DFK International is a top 10 international association of independent accounting firms and business advisers.

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2 DFK International is a top 10 international association of independent accounting firms and business advisers. DFK International is a worldwide association of independent accounting, tax and business advisory firms. DFK International is registered in England and Wales as a private company that is limited by guarantee. Registered office: Temple Chambers, Suite 120, 3-7 Temple Avenue, London, EC4Y 0DA Company Number: The association has been meeting the needs of clients with cross-border interests for more than 50 years. The partners in its member firms share: Enthusiasm for fully understanding client objectives and delivering effective advice Dedication to providing personal and timely services through experienced advisers Commitment to achieving consistent professional and ethical standards Each DFK member is an independent legal entity in its own country. DFK International is a non-profit making consortium of independent firms and does not itself practice in the field of accountancy and does not provide business advisory service. Such services are provided by the independent member and correspondent firms of DFK International. A grouping of members who include DFK in their firm's name are classified as network firms in accordance with EU and IFAC requirements. Member firms that do not include DFK in their firm's names are not network firms and belong to the association as either Full or Correspondent Members. DFK International World Statistics $1.303bn MEMBER FIRMS MEMBER OFFICES COUNTRIES MEMBER FEE INCOME Proud recipient of the IAB 2015 Firm of the Year Award

3 FOREWORD A new government! A new Harapan! Budget 2019 marked the first budget proposal presented under the present government by the Minister of Finance, YB Tuan Lim Guan Eng on 2 November With the theme A Resurgent Malaysia, A Dynamic Economy, A Prosperous Society, the 2019 Budget outlined 12 key strategies:- 1. Strengthening fiscal administration; 2. Restructuring and rationalising government debt; 3. Raising government revenue; 4. Ensuring welfare and quality of life; 5. Improving employment and employability; 6. Enhancing health and social welfare protection; 7. Raising real disposable income; 8. Education for a better future; 9. Unleashing the power of the new economy; 10. Seizing opportunities in the face of global challenges; 11. Redefining the role of government in business; and 12. Ensuring equitable and sustainable economic growth. In line with the above strategies, various proposals were put forward in the 2019 Budget. Some of the notable tax measures are as follows:-. Sales and Services Tax To improve the efficiency and effectiveness of the Sales and Services Tax, the following measures have been proposed:- (a) Service tax exemptions for specific business-to-business (B2B) transactions be given to certain group of service tax registrants. Service tax be imposed on imported services consumed by businesses (B2B) and the digital products and services imported by consumers (B2C). (c) A credit system for sales tax deductions be introduced to assist small manufacturers who purchase products from importers. Personal Income Tax Notable changes include:- (a) Tax relief on contribution to approved schemes and life insurance premium or takaful schemes be increased from RM6,000 to RM7,000. Relief given to a resident individual for net deposits made in that basis year into the SSPN account be increased from RM6,000 to RM8,000. Corporate tax To ensure various tax legislations stay relevant and to reduce leakages, certain existing reliefs and incentives under the Act be reviewed and amended as follows:- (a) Carrying forward of unabsorbed business loss of a company be limited to 7 years of assessment; Provision of group relief is reviewed where the surrendering of losses will apply to new companies only and restricted to 3 years of assessment. The company that has unutilised investment tax allowances or unutilised pioneer losses upon the expiry of its investment tax allowance or pioneer status incentive is not eligible for group relief.

