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Malaysia Budget 2022 Highlights

Malaysia-Budget-2022-Highlights

Malaysia Budget 2022 Highlights: Strengthening Recovery, Building Resilience and Driving Reforms

Key Takeaway

  • Effective from 1 January 2022, income derived from foreign sources and received in Malaysia by Malaysian tax residents will be subject to income tax
  • For YA 2022, Cukai Makmur, a special one-off tax to be imposed on companies with taxable income of more than 100 million ringgit
  • Unutilised business losses to be carried forward for 10 consecutive YAs
  • Additional Reinvestment Allowance will be extended for 2 years until YA 2024
  • Effective from 1 January 2022, RPGT rate of an individual citizen, permanent resident and other than a company for disposal in the 6th year and onwards be reduced from 5% to 0%.
On 29 October 2021, our Finance Minister, YB Senator Tengku Datuk Seri Utama Zafrul Tengku Abdul Aziz tabled the 2022 National Budget with the theme, ‘Keluarga Malaysia, Makmur Sejahtera’ as Malaysia enters the recovery phase of COVID-19 and makes preparation to revitalise its economy.

Numerous tax measures were introduced revolving around the three key pillars of the 2022 National Budget, namely Strengthening Recovery, Building Resilience and Driving Reforms.

This edition of our Tax Alert is prepared based on the 2022 National Budget speech and a follow-up edition will be issued to cover key tax proposals and updates, after the Finance Bill is issued.

Key Tax Proposals

Affecting Individuals

  • Tax relief on costs associated with the adoption of self-funded booster vaccines.
  • The scope for individual income tax relief for full medical check-up expenses is expanded to cover the cost of check-up or consultation service related to mental health from registered psychiatrist, clinical psychologist and counsellor.
  • In line with the new norm and work from home practices, the special individual income tax relief of up to RM2,500 on the purchase of mobile phone, computer and tablet be extended until 31 December 2022.
  • The limit of individual income tax relief for up-skilling and self-enhancement course fees will be increased from RM1,000 to RM2,000 and extended to year of assessment 2023. In addition, those who undertake courses with any professional bodies will be eligible for a tax relief of up to RM7,000. Approved courses include professional courses in accounting, finance and environmental, social and governance (ESG)-related.
  • Tax relief of up to RM4,000 for Employees’ Provident Fund (EPF) contributors is expanded to include voluntary contributions, such as those who are self-employed in the gig economy including pensionable civil servants.
  • Tax relief limit will be increased from RM250 to RM350 and the scope of relief for Social Security Organisation (SOCSO) contributions will also be expanded to cover employee contributions through the Employment Insurance Scheme (EIS).
  • Tax relief of up to RM3,000 for fees paid to registered child care centre or kindergarten is extended until the year of assessment 2023.
  • Income tax exemption on recognised e-sports tournament prize money.
  • Special individual income tax relief for domestic tourism expenses up to RM1,000 be extended until year of assessment 2022.
  • Tax relief up to RM2,500 on expenses related to cost of installation, rental, purchasing including hire-purchase equipment or subscription fees for EV charging facilities.
  • Income tax is imposed to residents in Malaysia on income derived from foreign sources and received in Malaysia from 1 January 2022.
  • Tax relief for deferred annuity premium payment be extended until the year of assessment 2025 (to be in line with the extension of the income tax relief for contribution in Private Retirement Scheme (PRS)).

