Tag: Newsletters

Smart Automation Grant (SAG)

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Post date February 25, 2021
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Smart Automation Grant (SAG)

Key Takeaway

The qualified company will be eligible for Smart Automation Grant given on matching basis (1:1) up to RM1 Million per company.

The Smart Automation Grant was introduced in the National Economic Recovery Plan or Pelan Jana Semula Ekonomi Negara (PENJANA) in June 2020. The main objectives of the Smart Automation Grant is to assist Small and Medium Enterprises (SMEs) and Mid-Tier Companies (MTCs) to automise and digitalise operations, production and trade channels.

SAG will be given on a matching basis (1:1) based on eligible expenditures, up to a maximum grant of Ringgit Malaysia One Million (RM1,000,000) per company.

Who Is Eligible For Smart Automation Grant

1. Incorporated under the Companies Act 1965/2016;
2. Effective equity of the company must be at least 51% owned by Malaysians;
3. The company possess a valid Business Licence from the Local Authority;
4. Must be in operation for at least 12 months;
5. Must engage in manufacturing activity in compliance with the Industrial Co- ordination Act, 1975 or service activities which are regulated by specific acts/regulations or governed by relevant ministries/agencies;
6. Eligible for Small and Medium Enterprises (SMEs) and Mid-tier Companies (MTCs). Definition of SMEs and MTCs as below:

Manufacturing

Services

SME

Sales turnover not exceeding RM50 million; or
Employees not exceeding 200

Sales turnover not exceeding RM20 million; or
Employees not exceeding 75

MTC

Sales turnover from RM50 million to RM500 million

Sales turnover from RM20 million to RM500 million.

7. Must meet at least one of the Committed Deliverables as below:-

Reduction of Unskilled Workers
Reduction in Man Hours
Increase in Production Volume
Quality Improvement – Reduction in Defect Rate
Increase in Services Delivery
Reduction of Man Hours in Delivering Services

8. Eligible expenditures are the automation machine, equipment or software that are used directly in the overall value chain of manufacturing and services activities

What Is The Project Duration Under This Matching Grant?

Project must be completed within 12 months from the date of the Approval Letter issued by Authority;
Any unutilised grant amount after 12 months will be withdrawn by Authority;
Any request for extension is required to be made at least 2 months before the project end date and is subjected to the approval of the Authority Committee.

Effective Date Of Application

Application must be submitted to MIDA between 4th December 2020 to 31 December 2021.

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Newsletter

Special Tax Incentive For Company Relocating into Malaysia

Post author By admin
Post date February 20, 2021
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Special Tax Incentive For Company Relocating into Malaysia

Listed below are the tax incentives offered to new and existing foreign companies relocating their business
into Malaysia:-

Type of Company

Eligible Capital Expenditure (RM)

Incentive

Duration

1. New company

i. RM300 million to
RM500 million.

Special tax rate

10 years

ii. RM500 million and above.

Special tax rate

15 years

2. Existing company

Relocating overseas facilities into Malaysia with capital investment above RM300 million

Investment tax allowance (ITA)

100%

5 years and is offset against 100% statutory income of the activity.

Eligibility Criteria

Definition of new company

a) Company relocating manufacturing facility for eligible activities from another country to Malaysia; or
b) Company establishing new operation in Malaysia; and
c) Do not have existing manufacturing operation in Malaysia.

Definition of existing company

Foreign or locally owned company that has existing manufacturing operation in Malaysia and is relocating its manufacturing operations from outside Malaysia for new business segment.

The products from the new business segment are not part of the expansion project for existing products.

Conditions for this incentive

a) To incur the capital expenditure (excludes land cost) within 3 years from the date of the first capital expenditure incurred;
b) To incur the first capital expenditure within 1 year from the approval date; and
c) Company will be subjected to conditions related to the Employment and Vendor Development Program

Promoted manufacturing activities

Manufacturing activities EXCEPT manufacturing activities as below:-

Non Products / Activities	Industries
All products for iron & steel considered sensitive except products listed in the Promoted Activities / Products Under the PIA 1986 under the category of Manufacture of Iron and Steel, and Manufacture of Non- Ferrous Metal and their Products	Iron & Steel
Weapon and ammunitions	Machinery & Equipment
Electricals products supplied to generate power for consumption of TNB and Petronas such as general cables, wire harness, distribution boards, control panels, switching apparatus, transformers	Electrical
Liquor and alcoholic beverages	Beverages & Tobacco
Tobacco and tobacco products including cigarette	Beverages & Tobacco
Palm Oil milling and refining	Palm Oil
Production of food products that only involve mixing, blending and cooking. Example: sauces, paste, premix food products	Food Manufacturing
Beverages	Beverages & Tobacco
Sugar	Food Manufacturing
Pineapple Canning	Food Manufacturing
Paper-based packaging materials from waste paper except for coated duplex board	Paper, Printing & Publishing
Wood-based products including furniture, plywood, sawn timber and others	Wood & Wood Products
Printing and Publishing	Paper, Printing & Publishing
Remanufacturing/ reconditioning/ reassembly of motor vehicles and related components	Automotive / Motor vehicle
Non-EEV	Automotive / Motor vehicle
Drones and rocket Aerospace related products for Military/Defense application (Non-commercial segment)	Aerospace for Military/Defense Application
Recycling of any types of waste	All
Refinery of crude petroleum oil	Petroleum
Passengers car tires	Rubber
General plastic products such as plastic bags, bottles	Plastic
Gloves	All
Manufacturing of construction material except for following products: Industrial Building System (IBS) Panels Boards Tiles Blocks or similar articles of natural and synthetic fiber agglomerated with cement plaster or other mineral binding substance	Construction
Textiles products except for following activities: Natural or man-made fibres Yarn of natural or man-made fibres Woven fabrics Knitted fabrics Non-woven fabrics Finishing of fabrics such as bleaching, dyeing and printing Specialised Apparel Technical or functional textiles and textile products	Textile

