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PRACTICE NOTE 3/2020: Clarification on Gross Income from Business Source

23/11/2020

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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; 
​
Issues
Tax Treatment
​Investment Holding Company

​(Kindly refer notes below for further explanation)
(i) subject to section 60F of the ITA 1967, a company which is an investment holding not listed on Bursa Malaysia, is deemed to have no gross income from a business source and is not eligible for the preferential tax rate.

​(ii) subject to section 60FA of the ITA 1967, a company which is an investment holding listed on Bursa Malaysia, is deemed to have gross income from a business source and is eligible for the preferential tax rate.
​Company or LLP which does not have gross income from business sources but has other incomes, for example: rent and interest (including temporarily closed business operations).
If other income such as rent and interest are not assessed as income from the source of a business under paragraph 4(a) of the ITA 1967, the company which does not have gross income from business sources is not eligible for the preferential tax rate.
​Company or LLP which has gross income from foreign business sources.
Gross income from foreign business sources shall be taken into account in determining gross business income not exceeding RM50 million.
​Company or LLP enjoying certain incentives/tax incentives such as pioneer status or investment tax allowance.
​Exempted gross income from business source shall be taken into account in determining gross business income not exceeding RM50 million.

Highlight for Investment Holding Company

An 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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BUDGET 2021 - Part 2: Economic Continuity

18/11/2020

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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 INCENTIVES

1) 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
  • The existing income tax exemption will be extended to cover grants for all types of SRI sukuk and bonds which meet the ASEAN Green, Social and Sustainability Bond Standards approved by the SC; and
  • The income tax exemption on the above grant will be extended for another 5 years.
(Effective for applications received by the SC from 1 January 2021 to 31 December 2025)
 
4) Review of Principal Hub Incentive
  • The application period to be extended for 2 more years up to 31 December 2022; and
  • The conditions relating to the number of high value workers, key posts and annual operational expenditure for the extended 5 year period be relaxed.
(Effective for applications to be received by MIDA from 1 January 2021 to 31 December 2022)
 
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:
  • reintroduced for non-resource based R&D; and
  • extended to private higher learning institutions.
(Effective for applications to be received by MIDA from 7 November 2020 to 31 December 2025)
 
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:
  • Amount exempted from tax will be capped at RM50,000 for each YA;
  • Deductible amount is restricted to 10% of aggregate income for each YA. Any excess amount will be disregarded;
  • The investor, investee company and amount of investment must be verified by SC;
  • Investor must not have family relationship with the investee company;
  • Investment must be made through ECF platform approved by SC; and
  • The investment must not be disposed of either in full or in part within 2 years from the date of investment made.
(Effective for applications to be received by MIDA from 1 January 2021 to 31 December 2023)  
 
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:-
  • Provision of technology solution, or more typically technology company which develops technology and provides technology solutions based on substantial scientific or engineering challenges;
  • Provision of infrastructure and technology for cloud computing;
  • Research and development / design and developments activities;
  • Medical devices testing laboratory and clinical trials;
  • Any services or manufacturing related services as determined by the Minister of Finance.
c) The tax incentive is as follows: 
 
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:
  • Manufacturing sector - Applications received by MIDA until 31 December 2022
  • Selected services sector - Applications received by MIDA from 7 November 2020 to 31 December 2022
10) Review of tax incentive for manufacturers of Industrialized Building System (IBS) components
  • Incentive to be extended for another 5 years
  • Categories 1 (company producing at least 3 basic components) and categories 2 (company producing at least 4 basic components) are to be merged where companies are only required to produce at least 3 basic components of IBS or IBS systems that use at least 3 basic IBS components. 
Investment Tax Allowance of 60% on the qualifying capital expenditure incurred within 5 years will be given. This allowance can be set off against 70% of the Statutory Income
 
(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:
  • a) Maintenance, repair and overhaul (MRO) activities for aerospace
  • b) Building and repair of ships
  • c) Bionexus status
12) Tax incentives for East Coast Economic Region Development Corridor, Iskandar Malaysia and Sabah Development Corridor
 
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:
  • B40 individuals who are recipients of Bantuan Sara Hidup (BSH)/Bantuan Prihatin Rakyat (BPR); and
  • Micro enterprises, as defined by SME Corp, for facilities with approved amounts of up to RM 150,000.
 
Borrowers in these categories can request to either:
  • ​Defer monthly installment for 3 months; or
  • Reduce monthly installment by 50% for 6 months.
 
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 INITIATIVES 

1) 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

Photo credit: www.freepik.com/free-vector/investor-with-laptop-monitoring-growth-dividends-trader-sitting-stack-money-investing-capital-analyzing-profit-graphs-vector-illustration-finance-stock-trading-investment_10173124.htm
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BUDGET 2021: Part 1 - Personal and Employment

13/11/2020

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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

  1. Resident individual tax rate reduced by 1%
    - 14% to 13% for chargeable income range RM50,001 to RM70,000.

  2. Special income tax rate treatment for non- Malaysian citizen individuals holding key positions in companies investing in new strategic investments. 
    To qualify for the flat rate 15%, an individual must:

     i. receive monthly salary of not less than RM25,000; and
     ii. Be a Malaysian tax resident for each YA throughout the flat rate tax treatment.