Key Tax Proposals

Affecting Corporates and Businesses

  • Tax deduction to employers on costs associated with the adoption of self-funded booster vaccines.
  • Double tax deduction to companies that provide scholarships to students in institutions of higher learning:
    1. the scope of qualifying studies be expanded to all fields of study at the Technical and Vocational, Diploma, Degree including Master’s and Doctorate; and
    2. the tax incentive be extended for 4 years from the year of assessment 2022 to the year of assessment 2025.
  • Tax incentive for the Structured Internship Program is extended until the year of assessment 2025 and this incentive is also expanded for students in the Master’s Degree, Professional Certificate and Malaysian Skills Certificate Levels 1 and 2.
  • Tax deduction of up to RM300,000 on the cost of renovating and refurbishing business premises is extended until 31 December 2022.
  • For manufacturing and manufacturing-related service companies registered under Safe@Work, a further tax deduction of up to RM50,000 on rental expenses of employees’ accommodation premises will be extended until 31 December 2022.
  • Special tax deduction to the owners of buildings or business premises who provide rental reduction to tenants of at least 30% from the original rate be extended until June 2022.
  • Treatment of accumulated unabsorbed business losses:
    1. the current unabsorbed business losses that can be carried forward from year of assessment 2019 onwards be extended from a maximum period of 7 consecutive years of assessment to a maximum period of 10 consecutive years of assessment; and
    2. the accumulated unabsorbed losses up to the year of assessment 2018 that can be carried forward until the year of assessment 2025 be extended until the year of assessment 2028.
  • The Additional Reinvestment Allowance (RA) provided for the year of assessment 2020 to year of assessment 2022 be extended for 2 years until year of assessment 2024 for existing companies in Malaysia that have exhausted RA and Special RA eligibility. Such extension will make up the total period of Additional RA to 5 years.
  • Income tax exemption for organizers of arts and cultural activities as well as international sports and recreational competitions is extended for 3 years, ie. from the year of assessment 2023 until year of assessment 2025.
  • Income tax exemption on all income of Social Enterprises up to 3 years of assessment based on the validity period of accreditation approved by the Joint Accreditation Committee by the Ministry of Entrepreneur and Cooperative Development and Yayasan Hasanah.
  • One-off tax known as Cukai Makmur, companies with taxable income up to the first 100 million ringgit will be subject to income tax at the rate of 24 percent and the remaining taxable income will be subject to income tax at the rate of 33 percent for the year of assessment 2022.
  • Income tax is imposed to residents in Malaysia on income derived from foreign sources and received in Malaysia from 1 January 2022.
  • Micro, Small and Medium Enterprises (MSMEs) with a paid-up capital of RM2.5 million and below with annual sales turnover not exceeding RM50 million will enjoy income tax rebate of up to RM20,000 for each year of assessment, for the first 3 years of assessment. The establishment and operational period for new MSMEs including MSMEs that perform business activities through online platform be extended to 31 December 2022 .
  • Tax incentives for activities under Digital Ecosystem Acceleration Scheme (DESAC) is expanded as follows:
    1. Digital Technology Provider
      1. New company
        Income tax rate of 0% to 10% for up to 10 years.
      2. Existing company that diversifies in new service activities or new service segments
        Income tax rate of 10% for up to 10 years.
    2. Digital Infrastructure Provider
      Investment Tax Allowance (ITA) of 100% on capital expenditure for qualifying activities for up to 10 years which can be set-off against up to 100% of statutory income.
      (For application received by Malaysian Investment Development Authority (MIDA) from 30 October 2021 to 31 December 2025.)
  • Double tax deduction on operating expense of Anchor companies that developed local vendors under the Vendor Development Programme (VDP) and signed the Memorandum of Understanding (MoU) with the Ministry of International Trade and Industry (MITI) or the Ministry of Entrepreneur Development and Cooperatives (MEDAC) are reviewed as follows:
    1. deductions for qualifying operating expenses be increased up to RM500,000 per year of assessment;
    2. the tax incentive be extended for 5 years for anchor companies that have signed MoU with MEDAC; and
    3. deductions are given for 3 consecutive years of assessment. (For MoU signed between anchor companies and MEDAC from 1 January 2021 to 31 December 2025.)
  • The scope on the purchase of qualifying green assets and green services qualifying for Green Technology Tax Incentives be expanded to include Rainwater Harvesting System (RHS) projects, verified by the Malaysian Green Technology Corporation (MGTC). To be eligible for Green Investment Tax Allowance (GITA) or Green Investment Tax Exemption (GITE), applications must be received by MIDA from 1 January 2022 to 31 December 2023.
  • Tax incentive for individual income tax at a flat rate of 15% given to non-resident individuals holding key positions in companies investing in new strategic investments in Malaysia is extended for 1 year (for applications received by MIDA until 31 December 2022).

Key Tax Proposals

Indirect Tax

  • 100% sales tax exemption on CKD passenger vehicles and 50% on CBU including SUV and MPV extended for six months until 30 June 2022.
  • 100% stamp duty exemption on restructuring or rescheduling of loan/financing agreement extended to 31 December 2022.
  • Exemption on entertainment duty for entertainment activities in all Federal Territories until 31 December 2022. State authorities are similarly advised to provide duty exemption on entertainment activities to support the recovery of this sector.
  • Full exemption on import duty, excise duty and sales tax exemptions on electric vehicles (EVs). Road tax exemptions of up to 100% will also be given to the vehicle owners.
  • The rate of stamp duty on contract notes is increased from 0.1% to 0.15% and the stamp duty limit of RM200 for each related contract note is abolished. At the same time, brokerage services related to the trading of shares listed on Bursa Malaysia be exempted from service tax.
  • Sales tax be imposed on goods not exceeding RM500 from abroad sold online by seller and sent to consumers in Malaysia via air courier service.
  • Service tax is levied on delivery services provided by service providers including e-Commerce platforms except food and beverage delivery services and logistics services.
  • The Special Voluntary Recognition Program of the Royal Malaysian Customs Department was introduced in phases with a penalty remission incentive of 100 per cent for the first phase and a penalty remission of 50 per cent for the second phase. Tax remission will also be considered in certain cases.
  • For P2P financing made through P2P financing platform registered and recognised by the Securities Commission (SC), 100% stamp duty exemption on P2P loan/financing agreement between MSMEs and investors for P2P loan/financing agreement executed from 1 January 2022 to 31 December 2026.
  • Extension of stamp duty exemption of one year for Micro, Small and Medium Enterprises (MSMEs) that carry out merger or acquisition scheme on instruments executed on the following documents:
      1. contracts or agreements for the sale or lease of property (land, buildings, machinery and equipment);
      2. instrument of transfer and memorandum of understanding;
      3. loan or financing agreements; and
      4. the first rental agreement.
    for application of merger or acquisition received by the Ministry of Entrepreneur Development and Cooperatives from 1 July 2021 to 30 June 2022 and instruments executed until 31 December 2022.
  • Tourism tax exemption be extended for 1 year, from 1 January 2022 to 31 December 2022.

