With effective from YA 2020, the issuance of Practice Note No. 3/2020 clarifies, in addition to having paid up ordinary shares of up to RM 2.5mil and gross business income of not exceeding RM 50mil, the gross income has to be from business source (i.e. manufacturing/ trading or service activities) to be eligible for tax treatment under paragraph 2A and 2D Part 1, and subparagraph 19A(3) Schedule 3 of ITA 1967 i.e. where the chargeable income shall be taxed at the preferential tax rate of 17% on the first RM600,000. Please take note the following when estimating CP204 for the year of assessment 2021;
Highlight for Investment Holding CompanyAn IHC is deemed to have no gross income. However, when the company comprehensively and actively provides maintenance or support services in relation to the properties rented, the rental income shall be business source and assessed under Section 4(a) of the ITA 1967, therefore eligible for the preferential tax rate provided all other criteria i.e. paid up capital and gross business income limit are also met. With reference to the Public Ruling No. 12/2018, to "provide maintenance or support services" means services that include: (a) doing generally all things necessary (e.g. cleaning and repair services) for the maintenance and management of the real property such as the structural elements of the building, stairways, fire escapes, entrance and exits, lobbies, corridors, lifts, escalators, compounds, drains, water tanks, sewers, pipers, wires, cables or other fixtures and fittings; and (b) doing generally all things necessary for the maintenance and management of the exterior parts of the real property such as playing fields, recreational areas, driveways, car parks, open spaces, landscape areas, walls and fences, exterior lightings or other external fixtures and fittings, where the services are actively provided by the person himself who owns or lets out the property or that he hires another person or another firm to provide the said services. A person is deemed NOT actively and comprehensively providing maintenance or support services and as such, the rental income is NOT assessed under Section 4(a) of the ITA 1967 when: (a) the owner of the property merely provides security services and/ or other facilities; or (b) facilities are provided and maintained by the joint management corporation of the property and the owner only pays maintenance fees, thus the services enjoyed by the tenant are merely an extension of the owner's right as proprietor of the property unit. The clarification though the practice note (effective YA 2020) impacts primarily on businesses earning only rental income assessed under Section 4(d) of the ITA 1967 where tax rate will now be at 24%. Taxpayers should therefore be mindful of the change in tax rate when assessing the estimate of tax installment (via Form CP204) moving forward. Should you need further clarification, please do not hesitate to contact us. Photo credit: www.freepik.com/free-vector/communication-flat-icon_4167276.htm#page=1&query=work&position=7 This material or communication has been prepared for the sole purpose of providing general information to our clients, and is not intended to be relied upon as accounting, tax or other professional advice. Consent has to be obtained from the firm prior to any act of republishing or circulating to the general public. While the information is considered correct at the date of publication, changes in circumstances or updates in tax ruling after the time of publication may impact its accuracy and reliability. We have not, by means of this material or communication, rendered any professional advice or services. Thus, we shall not be responsible for any losses sustained by any person who relies on this material or communication. Please refer to our tax advisors should you require our consultancy services
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In the last budget 2021 update, we have highlighted matters concerning personal and employment. We will detail down tax areas relating to Economic Continuity per budget 2021 that was announced on 6th November 2020 in this article. TAX INCENTIVES1) Companies manufacturing pharmaceutical products including vaccines Other facilities including grants, import duty or sales tax exemption for machinery and equipment as well as raw materials, may be considered depending on the strategic investments by the companies. For the first 10 years, the income tax rate ranges from 0% to 10%. For the subsequent 10 years, the tax income tax is taxed at 10%. (Effective for applications to be received by MIDA from 7 November 2020 to 31 December 2022) 2) Extension of tax incentive for exports of private healthcare services Incentive is to be extended to YA 2022 3) Review of income tax exemption on Green Sustainable and Responsible Investments Sukuk Grant
4) Review of Principal Hub Incentive