4 (c) The income tax rate on chargeable income of up to RM500,000 for SME be reduced from 18% to 17%. (d) Earning stripping rules are introduced under Section 140C to restrict the deductibility of interest expenses in connection with financial assistance in a controlled transaction (e) Deduction of expenses incurred in respect of any payment made by a resident to a Labuan Company be restricted. Real Property Gains Tax (RPGT) and Stamp Duty Key changes to RPGT and stamp duty include:- (a) The RPGT rates for the disposal of real properties or shares in a real property company after the fifth year (i.e. sixth year or thereafter) by a resident individual or permanent resident be increased from 0% to 5%; Stamp duty on the transfer of property valued at more than RM1,000,000 will be increased from 3% to 4%; (c) Stamp Duty Exemption (i) Exemption of stamp duty on sale and purchase agreement and loan agreement executed on acquisition of house by first-time homebuyers have been extended. (ii) Rules and conditions governing the stamp duty exemptions in the case of reconstructions or amalgamations of companies and transfer of property between associated companies be reviewed. Tax Systems and Administration The following are notable amendments and additional provisions:- (a) Restrictions on trade in Malaysian Ringgit and transactions between Labuan and Malaysian resident will be removed. Flat tax of RM20,000 under the Labuan Business Activity Tax Act 1990 be abolished with effect from 1 January Tax exemption granted to wholesale money market funds on its interest income from licensed banks, licensed Islamic banks, and development financial institutions be abolished. (c) The following incentive be extended or expanded:- (i) Venture Capital Tax Incentives be extended for another year, i.e. for applications received by the Malaysian Securities Commission until 31 December (ii) The list of green technology assets which qualify for the Green Technology Investment Allowance be expanded from 9 assets to 40 assets. (iii) Tax incentives be introduced for companies that incurred qualifying expenses in implementing Industry 4WRD. The Government has also launched a Special Voluntary Disclosure Program (SVDP) to encourage the public to report their unreported or understated income, on a voluntary basis. This program will be offered from 3 November 2018 until 30 June 2019 where reduced penalty rate will be imposed on those income. IMPORTANT NOTE This bulletin is prepared gratuitously for clients and associates and is not intended in any way to be acted upon as advice by Folks DFK & Co./Azman, Wong, Salleh & Co. and their associates. The information herein (which incorporates legislation/gazettes up to 31 December 2018) may be subject to further amendments upon the passing of the relevant legislations. Readers are advised to seek appropriate advice before taking any action. Folks DFK & Co./Azman, Wong, Salleh & Co. and their associates shall not be responsible or liable for any claims, losses or damages arising in any way out of or in connection with any person relying upon this bulletin in organising their affairs.

5 CONTENT ABBREVIATIONS DEFINITIONS Page (i) (ii) (iii) 1. TAX SYSTEMS AND ADMINISTRATION 1.1 Special Classes of Income Appeal on Assessment under Section 90(3) Expansion of Derivation of Business Income Requirement of Audited Accounts on Submission of Tax Return Penalty for Breach of Confidence Person Responsible for LLP Review of Tax Rate for Foreign Fund Management Company Restriction on Deductibility of Interest Review of Tax System for Labuan Entity and Labuan Business Activity Definition of Control under Section 140A Tax Deduction for Contributions made to Social Enterprise Donations to National Schools and Institutions of Higher Learning Change of Income Tax Rates and Tax Treatment for Insurance and Reinsurance Business 1.14 Special Voluntary Disclosure Program (SVDP) with Lower Penalties TAXATION INDIVIDUALS 2.1 Tax Relief on Contribution to Approved Schemes and Life Insurance Premium or Takaful Scheme 2.2 Tax Relief on Net Annual Savings in the National Education Savings Scheme (SSPN) TAXATION COMPANIES & UNINCORPORATED BUSINESSES 3.1 Review of Tax Treatment on Unabsorbed Business Losses Reduction of Corporate Tax Rate for Small and Medium Enterprises (SME) Deduction on Payments made to Labuan Entities Review of the Tax Treatment on Provision of Group Relief Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) Loan Paid by Employers TAX INCENTIVES 4.1 Limitation to Reinvestment Allowance (RA) and Investment Allowance for Service Sectors (IASS) Pioneer Losses (PL) Extension of Tax Incentive for the Issuance of Sukuk Ijarah (leasing) and Wakalah (Agency) Extension of Tax Incentive for Issuance of Retail Debenture and Retail Sukuk 13