Key Tax Proposals

Real Property Gains Tax (RPGT)

  • RPGT rate on gains from the disposal of real property and shares in real property company by an individual citizen, permanent resident and other than a company in the 6th year and onwards be reduced from 5% to 0%.

Tax Administration

  • Deferment of income tax instalment payments for MSMEs for six months until 30 June 2022.
  • All businesses are allowed to amend the estimated income tax payable on the 11th month before 31 October 2022.
  • The use of tax identification numbers (or TINs) will be implemented from 2022 to broaden the income tax base.

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Ideas & Insights Newsletter Transfer Pricing

Transfer Pricing Requirements And New Penalties in Malaysia

Transfer-Pricing-Requirements-And-New-Penalties-in-Malaysia

Transfer Pricing Requirements And New Penalties in Malaysia

Key Takeaway

  • Transfer Pricing Documentation is to be prepared annually
  • Changes in Form C disclosure items for related party transactions, interest expenses paid to related companies and CbyCR notification
  • CbyC Rules are applicable for companies with consolidated revenue of more than RM3 billion
  • New penalty rates have been introduced
This is a summary of the Transfer Pricing Requirements in Malaysia

Transfer Pricing Guidelines (“TPG”)

The 2012 TPG superseded the Guidelines previously issued in year 2003, and was intended to provide detailed guidance to taxpayers on how to comply with the requirements of the law under Section140A of Income Tax Act 1967 and the TP Rules 2012. The 2012 TPG is applicable to:
  • Controlled transactions between associated persons, where at least one party is assessable or chargeable to tax in Malaysia; and
  • Applies to both cross-border transactions and domestic related party transactions. The TPG need not be applied to domestic controlled transactions if it can be proven that any TP adjustments will not alter the total tax payable by both parties.
The guidelines reinforces that companies involved in related party transactions in Malaysia should prepare a TP documentation for the relevant year of assessment. While the TP documentation has to be prepared, it does not need to be submitted unless requested by the tax authorities. Companies who fall below this threshold may opt to prepare a limited scope TP documentation instead of a full scope TP documentation.
  • Companies with gross income more than RM25 million, and the total amount of related party transactions more than RM15 million; OR
  • Companies with financial assistance by related parties more than RM50 million.
A full scope report may consists of the following:
  1. Organizational structure
  2. Nature of business/industry and market conditions
  3. Controlled transactions
  4. Pricing policies
  5. Assumption, strategies and information regarding factors that influenced the price setting policies
  6. Comparability, functional and risk analysis
  7. Selection of the transfer pricing method
  8. Application of the transfer pricing method
  9. Financial information
  10. Other relevant/supporting documents

A simplified TP documentation consists of items (a), (c) and (d) as detailed below. Taxpayer is allowed to apply any method other than the five methods described in the TPG provided it results in arm’s length outcomes.

(a) Organizational Structure

  1. the taxpayer’s worldwide organizational and ownership structure covering all associated persons whose transactions directly or indirectly affect the pricing of the documented transactions; and
  2. a description of the management structure of the local entity, a local organization chart, and a description of the individuals to whom local management reports and the country(ies) in which such individuals maintain their principal offices.

(b) Controlled Transactions

  1. description of details of the property or services to which transaction relates; any intangible rights or property attached thereto, the participants, the scope, timing, frequency, type and value of the controlled transactions (including all relevant related party dealings in relevant geographic markets);
  2. names and addresses of all associated persons, with details of the relationship with each such associated person;
  3. the nature, terms (including prices) and conditions of transactions (where applicable) entered into with each associated person and the quantum and value of each transaction;
  4. an overview description of the business, as well as a functional analysis of all associated persons with whom the taxpayer has transacted;
  5. all commercial agreements setting forth the terms and conditions of transactions with associated persons as well as with third parties; and
  6. a record of any forecasts, budgets or any other financial estimates prepared by the person for the business as a whole and for each division or product separately.