5) Global Trading Center Incentive To enhance and simplify the tax incentive for trading activities currently provided under the Principal Hub incentive which is subject to a higher eligibility criteria, a new Global Trading Centre tax incentive is to be introduced. Under the Global Trading Centre incentive, a concessionary tax rate of 10% will apply for a period of 5 years (renewable for another 5 years) (Effective for applications to be received by MIDA from 1 January 2021 to 31 December 2022) 6) Review and expansion of tax incentive for commercialization of Research and Development findings To create a competitive R&D ecosystem, it is proposed that the tax incentives are to be:
7) Extension of period of further deduction for employment of senior citizens, ex-convicts, parolees, supervised persons and ex-drug dependents Extended for another 5 YAs from YA 2021 to YA 2025 8) Tax incentive for investment in Equity Crowd Funding (ECF) To encourage more individual investors to invest in ECF, income tax exemption on aggregate income equivalent to 50% of the amount of investment made in the ECF will be given subject to the following:
9) Review of tax incentives for companies relocating their operations to Malaysia and undertaking new investments To spur the economic recovery through investment activities and to create multiplier effects to the economy, it is proposed that: a) The application period be extended for another 1 year; and b) The tax incentive be expanded to companies operating in selected services sector, including companies adapting IR4.0 and digitalisation technology with investment that contributes to significant multiplier effect in the following services:-
New company: - Tax incentive : 0% - 10% tax rate - Incentive period: Up to 10 years Existing company: - Tax incentive : 10% tax rate - Incentive period: Up to 10 years Effective date:
(Effective for applications to be received by MIDA from 1 January 2021 to 31 December 2025) 11) Extension of existing tax incentives expiring on 31 December 2020 To provide space for the comprehensive study of the existing tax incentive to be completed, it is proposed that the existing tax incentive due to end on 31 December 2020 will be extended until 2022. The incentives mentioned includes:
Extended until YA 2022. Disclaimer: The above stated tax incentives are extracts of the 2021 budget, of which the details have yet been finalised. We will provide updates should there be any new finance bills issued. FUNDS FOR SMALL MEDIUM ENTERPRISE (SME)1) Establishment of RM 2 billion Targeted Relief and Recovery Facility (TRRF) The RM 2 billion facility is for eligible SMEs whose revenues have been affected by the recent enhanced and conditional movement control orders. In addition, SMEs in targeted vulnerable sectors, namely personal services, food and beverage services, human health and social work, arts, entertainment and recreation sub-sectors, will also be eligible for the TRRF. Offered at a concessionary rate of up to 3.5%, the TRRF will be available through participating financial institutions, with guarantee coverage by Syarikat Jaminan Pembiayaan Perniagaan (SJPP) and Credit Guarantee Corporation (CGC). The facility will be open for applications from 1 December 2020. 2) Establishment of RM 500 million High Tech Facility (HTF) The RM 500 million facility is to support SMEs in high-tech sectors, for example fertilizers and synthetic rubber, basic chemicals, refined petroleum products, biotech pharmaceuticals, as well as air and spacecraft sub-sectors. As the high-tech sectors and innovation-driven firms are instrumental to realizing new growth opportunities, the HTF aims to sustain Malaysia’s competitive positioning in global value chains and safeguard high-skilled jobs. Further details on the HTF will be announced on 1 December 2020. 3) RM 110 million increase in allocation for the Micro Enterprises Facility (MEF) The facility will be increased from RM 300 million to RM 410 million, with an available balance of RM 200 million to support micro-enterprises including gig workers on digital platforms and the self-employed. The facility is for working capital and capital expenditure. ENHANCEMENTS TO THE TARGETED REPAYMENT ASSISTANCE (TRA)The banking industry has agreed to provide additional targeted repayment assistance for individuals and SME borrowers. These enhancements are an addition to those previously announced for those who have lost their jobs, and for individuals and SMEs whose incomes have been affected by the pandemic. Borrowers can also continue to approach their banks for tailored repayment assistance based on their specific financial circumstances as all banks continue to stand ready to provide support to borrowers that need assistance. 1) Additional assistance for B40 and micro enterprise borrowers Additional repayment assistance will be rolled out to borrowers in the following categories:
Borrowers in these categories can request to either:
The assistance will be extended for facilities approved before 1 October 2020 which are not in arrears for more than 90 days at the time a borrower requests for repayment assistance. B40 and micro-enterprise borrowers who had previously received other forms of targeted repayment assistance and who wish to request for further assistance under the additional measures announced today can still do so by contacting their banks. To request for this assistance, eligible borrowers will only need to confirm their repayment option with their bank. Additional documentation from borrowers is not required by banks to obtain repayment assistance. However, for hire purchase loans and fixed rate Islamic financing, borrowers would need to sign new agreements in accordance with the Hire Purchase Act 1967 and Shariah requirements. These additional repayment assistance will be available to eligible borrowers between 23 November 2020 and 30 June 2021. Borrowers may indicate the repayment assistance from 23 November 2020 through banks’ customer service hotlines, online banking, or by visiting bank branches. The repayment enhancement will be available for installment due in December 2020 onward, and will take effect at the next installment following a borrower’s request and confirmation. OTHER INITIATIVES1) Expansion of iTEKAD programme The iTEKAD programme, which was launched in May 2020, combines social finance instruments such as zakat, sadaqah and waqaf with the provision of micro financing, structured training and mentorship. These instruments will empower micro-entrepreneurs from the B40 segment to generate sustainable income and achieve financial resilience. 2) Perlindungan Tenang Protection for B40 Financial assistance will be provided by the Government for the B40 segment in the form of vouchers to purchase insurance and takaful coverage under the Perlindungan Tenang scheme from licensed insurers and takaful operators. The financial assistance of RM50 voucher will be given to eligible B40 recipients to help them purchase Perlindungan Tenang products starting 1 April 2021. Perlindungan Tenang products are products approved by BNM to meet the needs of under-served market segments. The products must satisfy stringent criteria on affordability and customer value, with minimal exclusions to ease claims and ensure meaningful protections, particularly for lower income groups. The products include protection for life takaful and personal accidents. Source: https://www.bnm.gov.my/index.php?ch=en_press&pg=en_press&ac=5147 // https://www.bnm.gov.my/covid19/ Source: Budget 2021 Speech This material or communication has been prepared for the sole purpose of providing general information to our clients, and is not intended to be relied upon as accounting, tax or other professional advice. Consent has to be obtained from the firm prior to any act of republishing or circulating to the general public. While the information is considered correct at the date of publication, changes in circumstances or updates in tax ruling after the time of publication may impact its accuracy and reliability. We have not, by means of this material or communication, rendered any professional advice or services. Thus, we shall not be responsible for any losses sustained by any person who relies on this material or communication. Please refer to our tax advisors should you require our consultancy services Following the Budget 2021 announcement made on 6th November 2020, which was formulated for Malaysian with the theme "Resilient as One, Together we Triumph'' focused to ensure the following:- (i) Rakyat's well-being; (ii) Business continuity and; (iii) Economic resilience. We are pleased to update you (below) on the items highlighted in budget 2021 focusing on the impact to (a) individual and (b) employment:- (1) PERSONAL
TAX RELIEFThis is the list of tax relief for individual proposed in budget 2021:-
Bantuan Prihatin Rakyat (BPR)Another thing that was highlighted during the budget 2021, is the Bantuan Prihatin Rakyat (BPR) which is more targeted. Kindly find the details as below:- (2) EMPLOYMENTNext, moving on to the employment benefit that was highlighted where it focuses on the employer to maintain it's employees in order to reduce the unemployment rate. Kindly find the initiative available below:- Penjana Kerjaya Incentive (Hiring Incentive)
Targeted Wage Subsidy
Disclaimer: This is prepared according to the Budget 2021 speech and we will be updating you continuously should there be any finance bill issued later. Source: www.treasury.gov.my/pdf/budget/speech/bs21.pdf Photocredit: :https://www.freepik.com/free-vector/family-couple-saving-money_7732613.htm#page=1&query=budget&position=1 This material or communication has been prepared for the sole purpose of providing general information to our clients, and is not intended to be relied upon as accounting, tax or other professional advice. Consent has to be obtained from the firm prior to any act of republishing or circulating to the general public. While the information is considered correct at the date of publication, changes in circumstances or updates in tax ruling after the time of publication may impact its accuracy and reliability. We have not, by means of this material or communication, rendered any professional advice or services. Thus, we shall not be responsible for any losses sustained by any person who relies on this material or communication. Please refer to our tax advisors should you require our consultancy services |
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November 2020
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