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Ideas & Insights Newsletter

Special Deduction For Renovation And Refurbishment Expenses

Post author By admin
Post date February 18, 2021
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Special Deduction For Renovation And Refurbishment Expenses

Key Takeaway

Special tax deduction for costs of renovation and refurbishment of business premise.

The Income Tax (Costs of Renovation and Refurbishment of Business Premise) Rules 2020 P.U (A) 381-2020 has been gazetted on 15 December 2020.

With effective from Year of Assessment 2020, a special tax deduction is given for the costs of renovation and refurbishment of business premise incurred by a person from 1 March 2020 until 31 December 2021, which is certified by the external auditor.

The total amount of deduction allowed is subject to a maximum amount of RM300,000.

“Costs of renovation and refurbishment of business premise” means the costs of renovation and refurbishment of business premise incurred for the purposes specified in the First Schedule of the Rules as below:

General Electrical Installation

Lighting

Gas System

Water System

Kitchen Fittings

Sanitary Fittings

Door, Gate, Window, Grill & Roller Shutter

Fixed Partitions

Flooring (Including Carpets)

Wall Covering (Including Paint Work)

False Ceiling and Cornices

Ornamental Features or Decorations Excluding Fine Art

Canopy or Awning

Fitting Room or Changing Room

Recreational Room for Employee

Air-Conditional System

Childern Play Area

Reception Area

General electrical installation
Lighting
Gas System
Water System
Kitchen fittings
Sanitary fittings
Door, gate, window, grill and roller shutter
Fixed partitions
Flooring (including carpets)
Wall covering (including paint work)
False ceiling and cornices
Ornamental features or decorations excluding fine art
Canopy or awning
Fitting room or changing room
Recreational room for employee
Air-conditional system
Children play area
Reception area
Surau

However, the above deduction shall not include the following cost:-

Designer fee
Professional fee
Purchase of antique (purchase of an object or work of art which, represents a previous era in human society, is collectable item due to its age, rarity, craftsmanship or other unique features and appreciates in value over time).

Take note that these Rules shall not apply to a person who has made a claim in relation to the costs of renovation and refurbishment of business premise under:-

any allowable expenses under subsection 33(1) of the Income Tax Act 1967 (ITA 1967);
any capital allowance under Schedule 2 of the ITA 1967; or
any capital allowance under Schedule 3 of the Act.

Our comments

Businesses can take this opportunity to renovate or refurbish their business premises during the incentive period.
Businesses that have already renovated or refurbished their business premises may need to review their tax position for Year of Assessment (YA) 2020 and also to review the tax estimation for YA 2021.

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Ideas & Insights Newsletter

Transfer Pricing Requirements And New Penalties in Malaysia

Post author By admin
Post date February 4, 2021
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Transfer Pricing Requirements And New Penalties in Malaysia

Key Takeaway

TP Documentation is to be prepared annually
Changes in Form C disclosure items for related party transactions and interest expenses paid to related companies
CbyC Rules are applicable for companies with consolidated revenue of more than RM3 billion
New penalty rates have been introduced in addition to TP Audit Framework

This is a summary of the Transfer Pricing Requirements in Malaysia.

TP 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 2012 TPG was updated on 15 July 2017 with one new chapter on Commodity Transactions (Chapter X) and an updated version of three existing chapters as follows:

Chapter II – The Arm’s Length Principle
Chapter VIII – Intangibles
Chapter XI – Documentation

The guidelines reinforces that companies involved in related party transactions in Malaysia must prepare a TP documentation for the relevant year of assessment.

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.

Companies who fall below this threshold may opt to prepare a limited scope TP documentation instead of a full scope TP documentation. A full scope report may consists of the following:

Organizational structure
Nature of business/industry and market conditions
Controlled transactions
Pricing policies
Assumption, strategies and information regarding factors that influenced the setting of pricing policies
Comparability, functional and risk analysis
Selection of the transfer pricing method
Application of the transfer pricing method
Financial information
Other relevant/supporting documents

A simplified TP documentation consists of items (a), (c) and (d) above. Taxpayer is allowed to apply any method other than the five methods described in the TPG provided it results in arm’s length outcomes. While the TP documentation has to be prepared, it does not need to be submitted unless requested by the tax authorities.

Tax Return Form

Effective from year of assessment 2014, the income tax return form includes a disclosure on whether TP documentation has been prepared. From FY 2019 onwards, the income tax return form was amended again to include additional disclosures as follows:

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.
Disclosure of whether the taxpayer is subject to interest restriction under Section 140C.
In 2019, the tax authorities introduced Restriction on deductibility of interest under Section 140C of the Income Tax Act 1967, in effect from 1 July 2019 onwards. They also released the Restriction on Deductibility of Interest Rules 2019 and the Guidelines 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.