(c) Pricing Policies

Details of pricing policy for each type of controlled transaction shall include:
  1. the formula adopted, including anticipated profit margin/mark-up and cost component;
  2. how the formula is applied;
  3. who determine the pricing policy & how often is the policy being revised;
  4. sample of documents to support the pricing policy; and
  5. comparability study to ensure the arm’s length price.

Income Tax (Country-by-Country Reporting) Rules 2016 (“CbyCR Rules”)

In 2017, the tax authorities issued the CbyCR Rules followed by the Labuan CbyCR Regulation, effective from 1 January 2017 and is applicable to MNE Groups with total consolidated group revenue of at least RM 3 billion. The rules state that the ultimate parent (reporting entity) would have to complete the CbyC Report and submit it to the tax authorities on or before 12 months from the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2020).

Additionally, there is also a requirement for the Malaysian Companies to notify the tax authorities under Subrule 6(1) and 6(2) of the PU (A) 357/2016 either by disclosing the information as part of the tax returns or by submitting the manual notification form.

Malaysian parent entities and subsidiaries submitting the Form C , TR , TA , TC or TN (tax return forms, whichever is applicable) can furnish the notification by way of tax returns while companies filing Form LE & TF are required to furnish the notification using a manual notification form as follows:
Type of entity
Details
Reporting entity
[Annex B1]
The reporting entity shall notify the Director General in writing if it is the ultimate holding entityon or before the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2021). Notification will have to include details of all Malaysian and foreign non-reporting constituent entities (Annex B1)
Non-reporting entity
[Annex C1 & C2]
The Malaysian subsidiary does not have to submit the CbyCR but they shall notify the Director General in writing of the identity and tax residence of the reporting entityon or before the last day of the reporting FY (i.e. 31 December 2021 if the tax payer’s year end is 31 December 2021). There are two types of notification for non- reporting entity as follows:

a. Notification for non-reporting entities whose reporting entity is in Malaysia
b. Notification for non-reporting entities whose reporting entity is outside Malaysia

Tax Return Form

Throughout the year from FY 2014 to FY 2021, the income tax return form has been amended to include additional disclosures as follows:
  1. Disclosure on whether tax payers carry out controlled transactions under Section 139 and 140A Tax payer is to disclose all type of transactions they are involved in with a related party and the amount. Tax payer would also have to declare if TP documentation have been prepared.
  2. Disclosure of whether the taxpayer is subject to interest restriction under Section 140C.
    Tax authorities introduced Restriction on deductibility of interest under Section 140C of the Income Tax Act 1967, effective 1 July 2019 onwards aimed at restricting the deduction of interest expense in relation to cross border transaction. The Rules are applicable to:
    • companies who have been granted any financial assistance in a controlled transaction;
    • the total amount of any interest expense for all such financial assistance exceeds RM500,000 in the basis period.
    The maximum amount of interest that is deductible is 20% of the Tax EBITDA. The balance is allowed to be carried forward.
  3. Disclosure on CbyCR
    Tax payer is to disclose if CbyCR is relevant for the Group and fill in the relevant information of the reporting entity.

Transfer Pricing Penalties and Power to Disregard Structures

Failure to furnish contemporaneous Transfer Pricing documentation

With the introduction of Section 113B of the ITA, any person who fails to furnishing a contemporaneous TPD shall be liable to the following:
  1. Fine of not less than RM20,000 and not more than RM100,000; or
  2. Imprisonment for a term not exceeding six (6) months; or
  3. Both.
      4. The new section also empowers the Director General to impose a penalty as stated in (a) if taxpayer is not prosecuted for failure to furnish TP contemporaneous documentation. Taxpayers can appeal on the decision with the Special Commissioners of Income Tax but the burden of proof is on the taxpayers.

5% surcharge on Transfer Pricing adjustments

Under Section 140A (3C), the Director General may impose a surcharge of not more than 5% of the total transfer pricing adjustments regardless if there is any additional taxes payable by the taxpayers. Any surcharge imposed shall be treated as collection tax and would not be treated as a tax payable under any other provision within the ITA.

Power to disregard structure in controlled transactions

Under S140A (3A) and (3B), the Director General will be empowered to disregard any related party transaction structure adopted by the company if he is of the opinion that:
  1. The economic substance of that transaction differs from its form; or
  2. The commercial reality of that transaction differs from the arrangement which would have been adopted by an independent party.
In these circumstances, the Director General will be allowed to make adjustments to the structure to reflect the structure that would have been adopted in a third party arrangement.

Failure to comply (after adjustments have ben issued)

Penalties will be imposed under subsection 113(2) and the TP Audit Framework 2019. The rates can range from 30% to 100% depending on whether the TP documentation is prepared contemporaneously in accordance with the requirements and submitted within 14 days.

