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2019 Budget

The 2019 Budget themed "A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society" was tabled on 2 November 2018. 

Following the tabling of the 2019 Budget, the Finance Bill 2018, Income Tax (Amendment) Bill 2018 and Labuan Business Activity Tax (Amendment) Bill 2018 were tabled for first reading on 19 November 2018.

As a recap, kindly click on the following for our earlier publications on:

  1. 2019 Budget Snapshots;
  2. 2019 Thought Leaders
  1. Sales Tax and Service Tax (“SST”) 2.0, Digital Tax and Excise;
  2. Special Voluntary Disclosure Program;
  3. Of Sugar and Digital Tax;
  4. Key Changes in Existing Taxes; and
  1. Finance Bill 2018, Income Tax (Amendment) Bill 2018 and Labuan Business Activity Tax (Amendment) Bill 2018 Highlights.

Please note that the Finance Bill 2018, Income Tax (Amendment) Bill 2018 and Labuan Business Activity Tax (Amendment) Bill 2018 have been passed by Dewan Rakyat on 10 December 2018 but yet to be gazetted as at the date of this publication. 

There are several amendments made to the Finance Bill 2018. Click here for our earlier e-announcement for more information.

Income Tax Exemption Orders, Income Tax Rules and Stamp Duty Exemption and Remission Orders

The following have been gazetted:-

  1. Income Tax (Exemption) (No. 3) Order 2018 [P.U. (A) 251/2018]

The above Exemption Order has been gazetted on 5 October 2018 to effect the 2017 Budget proposal to extend the tax incentive period for qualifying Islamic Banking and Takaful businesses for another 4 years, from Year of Assessment (“YA”) 2017 to YA 2020.

(Click here for P.U. (A) 251/2018)

  1. Income Tax (Exemption) (No. 4) Order 2018 [P.U. (A) 310/2018]

The above Exemption Order has been gazetted on 29 November 2018 to provide tax exemption to a takaful operator or an insurance company specified in subsection 36(2) of the Malaysia Deposit Insurance Corporation Act 2011 in respect of statutory income of a shareholders’ fund that is derived from a business in relation to:

  1. a life / family / general fund;
  2. any composite insurance business which consists of a life fund and a general fund; or
  3. any composite takaful business which consists of a family fund and a general fund.

The tax exemption shall be equivalent to the “first levy” or “annual levy” paid from the shareholders’ fund to the Malaysia Deposit Insurance Corporation for that YA.

The Exemption Order is deemed to have come into operation from YA 2018.

(Click here for P.U. (A) 310/2018)

  1. Income Tax (Deduction for Payment of Premium to Malaysia Deposit Insurance Corporation) (Amendment) Rules 2018
    [P.U. (A) 311/2018]

The Amendment Rules has been gazetted on 29 November 2018 to amend the Income Tax (Deduction for Payment of Premium to Malaysia Deposit Insurance Corporation) Rules 2013.

It removes the entitlement of a takaful operator or an insurance company specified in subsection 36(2) of the Malaysia Deposit Insurance Corporation Act 2011 for a tax deduction on premium paid to Malaysia Deposit Insurance Corporation under this Rules.

The Exemption Order is deemed to have come into operation from YA 2018.

(Click here for P.U. (A) 311/2018)

  1. Stamp Duty (Exemption) (No. 2) Order 2018 [P.U. (A) 258/2018]

Pursuant to the above Exemption Order, all instruments executed in relation to any home financing facility granted under a state housing loan fund specified in paragraph 10(1)(b) of the Finance Procedure Act 1957 are exempted from stamp duty, effective from 1 January 2019.

(Click here for P.U. (A) 258/2018)

  1. Stamp Duty (Exemption) (No. 3) Order 2018 [P.U. (A) 259/2018]

Pursuant to the above Exemption Order, all instruments relating to the restructuring or rescheduling of loans or financing executed from 1 January 2018 to 31 December 2020 between a participant of the debt management programme which has been approved by the Credit Counselling and Debt Management Agency, a body corporate established under Section 48 of the Central Bank of Malaysia Act 2009 and a qualifying credit provider are exempted from stamp duty.