6 CONTENT Page 4. TAX INCENTIVES (Cont d) 4.5 Tax Incentives for Industry4WRD Tax Incentive for Employers to Employ Senior Citizens and Ex-convicts Withdrawal of Investment Tax Allowance (ITA) Tax Incentives for Venture Capital Definition of Research and Development (R&D) Changes to Tax Exemption on Wholesale Money Market Funds Review of Contract R&D Incentive REAL PROPERTY GAINS TAX 5.1 Acquisition Price of Property Acquired prior to 1 January Disposal of Asset by Way of Gift Review of Real Property Gains Tax (RPGT) Rates STAMP DUTY 6.1 Review of Stamp Duty Rates for Transfer of Real Property Review of Stamp Duty Exemption for the Purchase of First Residential 21 Property 6.3 Stamp Duty to be Imposed on Hire Purchase Agreement Redefinition of Small and Medium Enterprise for Stamp Duty Purposes Stamp Duty to be Imposed on Constitution of a Company Review of Stamp Duty Exemption in Cases of Reconstruction or Amalgamation of Companies Review of Stamp Duty in cases of Transfer of Property between Associated Companies Stamp Duty Exemption for Perlindungan Tenang Products INDIRECT TAX 7.1 Introduction, Definition and Review of Scope of Imported Taxable Service Newly Prescribed Taxable Services Redefinition of Management Services for Service Tax Purposes Service Tax Exemptions for Specific Business-To-Business (B2B) Service Tax Registrants 7.5 Determination of Sale Value of Taxable Goods Power to Assess under Sales Tax Act Deduction of Sales Tax Excise Duty on Sugar Sweetened Beverages Review of Import Duty Rate on Bicycles 29

7 ABBREVIATIONS Act Income Tax Act 1967 AE Automation Equipment Allowance CA Capital Allowance DG Director General DTA Double Taxation Arrangement ESR Earning Stripping Rules GST Goods and Services Tax GSTA Goods and Services Tax Act 2014 IRB Inland Revenue Board ITA Investment Tax Allowance LLP Limited Liability Partnerships MIDA Malaysian Investment Development Authority OECD Organization for Economic Co-operation and Development PIA Promotion of Investment Act 1986 PS Pioneer Status QE Qualifying Expenditure R&D Research & Development RA Reinvestment Allowance REITs Real Estate Investment Trusts RMC Royal Malaysian Customs RPGT Real Property Gains Tax RPGTA Real Property Gains Tax Act 1976 SA Stamp Act 1949 SC Securities Commission SME Small and Medium Enterprise STA Service Tax Act 2018 SOCSO Social Security Organization TCR Thin Capitalization Rules WHT Withholding Tax YA Year of Assessment (i)