Illustration on Penalties

Illustration on Penalties

Transfer Pricing Audit Framework 2019

For Companies who fail to comply, penalties will be imposed under subsection 113(2) of Income Tax Act 1967 (“ITA”) and the TP Audit Framework 2019. The rates from the framework are as follows, divided between normal cases and voluntary disclosure cases (“VD”):
Condition
Penalty Rate
(Normal Case)

Penalty Rate
(VD)

Understatement or omission of income
100%
100%
Taxpayer did not prepare TP documentation

50%

NA

Taxpayer has prepared and submitted the TP documentation with the VD but not in accordance to the requirements; OR;Taxpayer has prepared a comprehensive and good quality TP documentation but failed to submit within timeline provided.

30%

20%

Taxpayer has prepared and submitted a comprehensive and good quality TP documentation with the VD in accordance to the requirements; OR; Taxpayer has prepared a comprehensive and good quality TP documentation and submitted within timeline provided.

0%

0%

FAQ: Transfer Pricing in Malaysia

Transfer pricing refers to the rules and methods for pricing transactions within and between enterprises under common ownership or control. The prices set for these transactions are called transfer prices.

Transfer pricing is important because it affects the allocation of income and expenses among related entities, which in turn impacts the taxable income and tax liabilities of each entity. Proper transfer pricing ensures that profits are reported where economic activities occur, preventing tax evasion through profit shifting.

In Malaysia, transfer pricing is governed by the Income Tax Act 1967 and the Transfer Pricing Guidelines issued by the Inland Revenue Board of Malaysia (IRBM). These guidelines are based on the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.

All taxpayers involved in controlled transactions with associated persons must comply with transfer pricing regulations. This includes both domestic and cross-border transactions.

A controlled transaction is any transaction between associated persons, including the sale of goods, provision of services, transfer of intangible property, financial arrangements, and other business dealings.

Taxpayers must maintain comprehensive transfer pricing documentation to demonstrate that their transfer prices are at arm’s length. This includes:

  • Description of the organizational structure.
  • Details of the controlled transactions.
  • Functional analysis of the parties involved.
  • Economic analysis and benchmarking studies.
  • Comparability analysis.

The arm’s length principle states that the prices charged in controlled transactions should be comparable to the prices charged in transactions between unrelated parties under similar conditions.

The IRBM has set certain thresholds for simplified compliance requirements. For instance, companies with gross income exceeding RM25 million and total related party transactions exceeding RM15 million must prepare and maintain full transfer pricing documentation.

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Ideas & Insights Newsletter Tax

Is Your Interest Tax Deductible?

Is Your Interest Tax Deductible Banner

Is Your Interest Tax Deductible?

Key Takeaway

  • Deduction rules on interest expenses incurred on loan or borrowings taken for business.
  1. Borrowing is very important for the businesses. However, the source of borrowing whether is local or overseas; the parties to whom we borrowed from; the purposes of and use for the borrowings will affect the deductibility of the interest.
  2. Therefore, the rules on interest deductions (borrowing which generate interest expenses) can be complex.

Is Your Interest Tax Deductible?

Interest Tax Graph

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Ideas & Insights Newsletter Tax

Capital Statement: Does Your Declared Income Support Your Accumulated Assets?

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Capital Statement: Does Your Declared Income Support Your Accumulated Assets?

Key Takeaway

  • Tool used by the IRB to detect under-declared income
  • Rationale of the capital statement approach
  • The importance of maintaining complete records

What Is A Capital Statement?

  • The personal ‘balance sheet’ of an individual
  • It puts together all the assets and liabilities of an individual, adjusted for non-taxable income/losses and the individual’s private and personal expenses
  • One of the most effective tools used by the Inland Revenue Board (‘IRB’) to ascertain whether an individual has under-declared income in the past

Assets Scrutinised By The IRB

  • Properties
  • Motor vehicles
  • Shares and other investments (listed AND private companies)
  • Bank accounts (local AND foreign bank accounts)
  • Credit card accounts,
  • Directors’ account balances

Period Covered During An Audit/Investigation

  • Normally covers a period of the past six years

Challenges Faced By The Taxpayer

  • Loss of documents
  • Unable to recall the transactions or flow of funds

Capital Equation

capital equation

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Ideas & Insights Newsletter Tax

Automation Capital Allowances

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Automation Capital Allowances

Key Takeaway

  • 200% Automation Capital Allowance on first 2 million to 4 million expenditure incurred within YA 2015 to 2023;
  • Effective date of application : 1 Jan 2015 until 31 Dec 2023;
  • High labour-intensive industries or industries adopt the automation process.
The Automation Capital Allowance (Automation CA) was introduced to encourage adoption of automation among manufacturing companies.