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 2018 if the tax payer’s year end is 31 December 2017).

There is also a requirement to notify the tax authorities if the tax payer is a reporting entity or a non- reporting entity in Malaysia entity on or before the last day of the reporting FY (i.e. 31 December 2017 if the tax payer’s year end is 31 December 2017). They also need to declare in the form C if CbyC is relevant to them and if notification has been submitted.

Type of entity

Details

Reporting entity

The reporting entity shall notify the Director General in writing if it is the ultimate holding entity. Notification will have to include details of all Malaysian and foreign non-reporting constituent entities.

Non-reporting entity

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 entity. 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

TP 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
Condition	Normal case	VD
Understatement or omission of income	100%
Taxpayer did not prepare TP documentation	50%	N/A
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 30 days upon request	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 30 days upon request.	0%	0%

TP Penalties and Power to Disregard Structures

Failure to furnish contemporaneous TP 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:

Fine of not less than RM20,000 and not more than RM100,000; or
Imprisonment for a term not exceeding six (6) months; or
Both.

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 TP 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:

The economic substance of that transaction differs from its form; or
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 of that transaction to reflect the structure that would have been adopted if the transaction was carried out with an independent party dealing at arm’s length.

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

1. AB Sdn Bhd was requested to submit contemporaneous TPD.
2. AB Sdn Bhd submitted later than 30 days.
3. Audit findings resulted in adjustment of RM100,000.
4. Adjustments gave rise to RM25,000 additional tax payable.

Current penalty regime (RM)

Proposed penalty regime (RM)

Fine between RM20k and RM100k. (assumed at minimum penalty amount)

–

20,000

5% surcharge x 100,000

–

5,000

Additional tax payable

25,000

Penalty on additional tax (assumed at 35%)

8,750

Total (Approximately 75% addition)

33,750

58,750

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Ideas & Insights Newsletter

Re-Alert : Transfer Pricing Audit Framework & Requirements in Malaysia

Post author By admin
Post date December 1, 2020
No Comments on Re-Alert : Transfer Pricing Audit Framework & Requirements in Malaysia

Re-Alert : Transfer Pricing Audit Framework & Requirements in Malaysia

Key Takeaway

TP Documentation is to be prepared annually
Changes in Form C disclosure items for related party transactions and interest expenses paid to related companies
CbyC Rules are applicable for companies with consolidated revenue of more than RM3 billion
New penalty rates have been introduced in addition to TP Audit Framework

This is a summary of the Transfer Pricing Requirements in Malaysia.

TP Guidelines (“TPG”)

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 2012 TPG was updated on 15 July 2017 with one new chapter on Commodity Transactions (Chapter X) and an updated version of three existing chapters as follows:

Chapter II – The Arm’s Length Principle
Chapter VIII – Intangibles
Chapter XI – Documentation

The guidelines reinforces that companies involved in related party transactions in Malaysia must prepare a TP documentation for the relevant year of assessment.

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.

Companies who fall below this threshold may opt to prepare a limited scope TP documentation instead of a full scope TP documentation. A full scope report may consists of the following:

Organizational structure
Nature of business/industry and market conditions
Controlled transactions
Pricing policies
Assumption, strategies and information regarding factors that influenced the setting of pricing policies
Comparability, functional and risk analysis
Selection of the transfer pricing method
Application of the transfer pricing method
Financial information
Other relevant/supporting documents

Tax Return Form

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.
Disclosure of whether the taxpayer is subject to interest restriction under Section 140C.

In 2019, the tax authorities introduced Restriction on deductibility of interest under Section 140C of the Income Tax Act 1967, in effect from 1 July 2019 onwards. They also released the Restriction on Deductibility of Interest Rules 2019 and the Guidelines 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.

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

Type of entity

Details

Reporting entity

Non-reporting entity

TP Audit Framework 2019

Condition	Penalty rate
Condition	Normal case	VD
Understatement or omission of income	100%
Taxpayer did not prepare TP documentation	50%	N/A
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 30 days upon request	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 30 days upon request.	0%	0%

TP Penalties and Power to Disregard Structures

With effect from 1 January 2021, the following penalties will come into effect.

Failure to furnish contemporaneous TP 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:

Fine of not less than RM20,000 and not more than RM100,000; or
Imprisonment for a term not exceeding six (6) months; or
Both.

5% surcharge on TP adjustments

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:

The economic substance of that transaction differs from its form; or
The commercial reality of that transaction differs from the arrangement which would have been adopted by an independent party.

Illustration on Penalties

Current penalty regime (RM)

Proposed penalty regime (RM)

Fine between RM20k and RM100k. (assumed at minimum penalty amount)

–

20,000

5% surcharge x 100,000

–

5,000

Additional tax payable

25,000

Penalty on additional tax (assumed at 35%)

8,750

Total (Approximately 75% addition)

33,750

58,750

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Ideas & Insights Newsletter

Amendment to the Malaysian Anti- Corruption Commission Act – the New Corporate Liability Offence For Corruption

Post author By admin
Post date November 11, 2020
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Amendment to the Malaysian Anti- Corruption Commission Act - the New Corporate Liability Offence For Corruption

Key Takeaway

Pooling of resources and cost savings as compare to an entity itself alone to engage consultancy to implement the procedures
Encouraging positive behaviour and assuring best practice and internal control throughout the organization
Promote strong brand reputation
More resilient to risk of fraud, corruption and contingency loss

In 2019, the Malaysian Anti-Corruption Commission has amended the Malaysian Anti-Corruption Commission Act (“MACC Act”). Under the Act, Section 17 A introduces the implementation of the corporate liability provision involving commercial organisations and came into force on 1st June 2020. A commercial organisation includes a company, limited liability partnership or partnership which is formed under Malaysian law, or a company or partnership which carries on a business or a part of a business in Malaysia.