8 DEFINITIONS Base erosion and profit shifting ( BEPS ) Country-by-country Report ( CbC Report ) refers to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations. Under the OECD/G20 Inclusive Framework on BEPS, over 125 countries and jurisdictions are collaborating to implement the BEPS measures and tackle BEPS. the term CbC Report means the country-by-country report to be filed annually by the Reporting Entity in accordance with the laws of its jurisdiction of tax residence and with the information required to be reported under such laws covering the items and reflecting the format set out in the report published by the OECD with respect to Action 13 of the Base Erosion and Profit Shifting project in September 2014, as may be amended following the 2020 review contemplated therein. (source: OECD/G20 Base Erosion and Profit Shifting Project. Action 13: Country-by-country Reporting Implementation Package) Industry4WRD REITs SME National Policy on Industry 4.0, which would enable the manufacturing sector to move into Industry 4.0 and along the way contribute to fulfilling Malaysia s commitment to the United Nation s Sustainable Development Goals (SDGs). a unit trust which is approved by the SC as REITs or Property Trust Fund. a company incorporated in Malaysia with a paid-up capital in respect of ordinary shares not exceeding RM2.5 million and LLP with RM2.5 million capital contribution and below at the beginning of the basis period for the relevant YA. However, it excludes a company where:- (a) 50% of the paid up capital in respect of the company s ordinary shares is directly or indirectly owned by a related company; 50% of the paid up capital in respect of ordinary shares of the related company is directly or indirectly owned by the company; or (c) 50% of the paid up capital in respect of ordinary shares of the company and the related company is directly or indirectly owned by another company. Related company in this context is defined as a company which has a paid up capital exceeding RM2.5 million in respect of ordinary shares at the beginning of its basis period for a YA. Sukuk Sukuk has the same meaning as provided in the SC s guidelines in respect of Islamic securities. Sukuk refers to certificates of equal value which evidence undivided ownership or investment in the assets using Shariah principles and concepts endorsed by the Shariah Advisory Council but does not include any agreement for a financing/investment where:- (i) the financier/investor and customer/investee are signatories to the agreement; and (ii) the provision of financing/investment is in the ordinary course of business of the financier/investor, including any promissory note issued pursuant to the terms of such an agreement. (Source: Guidelines on Sukuk issued by SC dated 8 January 2014). (ii)

9 DEFINITIONS Contract research and development company Earning Stripping Rules (ESR) means a company which provides research and development services in Malaysia only to a company other than its related company. a method endorsed by the OECD to limit tax deductions for interest expenses and is one of the OECD s action plans under the Base Erosion Project Shifting ( BEPS ) strategy. (iii)

10 1. TAX SYSTEMS AND ADMINISTRATION 1.1 Special Classes of Income Widening of Scope Section 4A of the Act provides that the following income derived from Malaysia by non-residents is chargeable to tax: - (i) amounts paid in consideration of services rendered by the person or his employee in connection with the use of property or rights belonging to, or the installation or operation of any plant, machinery or other apparatus purchased from, such persons; (ii) amounts paid in consideration of technical advice, assistance or services rendered in connection with technical management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or (iii) rent or other payments made under any agreement or arrangement for the use of any moveable property. Subsection 4A(ii) be amended by deleting the word technical and reworded as follows:- amounts paid in consideration of any advice given, or assistance or services rendered in connection with the management or administration of any scientific, industrial or commercial undertaking, venture, project or scheme; or The provisions under Section 15A, Section 109B(1) and Schedule 1 Part V(ii) of the Act in relation to the above are to be amended. Upon coming into operation of the Finance Act Appeal on Assessment under Section 90(3) Section 99(1) of the Act provides that a person aggrieved by an assessment made in respect of him may appeal to the Special Commissioners against the assessment by giving to the DG within 30 days after the service of the notice of assessment (or within such extended period as regards those days or months as may be allowed under Section 100) a written notice of appeal in the prescribed form (Form Q). A new subsection 99(1A) be introduced where a person who has failed to furnish a return for a basis period for a year of assessment in accordance with subsection 77A(1) may appeal against the assessment made by the DG under subsection 90(3) by furnishing a return for that basis period for that year of assessment together with the written notice of appeal (Form Q) within the stipulated time. Year of assessment

11 1. TAX SYSTEMS AND ADMINISTRATION 1.3 Expansion of Derivation of Business Income Business income is subject to Malaysian income tax if it is derived or deemed derived from Malaysia. Business income which is deemed to be derived from Malaysia includes income from a business that is not attributable to its operations carried on outside Malaysia. The derivation of business income provision under the Act be expanded to include income of a person from a business attributable to a place of business in Malaysia. A place of business includes:- (a) a place of management; a branch; (c) an office; (d) a factory; (e) a workshop; (f) a warehouse; (g) a building site, or a construction, an installation or an assembly project; (h) a farm or plantation; and (i) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources. A person shall also be deemed to have a place of business in Malaysia if that person:- (a) carries on supervisory activities in connection with a building or work site, or a construction, an installation or an assembly project; or has another person acting on his behalf who:- (i) habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification; (ii) habitually maintains a stock of goods or merchandise in that place of business from which such person delivers goods or merchandise; or (iii) regularly fills orders on his behalf. Upon coming into operation of the Finance Act Requirement of Audited Accounts on Submission of Tax Return Revision in line with Companies Act 2016 A company is required to submit its income tax return to the IRB based on accounts audited by a professional accountant together with a report made by the professional accountant in accordance with subsection 174(1) and (2) of the Companies Act A company shall submit its income tax return based on the financial statements made in accordance with the requirements of the Companies Act Year of assessment

