Time Limit for Carrying Forward Unabsorbed Business Losses
Public Ruling No.1/2022 dated 30 June 2022 has highlighted several key areas which are as follows:
Period to Carry Forward Business Losses
The time limit for carrying forward unabsorbed adjusted business losses from 7 consecutive years to 10 consecutive years of assessment from the year of assessment 2019. This also means that the unabsorbed losses for the year of assessment 2019 can be carried forward up to the year of assessment 2029 and any balance of unabsorbed losses is to be disregarded from the year of assessment 2030.
Shareholding in a Company
The unabsorbed adjusted business losses carried forward are only allowed to be absorbed in that year of assessment and subsequent years of assessment if the shareholders of the Company are substantially the same, or in other words, there has been no substantial change in the Company’s shareholding.
If there is a substantial change in the Company’s shareholding in the year of assessment, the unabsorbed adjusted business losses are not allowed to be absorbed in that year of assessment and shall be disregarded. The amount disregarded shall not be allowed as a deduction in the subsequent years of assessment.
Shareholders of a Company are considered substantially the same if the shareholders of the Company on the last day of the basis period for the relevant year of assessment in which the amount of adjusted business losses is ascertained is substantially the same as the shareholders of that Company on the first day of the basis period for the year of assessment in which adjusted business losses are allowable as deduction when:
More than 50% of the paid-up capital in respect of the ordinary share of the Company is held by or on behalf of the same persons and
More than 50% of the nominal value of the allotted shares in respect of the ordinary share in the Company is held by or on behalf of the same person.
Effective year of assessment 2006, the Minister of Finance has stipulated that a company with a substantial change in shareholding is allowed to carry forward accumulated adjusted business losses to be absorbed in that year of assessment and in subsequent years of assessment unless a substantial change in shareholding occurs in a dormant Company.
Dormant company: A company is considered dormant if there is no significant accounting transaction in one financial year prior to the substantial change in its equity shareholding. This means there is no entry registered in the company’s accounts other than the minimum expenditure needed to fulfil specified statutory requirements (e.g., submission of annual return fees, secretarial fees, tax filing fees, audit fees and accounting fees)
Source: LHDN Public Ruling No.1/2022
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