The provision under Section 17A MACC Act 2009 stipulates a corporate liability principle where a commercial organisation can be considered guilty if any of its employees and/or associates commit corruption for the benefit of the organisation. The commercial organisation is also considered guilty regardless whether the upper management or its representatives are aware about the corruption acts committed by its employees or associates.

If a commercial organisation is found guilty under Section 17A, the penalty under Section 17A (2) is:

a fine of not less than 10 times the value of the bribe or RM 1 million, whichever is higher, or
imprisonment for up to 20 years, or
both

However, a commercial organisation can defend itself if it can demonstrate that the organisation implemented ‘Adequate Procedure’ in its operation. The commercial organization has to prove its establishment of appropriate internal management procedures to prevent its related personnel from being involved in corruption and bribery acts.

In order to assist the commercial organization to have further understanding of the mentioned Adequate Procedure, the Prime Minister’s Department has issued Guidelines on Adequate Procedures pursuant to Section 17A.

In essence, the Guidelines on Adequate Procedures outline five guiding principles, represented by the acronym ‘T.R.U.S.T’.

Top Level Commitment.
Risk Assessment.
Undertake Control Measures.
Systematic Review, Monitoring and Enforcement.
Training and Communication.

Due to this amendment, the potential for commercial organisations and its directors, partners or managers to be prosecuted for bribery committed by their employees, agents and other associated parties will increase drastically. It is therefore crucial for commercial organisations to implement the relevant procedures to prevent bribery from being committed.

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Impact of COVID-19 on Transfer Pricing

Post author By admin
Post date October 6, 2020
No Comments on Impact of COVID-19 on Transfer Pricing

Impact of COVID-19 on Transfer Pricing

Key Takeaway

Affected transactions:

Cross border transactions
Management services
IP related transactions
Financial assistance
Limited risk transactions/ companies

Solutions

Consider making changes to the functions or supply chain
Justify losses or low profits and quantify impact of COVID on business
Provide for TP adjustments

Companies should start compiling the necessary documents for preparation of TP documentation.

The COVID-19 has had devastating effects on not just people’s health but the economy as a whole. Through-out this past few months, the financial system worldwide has been experiencing great pressure. Companies especially, are facing cash flow problems and difficulties sustaining the business.

Highlighted below are some of the issues faced, especially by Companies involved in related party transactions:

Companies involved in cross border transactions

In situations where the supply chain and related party transactions spans across different countries, companies are obligated to segregate clearly the functions, assets and risks carried out by each entity to determine the value drivers. The pandemic may have affected the related companies’ ability to perform their role in the supply chain resulting in temporary or permanent changes to the value chain.

Companies receiving or providing management services

There might be situations in which local MNE companies are forced to continue paying for service fees or management fees despite the fact that there is reduced or no assistance being provided by the service provider during the lock-down period.

MNE Groups may have also provided additional services to assist subsidiaries during the pandemic. However, it’s important to determine if the services pass the benefit test if charges are imposed.

Companies with intangible properties (“IP”)

Companies charging royalties for IP or branding activities, especially those charging as a percentage of sales or revenue would face a severe impact on royalty income during the pandemic. This also gives rise to lower taxes paid resulting to potential queries by the tax authorities.

Companies involved in cross border financial assistance

Companies who have provided any type of financial assistance with pre-determined payment terms and interest would not be able to collect the debt and would have to look into deferring all amount dues, similar to the approach adopted by banks with the moratorium. Alternatively, larger MNEs with centralized cash pooling arrangement or with extra cash may extend the cash availabilities to its subsidiaries during this time of need. Interest may or may not be charged in these circumstances resulting in a transaction that may not be considered to have been conducted at arm’s length.

Limited risk companies

Companies with limited functional profile and involved in low or limited risk operations such as contract manufacturers or distribution arms on behalf of its related companies would also face a problem business losses if the other party is affected. These Companies are generally expected to earn a fixed margin, hence it would be a challenge to justify these drop in profits in the year of the pandemic.

Taking into consideration the struggles Companies could potentially face, listed below is some of the ways in which Companies can be more prepared with the impact on their transfer pricing arrangements. Companies can consider:

Making changes in the supply chain or functions carried out by the company to ascertain if it can help mitigate some of the risks borne by the company. Changes made must also be documented with the impact analysis.
Companies who experience losses or low operating profits would have to justify the losses in the TP documentation prepared for the year in which the pandemic hit. It would have to contain an explanation that the losses were not as a result of non-conformance to the arm’s length policies.
It would be worthwhile for companies to start compiling the necessary information and analysis to document the impact of COVID-19 on the operating profit.
Making transfer pricing adjustments or changes in the pricing policy. Although these adjustments are usually debatable and subject to scrutiny by the tax authorities, Companies may not have a choice but to document the calculation and quantify the impact of the adjustments.