It is divided into two (2) categories:-
Categories
Incentives
High labour-intensive industries (rubber products, plastics, wood, furniture and textiles)
Automation CA of 200% on the first RM4 million expenditure incurred within year of assessment from 2015 to 2023.
Other industries
Automation CA of 200% on the first RM2 million expenditure incurred within year of assessment 2015 to 2023.

Eligibility Criteria

  • Manufacturing companies incorporated under Companies Act 1965 / 2016;
  • Resident in Malaysia;
  • Engaged in manufacturing activities at least 36 months;
  • Automation machine or equipment used directly in manufacturing activities.
Effective date of application:
Application received by Malaysian Investment Development Authority (MIDA) from 1 January 2015 until 31 December 2023 is eligible to be considered for this incentive.
Source: Malaysian Investment Development Authority

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Ideas & Insights Newsletter Tax

Phase One Of Movement Control Under National Recovery Plan (NRP) Updates to the Inland Revenue Board’s Announcement (Updated 26 June 2021)

NRP Update

Phase One Of Movement Control Under National Recovery Plan (NRP) Updates to the Inland Revenue Board’s Announcement

(Updated 26 June 2021)

Key Takeaways

  • Extension of time for the submission of tax returns
  • Extension of time for tax payments
  • Submission of appeal to IRBM
  • Real Property Gain Tax (RPGT)
  • Stamp Duty
Following to the extension of Phase One of Movement Control under National Recovery Plan (NRP), the Inland Revenue Board of Malaysia (IRBM) has issued ‘Frequently Asked Questions (FAQ) On Tax Matters During The Movement Control Order Period’ (Updated on 26 June 2021).

This FAQs include extension of time for submission of forms/ returns/ documents, tax payments etc during the phase one (of NRP) period.

For the full FAQ, please visit: http://phl.hasil.gov.my/pdf/pdfam/faq_pkp3_2.pdf
 
Question
Remarks by IRB
No.
General
(a)
Extension of time to submit documents for audit or investigation within the MCO 3.0 period.
Application for extension of time must be submitted by letter/email to IRBM branch which handle the case.
(b)
Extension of time to provide feedback to IRB letters within the MCO 3.0 period.
Application for extension of time must be submitted by letter/email to IRBM branch which handle the case.
No.
Forms
(a)

Extension of time to submit documents for audit or investigation within the MCO 3.0 period.

Deadline for submission of return forms is stated in the 2021 Return Form Filing Programme:-
http://phl.hasil.gov.my/pdf/pdfam/ProgramMemfailBN_2021_Pin.3_ 2.pdf

  1. Return Form for Companies, Limited Liability Partnerships, Unit Trusts / Property Trusts, Co-operative Societies, Trust Bodies, Real Estate Investment Trusts / Property Trust Funds and Business Trusts:-
    1. For Year of Assessment (YA) 2020 (with accounting period ending 1 October 2020 until 31 December 2020):
      • Extension time of two (2) months will be given from the due date of submission.
    2. For Year of Assessment (YA) 2021 (with accounting period ending 1 January 2021 until 31 January 2021:
      • Extension time of two (2) months will be given from the due date of submission.
  2. Return Form for petroleum with accounting period ending 1 October 2020 until 31 December 2020:
    • Extension time of two (2) months will be given from the due date of submission.
  3. Return Form for petroleum with accounting period ending 1 January 2021 until 31 January 2021:
    • Extension time of two (2) months will be given from the due date of submission.
  4. Return Form for Year of Assessment 2020 for taxpayers CARRYING ON BUSINESS involving Individuals, Resident Individuals (Knowledge /Expert Workers), Non-Resident Individuals, Non-Resident Individuals (Knowledge / Expert Workers), Partnerships, Associations, Deceased Persons Estate and Hindu Joint Families:
    • Extension of time (EOT) granted until 31 August 2021.
(b)
Extension of time for the submission of revised CP500 and CP204 where the due date falls on June 2021.
Extension of time is given until 31 July 2021.

(c)

Submission of Forms CP22 within the MCO 3.0 period.

Form CP22 can be submitted through Customer Feedback Form :-
https://maklumbalaspelanggan.hasil.gov.my/MaklumBalas/en-US/

(d)

Submission of application for tax clearance letter (TCL) within the MCO 3.0 period.
  1. Application can be submitted as follows:-
    1. e-SPC;
    2. Customer Feedback System:
      http://www.hasil.gov.my/bt_goindex.php?bt_kump=2&b t_skum=5&bt_posi=1&bt_unit=3&bt_sequ=1&bt_lgv=2
  2. By post or appointment only.

(e)

Submission of Notice of Appeal (Form Q) to the Special Commissioners of Income Tax (SCIT) where the due date falls within MCO 3.0 period.
Application for extension of time must be done in writing by completing Form N and submitting to IRBM branch. The appeal will be considered based on the merits of case. Taxpayer is required to file Form N and state that the delay is due to the implementation of MCO 3.0.

