the importance of transparency and sustainability in business development to the forefront.

There are two main things that people are asking about large organizations: how are they controlling the effect of the pandemic and what should their response be to such a possible crisis in the future?

Sustainability reporting is a report that is published by organizations to give details about the impact a company is having on the environmental, social and economic structure of the society.

Some companies are struggling to come up with modern techniques for efficient sustainability reporting. Here you can discover some of the sustainability reporting trends being observed in Malaysia and other countries.

The coronavirus pandemic has taken businesses by surprise. No business was ready for this huge crisis in terms of financial or reporting purposes. As a result, many organizations are modifying reports released in December of 2019 and adding some statements about coronavirus. Webpages and other such platforms are also being updated.
Investors, stakeholders, and experts are keeping a close eye on upcoming sustainability reports. Many financial dealings are highly dependent on these reports because investors are not comfortable in making massive investments in these uncertain times.
Social impact in sustainability reporting is more important than ever. Constant reporting is done about the treatment of employees by companies. Many investors, employees, and even employers of competitive organizations are gathering information about the handling of the employees in such unprecedented times.
Financial reporting is a huge part of sustainability reporting, just as in previous years. Accounting and audit firms are helping different companies in Malaysia to release transparent financial records and determine the losses suffered due to the current pandemic. Moreover, data is being collected about possible future trends and strategies are being made on the basis of these projections.
Due to the severe economic downturn, investors are demanding complete transparency, reliability, and consistency in company records. Managing the impact of COVID-19 on the company remains the top priority of business owners, and the significance of this cannot be underestimated. Investors are expecting companies to do thorough reporting and release records, even if with a little bit of delay.

EU’s Efforts towards the Green Deal

Recently, the European Union has urged countries to go green and implement some drastic changes to protect the environment. A letter sent to environment ministers also urged large corporations to release their sustainability reports. Despite the setback suffered due to the coronavirus pandemic in European countries, they have remained committed to the implementation of the Green Deal.

Some CEOs and executives of leading worldwide corporations have responded positively to such efforts.

Kara Hurst, Head of the Worldwide Sustainability at Amazon says that the world’s number one eCommerce store is working continuously to provide the best service to the customers while being safe for the environment and protecting individuals. Amazon has implemented strict policies to curb the spread of the virus and protect the health of both workers and clients.

Hurst also stated that air pollution is dropping massively due to social distancing guidelines, which gives a small glimpse into the carbon-free future.

In a Nutshell

Even during the coronavirus pandemic, all business owners need to remember that the primary purpose behind sustainability reporting is to ensure to stakeholders that their business is functioning efficiently, legally and sustainably. If there are some issues being faced by companies, they must be reported as well, so that executives can make intelligent decisions based on the transparent and trustable data present in sustainable reports.

In this regard, accounting firms in Malaysia can help you to conduct a thorough analysis of the company and prepare a comprehensive sustainability report. Similarly, accounting firms specialize in the producing and bookkeeping of financial records.

One could argue that sustainability reporting is more critical than ever because every business expert, owner and investor need to fully know the impact of COVID-19 on the sustainability of a company and make strategies to move on from this adverse crisis.

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

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Malaysia’s Reopening Business And How It Helps National Stability

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Post date May 28, 2020
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Malaysia's Reopening Business And How It Helps National Stability

2020 has been a challenging year for the world. The advent of the novel coronavirus has impacted humans in diverse ways; one of which is the closure of businesses. Businesses all over the world, including Malaysia, are forced to shut down as a means to curb the spread of the deadly virus. However, the imposed stay-at-home order has affected not just the small, medium, and large businesses but the economy as a whole.

The idea to close down virtually all sectors of businesses have stagnated the Malaysian economy. As a result, business operations has diminished, supply chains have weakened, cash isn’t flowing as it ought to, and export markets are at risk of loss. All of these have contributed to the instability of the economy. What then could be the solution?

Reopening businesses

The coronavirus pandemic has caused panic in the minds of employees and employers alike with many businesses having to close down for months now. A lot of industries that could not afford to offer a wage cut for their employees are forced to take a more drastic approach that would increase the rate of unemployment. Many were destined to lose their jobs if businesses were not opened.

With a total of 6, 353 confirmed cases and 4, 484 recoveries as of May 4, 2020, anyone can give the Malaysian government credit for controlling the outbreak of the virus. With this statistic, the government is confident that reopening various economic sectors will help national stability. However, this has to be done under the conditional movement control order (CMCO).

Fortunately, the movement control order (MCO) which was imposed sometimes in April 2020 proved effective in preventing the wave of infection.

Now that the government has allowed accounting firms and other businesses to resume operation, the post-MCO phase would be implemented to ensure the safety and wellbeing of employees in their various working environments. This implies that the return to work will be a gradual process, backed up with standard operating procedures that will prevent further spread of the virus.

The government only hopes this would revitalize businesses and ensure that every sector remains sustainable and competitive. And one great way to achieve this is through tax incentives in Malaysia.

Many organizations including The National Tech Association of Malaysia (PIKOM), have expressed how they feel concerning the decision of the government to reopen businesses. International Trade and Industry Minister Datuk Seri Mohamed Azmin Ali also said the reopening of the country will stimulate the economy and its sustainability, as well as guarantee the people’s wellbeing, which was affected by the outbreak of Covid-19.

While reopening businesses is a welcome development, will it guarantee people’s wellbeing? Well, Malaysia passes the six benchmarks set by the World Health Organization (WHO) to reopen an economy post-lockdown and they’ve also put in place strategic measures to curb the spread of the virus. After all, the government has to focus on lives and livelihoods.

The government has been working to sensitize citizens with SOPs (Standard Operating Procedures) that will ensure safe work conditions for employees. The main objective of this policy is to ensure accounting firms and all other private and public sectors, return to their various offices while complying with SOPs.

However, SMEs will be encouraged to stick with the social distancing rule until a vaccine becomes widely available. This may help alleviate some level of scepticism from customers as businesses seek to reopen.

While offices would be widely opened, working at home should be encouraged. When provided the right tools, employees can work via digital platforms. A good start would be to subsidize or give free broadband access and direct technical support to SMEs. Through remote working, SMEs would remain connected and also increase productivity and resilience.

In Malaysia, the government should support SMEs as they have a lower budget to manage and respond to crises. Special attention should be placed to ensure retail firms, the electrical and electronics industry, and tourism sectors as they are majorly exposed to demand and supply shocks.

As the government gradually eases the lockdown for some sectors, tax incentives in Malaysia should also be employed as a means to encourage economic activity. By reducing tax payments for small and medium enterprises, Malaysian economic growth, as well as cash flow, will be increased.

All hope is not lost. Reopening businesses will help national stability, increase supply chain, and prevent subsequent job losses. Malaysia can remain hopeful as the chaos also provides a unique opportunity to transform and build a stronger and more competitive economy.

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

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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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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

Post author By admin
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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