Preparation of TP documentation for FY 2020 will definitely be a challenge not only for Companies but also for service providers. Due to the negative impact of the pandemic on operating profits, the likelihood of obtaining a positive benchmarking results are low. It would be worthwhile to consider a multiple year benchmarking analysis and an average profitability across 2 to 3 years as an alternative benchmarking approach.

There might also be a time-lag in the completion of the TP documentation due to insufficient financial information for benchmarking. Companies in Malaysia have been given an extension of time to submit their audited financial statements.

Given the above challenges, it is imperative for taxpayers to start documenting the impact of the pandemic on their business including the changes that were implemented, justification for the change, financial impact and any other relevant information.

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The Tax-related Measures Of The Economic Stimulus Package 2020

Post author By admin
Post date August 6, 2020
No Comments on The Tax-related Measures Of The Economic Stimulus Package 2020

Economic Stimulus Package 2020: A Tax-related Measures

The Tax-Related Measures of the Economic Stimulus Package 2020

Malaysia’s Economic Stimulus Package 2020 was launched by our Prime Minister on 27 February 2020 to counter the economic effects to the country due to the ongoing COVID-19 outbreak. In the Stimulus Package, numerous initiatives were introduced to help affected businesses and taxpayers.

Below is a summary of the major tax-related measures of the stimulus package:

1. Special personal income tax relief on domestic travel

Currently, traveling expenses either locally or overseas are not allowed deductions in the calculation of individual income tax.

To promote domestic tourism, it is proposed that a special income tax relief of up to RM1,000 will be provided to resident individuals for expenses incurred on domestic travel between 1 March 2020 and 31 August 2020.

Special income tax relief of up to RM1,000 is given to resident individuals for domestic travel expenses incurred between March 1, 2020 and August 31, 2020. The expenses eligible for tax relief are as follows:

Payment for accommodation in tourist accommodation premises registered with the Ministry of Tourism, Arts and Culture Malaysia; and
Entrance fees to tourist attractions. Effective: YA 2020 only.

2. Deferment of income tax instalment payments for tourism industry

Businesses in the tourism industry such as travel agencies, hoteliers and airlines will be given a deferment of their monthly tax instalment payments for six (6) months from 1 April 2020 to 30 September 2020.

This will affect instalment payments from 1 April 2020 to 30 September 2020 and the Inland Revenue Board (IRB) clarified in their media release dated 9 March 2020, that an application for the deferment has to be made via a manual form to the Tax Operations Department of the IRB.

3. Revision of income tax estimate

Currently a company may in the sixth month or the ninth month, or in both months of the basis period for a year of assessment (YA) furnish to the IRB a revised estimate of its tax payable for that YA.

It is proposed that other businesses affected by current economic developments, will be allowed to revise their tax estimates in the third month of instalment, should the third instalment fall in the year 2020.

Through a clarification sought on the FAQ issued by the IRB on tax matters during the Movement Control Order period, the IRB has confirmed that companies with accounting period ending on 31 December 2020 and their third month of instalment falling on March which are unable to submit application forms for deferment of monthly tax instalments and revision of their tax estimate in the third month by 31 March 2020, will be granted an extension of time up to 30th April 2020 to do so. Revised instalment payment for the third month will also be extended until 30 April 2020.

This concession is effective 1 March 2020 and in their media release dated 9 March 2020, the IRB that an application for the revision has to be made via a manual form to the Tax Operations Department of the IRB.

4. Stamp duty exemption on loan restructuring and rescheduling agreements

Currently, stamp duty is charged at RM10 on the loan agreement for the purpose of restructuring or rescheduling the loan (limited to existing loans) if the original loan agreement has been duly charged and has been properly stamped.

To ease the financial strain and facilitate the restructuring and rescheduling business loans, a 100% stamp duty exemption will be given on loan agreements arising from such loan restructuring and rescheduling between borrowers and financial institutions, provided the original loan agreement has been duly stamped.

Effective: Loan restructuring and rescheduling agreements executed from 1 March 2020 to 31 December 2020.

5. ACA for machinery and equipment including ICT equipment

Currently, qualifying capital expenditure incurred on machinery and equipment including ICT equipment, is entitled to capital allowance at the following rates:

initial allowance of 20%, and
annual allowance of between 10% to 20%.

In order to encourage and accelerate investment by businesses as well as assist cash flow of companies, Accelerated Capital Allowance (ACA) will be given for qualifying capital expenditure incurred on machinery and equipment, including Information and Communications Technology (ICT) incurred during the period from March 1, 2020 to December 31, 2020. This allowance can be claimed within two years as follows:

Initial allowance of 20%; and
Annual allowance of 40%.

Effective: Qualifying capital expenditure incurred from 1 March 2020 to 31 December 2020.

6. Special tax deduction on costs of renovation and refurbishment

Currently, renovation and refurbishment expenses of business premises are not allowed as tax deductions.

To encourage businesses to undertake renovation and refurbishment in readiness of the subsequent upturn in the economy, it is proposed that a business that renovates and renovates a premises for business purposes is given a tax deduction on eligible expenses incurred on its business premises, up to a limit of RM300,000.

This tax deduction will not apply if such expenditure has been claimed as capital allowance under Schedule 2 or Schedule 3 of the Income Tax Act 1967. Effective: Expenditure incurred from 1 March 2020 to 31 December 2020.