(f)

Submission of Country-by- Country Reporting (CbCR) where the due date falls within MCO 3.0 period.
Application for extension of time must be submitted in writing to Department of International Taxation and the appeal will be considered based on the merits of the case.

(g)

Submission of Form CP 204 and notification of change of accounting period (CP204B) which due date falls on June 2021.
Extension of time is given until 31 July 2021. CP204B needs to be submitted by post or courier.
(h)
Revision of tax estimate payment (CP204) in the 3rd month of 2021.
No revision is allowed for the 3rd month instalment. Taxpayers must submit the relevant CP204 revision in the 6th / 9th month in the basis period of the business through e-CP204A.
No.

Payments

(a)

Extension of time for tax estimate payments (CP204) due on June 2021.
No extension of time. Tax payer can make payment via online services at ByrHasil.

(b)

Extension of time for other tax instalment payments relating to audit and investigation due on June 2021.
No extension of time. Tax payer can make payment via online services at ByrHasil.

(b)

Extension of time for submission of MTD data and payment of Monthly Tax Deduction / CP38 for remuneration on employment due on 15 June 2021.
No extension of time. Taxpayer can make payment via online services at e- PCB, e-Data PCB dan e-CP39.

(d)

Deferment for compound and penalty payment which due within 1 June 2021 until 28 June 2021.
Extension of time is given up to 30 days from the initial due date for payment.

(e)

Re-scheduling of tax instalment payments.
Tax payer is required to submit the application with the relevant documents such as cash flow documents etc.

(f)

Extension of time for withholding tax payment which due within the MCO 3.0 period.
No extension of time is given. Withholding tax payment can be made via telegraphic transfer by furnishing complete payment details to IRBM via fax at 03-62019637 or e-mail to HelpTTpayment@hasil.gov.my.
No.
Appeal and Penalty Payment

(a)

Application for appeal on the penalty imposed by IRB.
Taxpayer may submit the application for appeal on tax penalty for the following cases:
  1. Unpaid penalties;
  2. Penalties that have been imposed and subject to instalment schedule

(b)

Application for appeal on the tax increase.

Application for appeal on tax increase can be submitted through Customer Feedback Form available at IRBM’s Official Portal:
https://maklumbalaspelanggan.hasil.gov.my/MaklumBalas/en-US/

(c)

Application for appeal on deferment of payment of outstanding penalty imposed to year 2022.

Application for deferment of payment can be submitted through Customer Feedback Form available at IRBM’s Official Portal:
https://maklumbalaspelanggan.hasil.gov.my/MaklumBalas/en-US/

No.
Real Property Gains Tax (RPGT)

(a)

Extension of time for the submission of RPGT return forms where the due date falls in June 2021.
Extension of time is given until 31 July 2021.

(b)

Appeal on RPGT penalty.
Appeal will be considered based on merits of the case.
No.
Stamp Duty

(a)

Appeal on stamp duty penalty.
Appeal will be considered based on merits of the case.

(b)

Extension of time for stamping which cannot be done within the MCO 3.0 period.
Appeal will be considered based on the merits of the case.
Application for extension of time must be made within 30 days from the date of documents.

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Introduction to Withholding Tax and Imported Services Tax – Implications of Digital Services (PART 3)

implications of digital services

Introduction to Withholding Tax and Imported Services Tax - Implications of Digital Services (PART 3)

Key Takeaway

  • Withholding Tax on Foreign Service Providers
  • Service Tax on Digital Services
Part 3 of this article will focus on digital service tax and service tax issues on imported services for e-Commerce transactions, under the Service Tax Act 2018.

What is Imported Service?

“Imported taxable service” means any taxable service acquired by any person in Malaysia from any person who is outside Malaysia (Section 2 of Service Tax Act 2018)

What is Digital Service?

“Digital service” means any service that is delivered or subscribed over the internet or other electronic network and which cannot be obtained without the use of information technology and where the delivery of the service is essentially automated;”.
Digital Service
With effect from 1 January 2019, regardless if you are either a Service Tax-registered person or Non-Service Tax-registered person, you are required to file a return and pay the service tax in respect of all taxable services that you procure from overseas suppliers, if such taxable services fall under Group G and I of Service Tax Regulations 2018.

Types of Digital Service

  • Software, Application & Video Games
  • Music, e-book and film
  • Advertisement and online platform
  • Search engines and social networks
  • Database and hosting
  • Internet Based Telecommunication
  • Online Training
  • Others (such as subscriptions to online newpapers and journals etc.)

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Introduction to Withholding Tax and Imported Services Tax – Implications of Digital Services (PART 2)

Implications-of-Digital-Services

Introduction to Withholding Tax and Imported Services Tax - Implications of Digital Services (PART 2)

Key Takeaway

  • Withholding Tax on Foreign Service Providers
  • Service Tax on Digital Services
Part 2 of this article will focus on withholding tax issues around ‘royalties’ (Section 109, Income Tax Act 1967) and ‘services’ (Section 109B, Income Tax Act 1967) for e-Commerce transactions.