(Click here for P.U. (A) 259/2018)

 


Malaysian Inland Revenue Board (“MIRB”)’s Public Rulings


The MIRB has issued the following Public Rulings:-

  1. 7/2018: Accelerated Capital Allowance (“ACA”)

This Public Ruling explains the tax treatment on qualifying plant and machinery for the purpose of claiming ACA or the prescribed rates in determining the statutory income from a business.  It is an updated version of the Public Ruling No. 4/2013 dated 15 April 2013.

  1. 8/2018: Tax Incentives for BioNexus Status Companies

This Public Ruling explains the tax treatment in respect of tax incentives for a BioNexus Status Company in Malaysia.

  1. 9/2018: Taxation of Unit Holders of Real Estate Investment Trust / Property Trust Funds

This Public Ruling explains the tax treatment of distribution of income from real estate investment trusts / property trust funds in Malaysia to its unit holders.  It replaces the Public Ruling No. 7/2012 dated 29 October 2012.

  1. 10/2018: Tax Incentives For Investment In Bionexus Status Company.

This Public Ruling explains the tax incentives offered to an investor who has invested in a BioNexus Status Company in Malaysia.

  1. 11/2018: Withholding Tax On Special Classes Of Income

This Public Ruling explains the:

  1. special classes of income that are chargeable to tax under Section 4A of the Income Tax Act 1967 (“ITA”);
  2. deduction of tax from special classes of income; and
  3. consequences of not deducting and remitting the tax from special classes of income.

It replaces Public Ruling No. 1/2014 dated 23 October 2014, and incorporates changes to the law since the earlier Public Ruling No. 1/2014 was issued and sets out several changes/updates on the MIRB’s positions.

Amongst others, the key changes/updates are as follows:

  1. Any services provided in connection with the use of property or rights belonging to the non-resident person that falls under the scope of royalties would fall under the scope of Section 4A(i) income and be subject to withholding tax under Section 109B of the ITA.
  2. Examples of technical management is expanded to include technical support such as testing and calibration services.
  3. Exclusion of “allocation of head office expenses for ordinary day to day or routine administration expenses which are in no way related to the performance of any specialised service” from the scope of Section 4A(ii) income is now deleted.
  4. Fees other than freight charges for the shipment of goods such as handling fees and agency service fees would fall under the scope of Section 4A(ii) income and be subject to withholding tax under Section 109B of the ITA.
  5. Further clarification has been provided that reimbursement or disbursement on hotel accommodation in or outside Malaysia is not subject to withholding tax under Section 109B of the ITA.
  6. Effective from 5 December 2018, in the case where withholding tax under Section 109B of the ITA is borne by the payer, the withholding tax is to be computed on the gross amount paid to non-resident and regrossing of payment made to non-resident is no longer required to determine the withholding tax amount.
  7. In the case where payment to a non-resident is made in non-ringgit currency, the equivalent Ringgit Malaysia value has to be calculated at the time payment is made at the prevailing foreign exchange rate on the date the payment is made (as reflected in the telegraphic transfer) or based on rate published in the official portal of MIRB or Bank Negara Malaysia, for the purposes of determining the withholding tax amount.
  8. The MIRB reiterated its position that where the withholding tax is not due for payment and no payment or crediting is made to the non-resident payee on or before the due date of submission of the income tax return, a tax deduction is not allowable if the withholding tax is not paid or remitted to the MIRB.

It appears that the MIRB is taking the view that withholding tax must have been paid in order for the associated expense to be tax deductible even if the withholding tax is not due to be paid.

  1. 12/2018: Income from Letting of Real Property

This Public Ruling explains:

  1. letting real property as a business source under Section 4(a) of the ITA; and
  2. letting real property as a non-business source under Section 4(d) of the ITA.