7. Double deduction for establishment of regional office by international shipping companies

Generally, expenditure incurred prior to commencement of business operations is not tax deductible. It is proposed a double deduction be given on pre-commencement expenditure incurred by an international shipping company setting up a regional office in Malaysia.

Effective: Applications received by the Malaysian Investment Development Authority

(MIDA) by 31 December 2021.

8. Relaxation of the conditions for purchase of duty-free goods for persons entering Malaysia

Currently, any foreign traveller who enters and remain in Malaysia for not less than 72 hours or any Malaysian citizen entering Malaysia after being abroad for 72 hours shall be eligible to purchase duty-free goods subject to certain thresholds and conditions.

For persons entering Malaysia via international airports, it is proposed that the conditions for the purchase of duty-free goods are reviewed as follows:

Eligibility for purchase of duty-free goods is reduced from 72 hours to 48 hours; and
The threshold for duty-free goods is raised from RM500 to RM1,000. The threshold value is for goods other than goods that are already eligible for tax exemption under specified limits such as liquor, cigarettes, clothing, shoes, food and personal electrical appliances.

Effective: 1 April 2020 for duty-free shops located at the international airp

9. Expansion of value-added activities carried out in LMW and FIZ

Currently, the value-added activities that are permitted to be carried out in a Licensed Manufacturing Warehouse (LMW) and Free Industrial Zone (FIZ) include research and development, design, marketing (for companies with International Procurement Centre status), distribution (for companies with Regional Distribution Centre status), quality control, testing and commissioning including calibration and configuration, labelling and packaging, remanufacturing, repairing and servicing. These value-added activities must be approved by either the Headquarters of Royal Malaysian Customs Department (RMCD) or the Ministry of Finance (MOF).

It is proposed that the scope of the value-added activities be expanded to include supply chain management, strategic procurement operation and total support solutions. It has also been proposed that the approval process for all value-added activities carried out by the manufacturers in LMW and FIZ be coordinated and approved by the RMCD at State or Zone level only.

Effective: 1 April 2020.

10. Import duty and sales tax exemption on equipment and machinery for port operators

Import duty and sales tax exemption on equipment and machinery is provided to port operators which are granted Approved Services Projects (ASPs) incentives. Port operators which said tax incentives have expired are no longer entitled to import duty or sales tax exemption.

To encourage the continuing investment by expired ASP port operators, import duty and sales tax exemptions are granted on the import and purchase of local machinery and equipment used directly for port operations, subject to the following criteria:

Basic machinery and equipment used directly in port operations; and
These import duty and sales tax exemptions are not available for spare parts and consumables including those used for maintenance purposes.

Effective: Application for exemption submitted to MOF between 1 April 2020 and 31 March 2023.

11. Service tax exemption for hotels

Currently, provision of accommodation services by accommodation premises operatorsc(including hotels, inns, lodging house, service apartment, homestay and any other similar establishment) and other related services provided within the accommodation premises are taxable services under Group A of First Schedule of the Service Tax Regulations 2018 and subject to service tax.

Any person operating accommodation premises (including hotels, inns, lodging house, service apartment, homestay and any other similar establishment) and providing accommodation services and other services within the accommodation premises are taxable under Group A, First Schedule of the Service Tax Regulations 2018.

It is proposed that the above operators of accommodation premises are exempted from charging service tax on their accommodation and related services provided for a period of six (6) months from 1 March 2020 until 31 August 2020.

Effective: 1 March 2020 to 31 August 2020.

12. Tax deduction on PPE provided to employees

Expenses incurred by companies in providing employees with disposable Personal Protective Equipment (PPE) such as face masks are eligible for tax deduction under subsection 33(1) of Income Tax Act 1967, while expenditure incurred for non-disposable PPE products can qualify for capital allowance.

To contain the outbreak of COVID-19, companies are encouraged to provide their employees with Personal Protective Equipment (PPE). A disposable PPE such as face masks are eligible for tax deduction under subsection 33(1) of Income Tax Act 1967 (ITA). Whereas, expenses for non-disposable PPE products can be claimed as capital allowance.

Effective: Not stated in the Economic Stimulus Package 2020.

13. Further deduction to hotel operators for training expenses

Companies are encouraged to send employees for training in courses relating to tourism industry and it is proposed that hotel operators or tour operating business approved by the Ministry of Tourism, Arts and Culture (MOTAC) can claim. double deduction on expenses incurred on approved training provided to employees.

Effective: Not stated in the Economic Stimulus Package 2020.

14. Employees’ EPF contribution

The current Employees Provident Fund (EPF) contribution rate for employees who are Malaysian citizens or permanent residents is 11%.

To help increase employees’ take home pay, a reduction in the minimum EPF contribution rate by 4% (i.e. from 11% to 7%) is proposed. However, employees can still make an election to continue at the higher rate of EPF deduction.[Effective from 1 April 2020 to 31 December 2020]

To increase the cash in the hands of households, the minimum employee contribution to the EPF will be reduced by 4% percent from 11% to 7% for the period of nine months from 1 April to 31 December 2020,. However, EPF members have the option to elect to continue deduction at a higher rate.

Effective: 1 April 2020 to 31 December 2020.

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Newsletter

The Tax-Related Implications of the Movement Control Order

Post author By admin
Post date August 6, 2020
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The Tax-Related Implications of the Movement Control Order

Key Takeaway

The Movement Control Order (MCO) was recently implemented by the Malaysian Government, which at the point of writing of this alert, covers the period from 18 March 2020 to 31 March 2020. This in turn affected several administrative matters with the temporary closure of the office of the Inland Revenue Board (IRB) nationwide during this period.

