Update: Practice Note 4 - Clarification on Gross Income from Business Sources

With reference to our previous email on Practice Note 3/2020 - Clarification on Gross Income from Business Sources, we would like to highlight to you the following update of the newly issued Practice Note 4/2020 by MIRB which has replaced Practice Note 3/2020. 

Practice Note 4/2020 covers the additional requirements (effective from YA 2020) besides having a gross business income not exceeding RM50 million from the manufacturing, trading or service activities and a paid up capital of up to RM2.5 million, to be eligible for the preferential tax treatment (i.e. 17% tax rate for the first RM600,000 chargeable income).


The key changes affected by the issuance of Practice Note 4/2020 as follows:

Context	Practice Note 3/2020	​Practice Note 4/2020
Company/ LLP that does not have gross income from business due to temporary cessation of business operation	Not eligible for preferential tax	​Eligible, if the Company/ LLP still incurs tax deductible expenses (e.g. payment of salaries, rental of premise, utilities, maintenance, and other allowable expenses) relating to the business during the year.  ​The newly inserted issue no. 4 in the practice note specifies that the Company/ LLP is deemed to have a business income equivalent to Nil.
Company/ LLP that carries on business but does not have any gross income for the year (i.e. suffered business loss)	Not covered	Eligible, if the Company/ LLP incurs tax deductible expenses (e.g. purchases of stock, payment of salaries, rental of premise, and other allowable expenses) relating to the business during the year.       The newly inserted issue no. 3 in the practice note specifies that the Company / LLP is deemed to have a business income equivalent to Nil.

​Below is the summary for the clarification on gross income from business sources.

No.	Issue	Eligibility for preferential tax **
1	​​Investment Holding Company (IHC)^ that is not listed in Bursa Malaysia, and deemed to have no gross income from business sources.  ^ To be qualified as an IHC, the Company must have not less than 80% of its gross income consisting of a business of holding of an investment section 4(c) & (d), regardless whether exempt or not. Note that the income from a business of holding of an investment assessed under section 4(a) is not computed as gross income from the holding of investments. Only income from section 4(c) interest and dividends and section 4(d) rental income are computed as gross income from the holding of investments.	Not eligible ​
2	Investment Holding Company (IHC) that is listed on Bursa Malaysia, and deemed to have gross income from business sources.	​Eligible
3	Company/LLP that does not have gross business income but has other income sources (i.e. rental, interest).	Not eligible ​
4	Company/ LLP that carries on a business but does not have gross income from business sources due to current year business losses.	​Eligible
5	Company/ LLP which does not have gross income from business sources due to current year business loss caused by temporary closure of business operation.	​Eligible
6	Company/ LLP with gross foreign business income. The gross income from foreign business sources shall be taken into account in determining gross business income and not exceeding RM50 million.	​Eligible
7	​Company/ LLP that is enjoying certain incentives/ tax incentives e.g. pioneer status or investment tax allowance. The exempted gross income from business source shall be taken into account in determining gross business income and not exceeding RM50 million.	​Eligible

​** The Company/LLP with gross business income not exceeding RM50 million from manufacturing, trading or service activities, and a paid up capital of up to RM2.5 million.

Source: phl.hasil.gov.my/pdf/pdfam/PN_4_2020.pdf
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