It replaces the Public Ruling No. 4/2011 dated 10 March 2011, which incorporates changes to the law since the earlier Public Ruling No. 4/2011 was issued.

The Public Rulings are available at http://www.hasil.gov.my [Legislation è Public Rulings].

 

MIRB’s Practice Note

The MIRB has issued Practice Note No. 4/2018 “Amendments to Section 60AA of the ITA in relation to the computation of management expenses incurred for the purposes of ascertaining the adjusted income of shareholders’ funds” on 23 October 2018 (available in Malay version only).

Arising from the 2018 Budget proposals, subsections 60AA9(b)(iii) and 60AA10(b)(iii) of the ITA have been amended to provide tax deduction for the management expenses in relation to any other fee receivable in relation to the general fund, inward retakaful fund, offshore fund or family retakaful fund, or investment fund from the family fund.  A new Section 60AA(10B) has also been introduced to provide a formula for the computation of management expenses to be deducted from any other fee receivable (other than wakalah fee) in respect of the above said funds. 

The Practice Note provides guidance and examples on the computation of management expenses to be deducted pursuant to the above amendments.  It is effective from YA 2018.

The full text of the Practice Note is available at http://www.hasil.gov.my
[Legislation è Practice Note].

   

MIRB’s Technical Guideline

The MIRB has issued a Technical Guideline on “Income Tax Exemption for Religious Institution or Organisation under the Income Tax (Exemption) Order 2017 [P.U. (A) 52/2017]” on 3 October 2018. 

The Technical Guideline aims to explain the meaning of a religious institution or organisation and the conditions that entitle religious institution or organisation to obtain income tax exemption under subparagraph 13(1)(b) of Schedule 6 to the ITA pursuant to the Income Tax (Exemption) Order 2017.

The full text of the Guideline is available at http://www.hasil.gov.my
[Legislation è Technical Guidelines].

 


Special Voluntary Disclosure Program (“SVDP”)

The MIRB has issued an amended Operational Guideline No. 1/2018 on “SVDP” on 30 November 2018. It replaces the Operational Guidelines No. 1/2018 dated 3 November 2018.

The full text of the Guideline is available at http://www.hasil.gov.my
[Legislation è Operational Guidelines].

In addition, the MIRB has also issued Frequently Asked Questions (“FAQs”) on SVDP.  Amongst others, the FAQs cover categories of taxpayers, YAs covered, audit / investigation cases, voluntary disclosure procedures, penalty rates, appeals and tax payment.

The FAQs on SVDP are available at http://www.hasil.gov.my
[Home è Special Program for Voluntary Disclosure].


Malaysian Investment Development Authority (“MIDA”) Revised Guidelines

The MIDA has revised the following guidelines:

1.      Guidelines on Application for Incentive by Contract Research and Development (“R&D”) Companies or R&D Companies

Below are the salient changes to the Guidelines:

(a)    Income generated from intellectual property will no longer be tax exempted.

(b)    The company must have adequate number of full-time employees performing research and technical functions in Malaysia with degree or diploma in technical fields with relevant experience.

(i)      For manufacturing-based R&D, it must cover at least 50% of the company’s total workforce.

(ii)    For agriculture-based R&D, it must cover at least 5% of the company’s total workforce.

(c)    The company must incur adequate amount of operating expenditure annually to support the company in conducting its R&D services activities / business operation in Malaysia where the operating expenditure should include local services for insurance, legal, banking, ICT and transportation, if those services could be sourced from local / domestic service providers.

Items (b) and (c) are the changes made to reflect the recommendations of Action 5 of OECD’s Base Erosion Profit Shifting initiatives to impose the requirement of substantial activities on Non-IP incentives. 

Companies that are granted approvals before 16 October 2017 can continue to enjoy the existing incentive without the imposition of the substantial activities requirement until 30 June 2021.  For companies that are granted approval from 16 October 2017 without the substantial activities requirement, they can only enjoy the existing incentive until the new guideline / legislation is published or 31 December 2018, whichever is earlier.