12 1. TAX SYSTEMS AND ADMINISTRATION 1.5 Penalty for Breach of Confidence Section 117(1) of the Act provides that any classified person who in contravention of Section 138:- (a) communicates classified material to another person; or allow another person to have access to classified material, shall be guilty of an offence and shall, on conviction, be liable to a fine not exceeding RM4,000 or imprisonment for a term not more than one year or both. The punitive provision under Section 117 be extended to include any person who receives any classified material, knowing or having reasonable ground to believe at the time when he receives it that such classified material is communicated or disclosed to him in contravention of this Act, and use the classified material, or produce or disclose the classified material to any other person. Upon coming into operation of the Income Tax (Amendment) Act Person Responsible for LLP The responsibility for doing all acts and things required to be done by or on behalf of a LLP for the purposes of this Act shall lie jointly and severally (a) with the compliance officer who is appointed amongst the partners of the limited liability partnership; or if no compliance officer is appointed as such, any one or all of the partners thereof. The responsibility for doing all acts and things required to be done by or on behalf of a LLP be extended to include persons qualified to act as secretaries under the Companies Act 2016 who is a citizen or permanent resident of Malaysia and ordinarily resides in Malaysia. Upon coming into operation of the Income Tax (Amendment) Act Review of Tax Rate for Foreign Fund Management Company Consistent with Internationally Agreed Taxation Standard Chargeable income of a Foreign Fund Management Company in relation to the source consisting of the provision of fund management services to foreign investors is taxed at a preferential rate of 10%. The preferential tax rate of 10% is abolished and foreign fund management company be subject to tax at the rate of 24%. Year of assessment

13 1. TAX SYSTEMS AND ADMINISTRATION 1.8 Restriction on Deductibility of Interest Implementation of ESR under OECD s BEPS Action 4 Earning stripping rules (ESR) will take effect from 1 January 2019 in place of the thin capitalization rules which was removed effective from 1 January Under the ESR, deduction on excessive interest on financial assistance between associated persons is disallowed. A new Section 140C on ESR be introduced. Under the Section:- (a) In ascertaining the adjusted income of a person from each of his sources consisting of a business, no deduction from the gross income from that source shall be allowed in respect of any interest expense in connection with or on any financial assistance in a controlled transaction granted directly or indirectly to that person which is in excess of the maximum amount of interest as determined under any rules made under this Act. Under the Section:- (i) controlled transaction shall be construed as a financial assistance (a) between persons one of whom has control over the other; or between persons both of whom are controlled by some other person (in this section referred to as third person ); (ii) control has the meaning assigned to it in subsection 140A(5A) [refer to 1.10 below]; (iii) financial assistance includes loan, interest bearing trade credit, advances, debt or the provision of any security or guarantee; (iv) interest expense means (a) 1 January interest on all forms of debt; or payments economically equivalent to interest (excluding expenses incurred in connection with the raising of finance). 4