What is e-Commerce?

Any commercial transactions conducted electronically including the provision of information, promotion, marketing, supply, order or delivery of goods and services (even though payment and delivery relating to such transactions may be conducted offline).

Withholding tax implications

To determine the nature for payment of e-commerce services (i.e Royalties or Services?)
e-commerce

Example of payments under e-commerce transactions

Online advertising on Facebook, online payment such as Paypal, payment for cloud computing service, payment for subscription to content aggregators etc.

Important

Payment made may fall under Sec 109 instead of Sec 109B and penalty will be imposed due to non- compliance with withholding tax rules.

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Ideas & Insights Newsletter Tax

Introduction to Withholding Tax and Imported Services Tax – Implications of Digital Services (PART 1)

Implications-of-Digital-Services

Introduction to Withholding Tax and Imported Services Tax - Implications of Digital Services (PART 1)

Key Takeaway

  • Withholding Tax on Foreign Service Providers
  • Service Tax on Digital Services
In this present age, business cannot avoid but to rely on digital services to reach out to their customers and suppliers in order to operate or enhance their business functions. The reliance on digital services to conducting a business is accelerated particularly so with the Movement Control Order (MCO) being implemented in Malaysia which limits the ability of businesses to continue doing business, the ‘traditional’ way. Some of the most common digital services relied on by businesses would include software applications, digital advertising, payment gateways and cloud storage, which are generally dominated by foreign service providers such as Google, Microsoft and Facebook.

Such digital services would obviously involve payments for the use of such digital services to the service providers and therefore, you have to be aware of the tax implications behind the use of digital service, namely:

  1. Withholding tax under the Income Tax Act 1967; and
  2. Digital service tax or imported services tax under the Service Tax Act 2018.

This series of short articles intend to provide some general guidance on the tax implications of payments for such services to service providers who are not residing in Malaysia.
You also need to take note that in some cases, both service tax and withholding tax can apply on the same service, as per the illustration as below:-
Payment Made to Non-Malaysian Resident Business

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Employers Responsibility under the Income Tax Act

Employers Responsibility under the Income Tax Act

Employers Responsibility under the Income Tax Act

Key Takeaway

  • To inform IRBM any new employee within 30 days.
  • To inform IRBM the cessation/retirement/death of an employee.
  • To inform IRBM within 30 days before the date of employee intending to leave Malaysia.

Notification of Commencement / Cessation of Employment of an Employee

Pursuant to Section 83 of the Income Tax Act 1967 (ITA 1967), we wish to remind all employers of their responsibility to inform the Inland Revenue Board of Malaysia (IRBM), via prescribed forms (as below), on the following:

Table 1:

Employer’s responsibilities
Subsection

Penalty/Fine

Form
To inform IRBM if there is a new employee.
Subsection 83(2) ITA 1967
Failure to notify will result in the employer being charged under paragraph 120(1) (c) and / or subsection 107(4)
CP22
http://phl.hasil.gov.my/pdf/pdfborang/CP22_Pin.1_2021.pdf
To inform IRBM if there are any cessation/retirement/death of an employee*
Subsection 83(3) ITA 1967
Failure to notify will result in the employer being charged under paragraph 120(1) (c) and / or subsection 107(4)
CP22A (Private) http://phl.hasil.gov.my/pdf/pdfborang/CP22A_Pin.1_2021.pdf

CP22B (Government) http://phl.hasil.gov.my/pdf/pdfborang/CP22B_Pin.1_2021.pdf
To inform to IRBM not more than 30 days before the date of an employee intending to leave Malaysia
Subsection 83(4) ITA 1967
Failure to notify will result in the employer being charged under paragraph 120(1) (c) and / or subsection 107(4)
CP21 http://phl.hasil.gov.my/pdf/pdfborang/CP21_Pin.1_2021.pdf
Please take note that while Section 83 of the ITA 1967 provides that the law applies in the situation where the employer commences, or about to cease to employ an individual who is or is likely to be chargeable to tax in respect of income in respect of gains or profits from the employment, the IRBM has recently adopted the practise of applying such requirements to ALL employees who have commenced employment, or cease to be employed by the employer.

All applications should be made by the employer to IRBM by the following methods:
  1. e-SPC at IRBM official website; or
  2. Form which can be downloaded from IRBM official website (please refer to TABLE 1 above).

Failure to comply with the above may result in, upon conviction of an offence under Section 120 of the ITA 1967, the employers being liable to a fine of not less than RM200 and not more than RM20,000 or to imprisonment for a term not exceeding six months or to both.

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