Companies are required to comply with the new substantial activities requirements and submit their applications to MIDA to continue enjoying the incentive.

The Guideline is effective from 1 July 2018 and supersedes the previous guidelines.

2.      Guidelines and Procedures for Application for Manufacturing Licence and / or Pioneer Status / Investment Tax Allowance and / or Expatriate Posts

The details on online application and submission have been removed from above Guidelines.

3.      Guidelines for Setting Up a Representative Office / Regional Office

There are minor amendments to the above Guidelines which are related to contact details.

The revised guidelines are available at http://www.mida.gov.my/home/
[Resources è Forms and Guidelines]

   

Tax Guide for Oil and Gas Service Equipment (“OGSE”) Companies

Petroliam Nasional Berhad has launched a Malaysia Tax Incentives Compilation and Guide for the OGSE Sector (“Guide”) on 25 September 2018.

The Guide identifies 28 tax incentives that are relevant to the OGSE sector.  It outlines tax incentives designed to spur growth and activities in selected segments (e.g. general investments, high-technology companies, integrated logistic services, small-scale companies, reinvestment allowance for manufacturing, etc) as well as activity-driven incentives (e.g. angel investor, principle hub, research and development, etc.)

(Click here for the Guide for more information)

Contact KPMG


Should you have any questions or require further clarification, please do not hesitate to contact any of our Executive Directors, Directors, Associate Directors or Managers whom you are accustomed to dealing with or who are responsible for the tax affairs of your organisation at the following telephone numbers for respective offices:

Petaling Jaya Office

Tai Lai Kok
Executive Director –
Head of Tax and Head of Corporate Tax
ltai1@kpmg.com.my
+ 603 7721 7020

Long Yen Ping
Executive Director –
Head of Global Mobility Services yenpinglong@kpmg.com.my
+ 603 7721 7018

Bob Kee
Executive Director –
Head of Transfer Pricing
bkee@kpmg.com.my
+ 603 7721 7029

Ng Sue Lynn
Executive Director –
Head of Indirect Tax
suelynnng@kpmg.com.my
+ 603 7721 7271

Soh Lian Seng
Executive Director –
Head of Tax Risk Management
lsoh@kpmg.com.my
+ 603 7721 7019

Nicholas Crist
Executive Director –
Corporate Tax
nicholascrist@kpmg.com.my
+ 603 7721 7022

Dato’ Leanne Koh
Executive Director – 
Corporate Tax
leannekoh@kpmg.com.my
+ 603 7721 7026

Neoh Beng Guan
Executive Director – 
Corporate Tax
bneoh@kpmg.com.my
+ 603 7721 7025

Ong Guan Heng
Executive Director – 
Corporate Tax
guanhengong@kpmg.com.my
+ 603 7721 7027

Chang Mei Seen
Executive Director – 
Transfer Pricing
meiseenchang@kpmg.com.my
+ 603 7721 7028

Ivan Goh
Executive Director – 
Transfer Pricing
ivangoh@kpmg.com.my
+ 603 7721 7012

 

 

 

Evelyn Lee 
Executive Director –
Penang Tax
evewflee@kpmg.com.my
+604 238 2288 (ext. 312)

Regina Lau
Executive Director –
Kuching & Miri Tax
reglau@kpmg.com.my
+6082 268 308 (ext. 2188)

Titus Tseu
Executive Director –
Kota Kinabalu Tax
titustseu@kpmg.com.my
+6088 363 020 (ext. 2822)

Ng Fie Lih
Executive Director –
Johor Bahru Tax
flng@kpmg.com.my
+607 266 2213 (ext. 2514)

Crystal Chuah Yoke Chin
Tax Manager –
Ipoh Tax
ycchuah@kpmg.com.my
+605 253 1188 (ext. 320)