14 1. TAX SYSTEMS AND ADMINISTRATION 1.9 Review of Tax System for Labuan Entity and Labuan Business Activity - Consistent with Internationally Agreed Taxation Standard A Labuan entity carrying on Labuan trading activity is taxed at 3% of its chargeable profits as reflected in the audited accounts, or RM20,000 to be elected annually. Where a Labuan entity carrying on a Labuan business activity which is a Labuan trading activity does not have a basis period for a year of assessment, the Labuan entity shall be charged for that year of assessment to tax of RM20,000. Labuan business activity means a Labuan trading or a Labuan nontrading activity carried on in, from or through Labuan in a currency other than Malaysian currency, by a Labuan entity with non-resident or with another Labuan entity with certain exceptions. Amendment to the Labuan Business Activity Tax Act 1990 are proposed as follows:- (a) the definition of the Labuan business activity be substituted as follows:- Labuan business activity means a Labuan trading or a Labuan non-trading activity carried on in, from or through Labuan, excluding any activity which is an offence under any written law; (c) (d) (e) A Labuan entity, shall for the purpose of the Labuan business activity:- (i) have an adequate number of full time employees in Labuan; and (ii) have an adequate amount of annual operating expenditure in Labuan, as prescribed under the Labuan Business Activity Tax (Requirements for Labuan Business Activity) Regulations 2018 (P.U.(A) 392) The election for income tax at the fixed rate of RM20,000 under LBATA 1990 be abolished. Income derived from intellectual property assets held by a Labuan entity be subject to the prevailing income tax rate under the Income Tax Act Where a Labuan entity carrying on a Labuan business activity which is a Labuan trading activity does not have a basis period for a year of assessment, the DG may direct that the basis period for that year of assessment and subsequent years of assessment to include a period or periods (which may be of any period) as specified in the direction. With the new definition, restrictions on transactions between Labuan Entity and resident of Malaysia and in Ringgit are to be removed. 1 January

15 1. TAX SYSTEMS AND ADMINISTRATION 1.10 Definition of Control under Section 140A Pursuant to Section 140A(2) where a person in the basis period for a year of assessment enters into a transaction with an associated person for that year for the acquisition or supply of property or services, then, for all purposes of the Act, that person shall determine and apply the arm s length price for such acquisition or supply. Section 140A(5) provides that such transaction shall be construed as a transaction between (a) (c) persons one of whom has control over the other; individuals who are relatives of each other; or persons both of whom are controlled by some other person. By virtue of Section 139, a person shall be taken to have control of a company:- (a) (c) if he exercises or is able to exercise or is entitled to acquire control (whether direct or indirect) over the company's affairs and in particular, without prejudice to the generality of the preceding words, if he possesses or is entitled to acquire the greater part of the share capital or voting power in the company; if he possesses or is entitled to acquire either:- (i) the greater part of the issued share capital of the company; (ii) such part of that capital as would, if the whole of the income of the company were in fact distributed to the members, entitle him to receive the greater part of the amount so distributed; or (iii) such redeemable share capital as would entitle him to receive on its redemption the greater part of the assets which, in the event of a winding up, would be available for distribution among members; or if in the event of a winding up he would be entitled to the greater part of the assets available for distribution among members. Section 140A(5A) be introduced to expand the definition of control for the purpose of Section 140A(5) as follows:- Control refers to persons one of whom owns shares of the other person, or a third person who owns shares of both persons, where the percentage of the share capital held in either situation is 20% or more and (a) (c) the business operations of that person depends on the proprietary rights provided by the other person or a third person; the business activities of that person are specified by the other person, and the prices and other conditions relating to the supply are influenced by such other person or a third person; or where one or more of the directors or members of the board of directors of a person are appointed by the other person or a third person. 1 January