To address the taxpayers concerns, the IRB on 19 March 2020, published ‘FREQUENTLY ASKED QUESTIONS ON TAX MATTERS DURING THE MOVEMENT CONTROL ORDER PERIOD’ on procedural, filing and payment matters. The following are some of the important clarifications made in the FAQ:

Question

Remarks by the IRB

GENERAL

(a)

Extension of time to submit documents for audit or investigation within the period of 18 March 2020 until 29 April 2020.

Extension of time will be given until 30 April 2020.

(b)

Extension of time to provide feedback to IRB letters within this period.

Extension of time will be given until 30 April 2020.

FORMS

(a)

Extension of time for the submission of return forms either manually or e- Filing.

The last day to file the various income tax return forms has been extended by up to two months from the original deadline.

Please note that the special extension of two months does not apply to companies with financial year ended on 31 December 2019.

(b)

Extension of time for the submission of Form CP58.

Extension of time will be given until 30 April 2020.

(c)

Submission of Country-by-Country Reporting (CbCR).

(i) Entities in Malaysia responsible for the filing of the CbCR report on 31 March 2020 will be given an extension of time until 30 April 2020.

(ii) Notification for the purpose of CbCR by constituent entity which needs to be submitted by 31 March 2020 can be submitted on or by 30 April 2020.

(d)

Extension of time to Labuan entities for the submission of irrevocable election form to be taxed under the Income Tax Act 1967 (Form LE3) where the due date is during this period.

Example of scenario:

Accounting period / basis period for a Labuan entity is 01/01/2020 – 31/12/2020. The due date for submission of Form LE3 for Year of Assessment 2020 is on 31/03/2020.

Extension of time will be given until 30 April 2020 for the submission of Form LE3 for Year of Assessment 2020.

PAYMENT

(a)

Extension of time to submit CP204 tax estimates.

The deadline for submission of the CP204 which falls between 18 to 31 March 2020 will be extended to April 30 2020.

The submission of amendments to the estimated tax payable (CP204A) for the 6th and 9th month which is due by March 31 2020 will be extended to April 30, 2020.

(b)

Extension of time for the first payment of CP500 tax estimates.

The first instalment which should be paid by 31 March 2020 is extended to 30 April 2020.

(c)

Deferment and revision of tax estimate payment (CP204) in the 3rd month (for March 2020 cases) instalment in 2020 under the Economic Stimulus Package.

Submission of tax estimate revision (CP204A) in the 3rd month and the instalment payment is extended to 30 April 2020.

(d)

Can payment of tax estimate for companies be deferred?

Companies have an option to defer (if the activity of the company is related to tourism) or revise tax estimates in the 3rd month if the 3rd month instalment falls in March 2020.

(e)

Will I be imposed with a tax increase if there is a delay in making payment during this period?

Extension of time for tax payments will be given until 30 April 2020. Therefore payments received during this period will not be subjected to tax increase.

(f)

Submission of forms and payment of tax for Labuan entities during this period.

Extension of time of up to 30 April 2020 will be given to submit forms and make tax payments.

(g)

How to make withholding tax payment during this period?

Payment of withholding tax which falls between 18 to 31 March 2020 can be made beginning 01 April 2020 up to 30 April 2020.

Payment can also be made through telegraphic transfer (TT) by furnishing complete payment details to IRBM through fax at 03-6201 9637 or through e-mail at: HelpTTpayment@hasil.gov.my

(h)

Will penalty be imposed on withholding tax payments which should be made during this period?

Payment of withholding tax which falls between 18 to 31 March 2020 can be made beginning 01 April 2020 up to 31 April 2020. No penalty will be imposed on late payment.

(i)

Will compound payment for Monthly Tax Deduction (MTD) which should be paid during this period be deferred?

Payment can be made before 30 April 2020.

REAL PROPERTY GAINS TAX (RPGT)

(a)

Is extension of time provided for the submission of RPGT return forms and payment?

For the submission of RPGT return forms and payment of RPGT (section 21B or payment of notice of assessment) where the due date falls within 18 March to 30 April 2020, the deadline for filing of the forms and payment is 30 April 2020.

FILING PROGRAM OF TAX RETURNS FOR THE YEAR 2020

Source: http://lampiran1.hasil.gov.my/pdf/pdfam/ProgramMemfailBN_2020_Pin.1_1.pdf

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The Tax-Related Implications of the Movement Control Order (Update)

Post author By admin
Post date August 5, 2020
No Comments on The Tax-Related Implications of the Movement Control Order (Update)

The Tax-Related Implications of the Movement Control Order (Update)

As you are all aware, the Movement Control Order (MCO) was recently extended by the Malaysian Government, which at the point of writing of this alert, covers the period from 18 March 2020 to 14 April 2020.

The following are the updates by the Inland Revenue Board of Malaysia (IRBM) and Royal Malaysian Customs Department (RMCD) on filing and procedural matters.

Updates by IRBM

1. ‘Frequently Asked Questions (FAQ) On Tax Matters During The Movement Control Order Period’ (Updated 26 March 2020)

The IRBM has updated the above FAQ to cover the period extended under the MCO. The following is a summary of the important clarifications, with the changes highlighted.