     (Applications received by the Malaysian Investment and Development Authority (MIDA) from 7   November 2020 until 31 December 2021)

  3. Extension of tax incentive for returning expert programme (REP)
    The application period for the REP incentive is extended for another 3 years, i.e. in respect of applications received by Talent Corporation Malaysia Berhad until 31 December 2023.

    - Flat personal tax rate of 15% for a period of 5 consecutive YAs.
    - Exemption on import duty and excise duty for the purchase of a CBU vehicle or excise duty exemption for the purchase of CKD vehicle subject to total duty exemption limited to RM100,000.

  4. Increase in the limit of income tax exemption on compensation for loss of employment
    Proposed that income tax exemption limit for compensation for loss of employment be increased   from RM10,000 to RM20,000 for each full year of service with the same employer or companies   within the same group.


  5. Reduction in Employees' Provident Fund (EPF) contribution rate
    Employee's portion of EPF contributions will be reduced from 11% to 9% for a period of 12 months   from the beginning of January 2021.


  6. Withdrawal from EPF (below age of 55)
    Account 1: EPF members are allowed to withdraw RM500 a month from EPF Account 1 with a total up to RM6,000 over 12 months.

    Account 2: Partial withdrawal for a specific reason approved by the EPF board is extended to include purchase of insurance and takaful products (approved by EPF) relating to life and critical illness - individual and family.*


    *Based on the media release form EPF board on 6 November 2020, in response to the Budget 2021 announcement, the EPF board is still finalising the details of the withdrawal from member's Account2 to purchase insurance and takaful products covering life/family and critical illness from approved insurance and takaful operators. The products, which will be offered through i-Akaun, will be customised for EPF members at affordable premiums with additional features.

    Source: www.kwsp.gov.my/ms/-/epf-responds-to-budget-2021-announcement


  7. Exemption from HRDF levy
    Exemption from HRDF will be given for 6 months. It covers the tourism sector and companies affected by the Covid-19 crisis.

TAX RELIEF

This is the list of tax relief for individual proposed in budget 2021:-
  1. Expenses on medical treatment, special needs or carer expenses for parents
    Increase to RM8,000

  2. Medical expenses for self, spouse or child undergoing treatment for a serious disease 
    The scope of qualifying expenses is expanded to include expenses incurred on cost of vaccination, up to RM1,000. 

    Type of vaccine includes Pneumococcal, Human Papillomavirus, Influenza, Rotavirus, Varicella, Meningococcal, Combination of tetanus-diphtheria-acellular pertussis, and COVID-19 vaccine.

    The limit of RM500 for medical examination to be increased to RM1,000.

  3. Disabled spouse (additional spouse relief)
    Increase to RM5,000.

  4. Private Retirement Scheme (PRS) contributions and Deferred annuity scheme premium (effective from YA 2012 until YA 2021)
    Period relief is extended for another 4 years.

  5. Lifestyle relief
    Increase to RM3,000 and a
    dditional of up to RM500 is allocated for the cost of purchasing sports equipment, entry/rental fees for sports facilities and participation fees in sports competition.

    Scope of relief for printed daily newspapers be expanded to include subscription for electronic newspapers.

  6. Deposits in Skim Simpanan Pendidikan Nasional (SSPN) account
    Existing SSPN relief is extended for another
     2 years.

  7. Education fees expended on self
    The scope is expanded to cover fees for attending up-skiing and self-enhancement courses in any field of skills recognised by the Department of Skills Development, Ministry of Human Resources limited to RM1,000.

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:-
​

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 (2) EMPLOYMENT


Next, 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)

Incentive
Current
Proposed
​For employers hiring employees earning RM1,500 and above per month
RM800 per month
​40% of monthly income for a period of 6 months, subject to a maximum of RM4,000 per month.
​For employers hiring disabled, long-term unemployed and retrenched workers
Disabled worker - RM1,00 per month

Unemployed workers - RM800 per month
Additional incentive equivalent to 20% of employee's income for a period of 6 months.
Special incentive for hiring of local workers for sectors with high reliance on foreign workers such as construction and plantation
-
60% of monthly wages for a period of 6 months comprising:
- 40% to be channeled to employers
- 20% to be channelled to local worker as a wage top up

Targeted Wage Subsidy

Current
Proposed
RM600 per month per employee earning RM4,000 and below, up to a maximum of 200 employees.
​Extension of WSP for another 3 months to the tourism and retail sector. The maximum number of employees per application is to be increased to 500 employees.

​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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