To read the full FAQ, please visit: http://lampiran1.hasil.gov.my/pdf/pdfam/faq_1.pdf

Question

Remarks by the IRB

GENERAL

(a)

Extension of time to submit documents for audit or investigation within the period of 18 March 2020 until 29 April 2020.

Extension of time will be given until 30 April 2020.

(b)

Extension of time to provide feedback to IRB letters within the period of 18 March 2020 until 29 April 2020.

Extension of time will be given until 30 April 2020.

(c)

Donation to the Covid-19 Fund.

Donation to the Covid-19 Fund allowed as tax deduction.

Please refer to Appendix 1 for the IRBM’s Press Release dated 26 March 2020 on the matter.

FORMS

(a)

Extension of time for the submission of return forms either manually or e-Filing.

The last day to file the various income tax return forms has been extended by up to two months from the original deadline.

Please note that the special extension of two months does not apply to companies with financial year ended on 31 December 2019.

Please refer to Appendix 2 for the full details.

(b)

Extension of time for the submission of Form CP58.

Extension of time will be given until 30 April 2020.

(c)

Submission of Country-by-Country Reporting (CbCR).

a) Entities in Malaysia responsible for the filing of the CbCR report will be given an extension of time as follows:-

CbCR report for submission due on 31 March 2020. Extension of time until 15 May 2020.
CbCR report for submission due on 30 April 2020. Extension of time until 15 May 2020.

b) Constituent entities in Malaysia responsible for the submission of CbCR notification will b given an extension of time as follows:-

CbCR notification for submission due on 31 March 2020. Extension of time until 15 May 2020.
CbCR notification for submission due on 30 April 2020. Extension of time until 15 May 2020.

(d)

Extension of time to Labuan entities for the submission of irrevocable election form to be taxed under the Income Tax Act 1967 (Form LE3) where the due date is during this period.

Example of scenario:

Accounting period / basis period for a Labuan entity is 01/01/2020 – 31/12/2020. The due date for submission of Form LE3 for Year of Assessment 2020 is on 31/03/2020. Extension of time will be given until 30 April 2020 for the submission of Form LE3 for Year of Assessment 2020.

PAYMENT

(a)

Extension of time to submit CP204 tax estimates.

The deadline for submission of the CP204 which falls between 18 to 31 March 2020 will be extended to April 30 2020.

The submission of amendments to the estimated tax payable (CP204A) for the 6th and 9th month which is due by March 31 2020 will be extended to April 30, 2020.

(b)

Extension of time to submit CP204 tax estimates.

The deadline for submission of the CP204 which falls between 18 to 31 March 2020 will be extended to April 30 2020.

The submission of amendments to the estimated tax payable (CP204A) for the 6th and 9th month which is due by March 31 2020 will be extended to April 30, 2020.

(c)

Extension of time for the first payment of CP500 tax estimates.

The first instalment which should be paid by 31 March 2020 is extended to 30 April 2020.

(d)

Deferment and revision of tax estimate payment (CP204) in the 3rd month (for March 2020 cases) instalment in 2020 under the Economic Stimulus Package.

Submission of tax estimate revision (CP204A) in the 3rd month and the instalment payment is extended to 30 April 2020.

(e)

Can payment of tax estimate for companies be deferred?

Companies have an option to defer (if the activity of the company is related to tourism) or revise tax estimates in the 3rd month if the 3rd month instalment falls in March 2020.

(f)

Will I be imposed with a tax increase if there is a delay in making payment during this period?

Extension of time for tax payments will be given until 30 April 2020. Therefore payments received during this period will not be subjected to tax increase.

(g)

Submission of forms and payment of tax for Labuan entities during this period.

Extension of time of up to 30 April 2020 will be given to submit forms and make tax payments.

(h)

How to make withholding tax payment during this period?

Payment of withholding tax which falls between 18 March 2020 to 14 April 2020 can be made beginning 1 April 2020 up to 30 April 2020. Payment can also be made through telegraphic transfer (TT) by furnishing complete payment details to IRBM through fax at 03-6201 9637 or through e-mail at: HelpTTpayment@hasil.gov.my

(i)

Will penalty be imposed on withholding tax payments which should be made during this period?

Payment of withholding tax which falls between 18 March 2020 to 14 April 2020 can be made beginning 1 April 2020 up to 30 April 2020. No penalty will be imposed on late payment.

(j)

Will compound payment for Monthly Tax Deduction (MTD) which should be paid during this period be deferred?

Payment can be made before 30 April 2020.

REAL PROPERTY GAINS TAX (RPGT)

(a)

Is extension of time provided for the submission of RPGT return forms and payment?

Updates by IRBM

1. Due Date For Submission Of Returns And Payments

The RMCD has announced through their media release on 25 March 2020 that any returns/forms (including Sales and Service Tax returns) that are due to be submitted to RMCD on 31 March 2020 are allowed an extension until 30 April 2020.

Any penalty which may be due or imposed for the submission of the returns / forms to the RMCD on or before 30 April 2020 will be given full remission.

Payment via online or by postal services is encouraged.

MEDIA RELEASE

INSENTIF POTONGAN CUKAI BAGI SUMBANGAN KEPADA TABUNG COVID-19.

Source: INSENTIF POTONGAN CUKAI BAGI SUMBANGAN KEPADA TABUNG COVID-19

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