16 1. TAX SYSTEMS AND ADMINISTRATION 1.11 Tax Deduction for Contributions made to Social Enterprise Donations made by a person to institutions or organisations or a fund approved by the DG are allowed as tax deduction limited to (a) 7% of the aggregate income for a person other than company 10% of the aggregate income for a company Tax deduction above be extended to donations made to any social enterprise. To be gazetted by way of statutory order Donations to National Schools and Institutions of Higher Learning Donations made by a person to national schools or public institutions of higher learning are not tax deductible. Donations made by a person to national schools and public institutions of higher learning that are registered with the Ministry of Education for the purposes of upgrading infrastructure be eligible for tax deduction. Deduction for donations made to other schools and institutions of higher learning that are registered with the Ministry of Education for the purposes of upgrading infrastructure will be evaluated on a case-by-case basis. To be gazetted by way of statutory order Change of Income Tax Rates and Tax Treatment for Insurance and Reinsurance Business (a) Tax rates Type of business Tax rate Reinsurance business/ retakaful fund 24% Inward re-insurance business/ inward 8% 5% retakaful fund Offshore insurance/ takaful business 5% 24% Source of business income The reinsurance business and general insurance business are considered as one source of business income, where inward re-insurance business is a separate source of business from the reinsurance business. The reinsurance business shall be a separate source of income from the general fund. Year of assessment

17 1. TAX SYSTEMS AND ADMINISTRATION 1.14 Special Voluntary Disclosure Program (SVDP) with Lower Penalties The penalties imposed for incremental tax payable arising from a voluntary disclosure by a taxpayer as set out in the IRB s Tax Audit Framework 2018 are as follows:- Full voluntary disclosure Penalty rate Within 60 days from the tax filing due date 10% After 60 days but by the end of the 6 th month from the tax filing due 15.5% date After 6 months from the tax filing due date 35% Special Voluntary Disclosure Programme (SVDP) be implemented. An operational guideline has been issued by IRB on 3 November 2018 (updated on 30 November 2018) on the implementation of this programme. This SVDP covers voluntary disclosure by taxpayers on:- (a) income not previously declared, under declared, expenses over claimed or not allowable, reliefs, deductions and rebates over claimed; gains on disposal of assets (real properties and shares in real property companies) not previously declared or under declared; and (c) stamping of instruments not previously stamped. Under the SVDP, taxpayers will enjoy reduced penalty rates from 3 November 2018 to 30 June 2019 as follows:- Disclosure period Penalty Payment rate by or on From 3 November 2018 to 31 March % 1 April 2019 From 1 April 2019 to 30 June % 1 July 2019 For disclosure made after 30 June 2019, penalty rates of between 80% to 300% would apply. 3 November 2018 to 30 June

18 2. TAXATION - INDIVIDUALS 2.1 Tax Relief on Contribution to Approved Schemes and Life Insurance Premium or Takaful Scheme A combined tax relief up to RM6,000 is given to resident individual on the contributions made to approved schemes such as the Employees Provident Fund (EPF) and payment for life insurance premiums or takaful scheme under Takaful Act The combined tax relief on the above contributions be increased to RM7,000, segregated as follows:- (a) Tax relief up to RM4,000 on contributions to approved schemes; and Tax relief up to RM3,000 on payment for life insurance premiums or takaful contributions. Public servants that under the pension scheme be given tax relief up to RM7,000 on payment for life insurance premiums or takaful contributions. Year of assessment Tax Relief on Net Annual Savings in the National Education Savings Scheme (SSPN) A relief up to RM6,000 a year is given to a resident individual for net deposits made in that basis year by that individual for his / her child into the SSPN account established under the Perbadanan Tabung Pendidikan Tinggi Nasional Act The tax relief be increased to RM8,000. Years of assessment 2019 to

19 3. TAXATION COMPANIES & UNINCORPORATED BUSINESSES 3.1 Review of Tax Treatment on Unabsorbed Business Losses There is no time limit on the carrying forward of unabsorbed business losses. Unabsorbed business losses are allowed to be carried forward as follows:- (a) Unabsorbed losses for a year of assessment be allowed to be carried forward for a maximum of 7 consecutive years of assessment. Any amount ascertained for that year of assessment which is not deducted at the end of the period of 7 years of assessment shall be disregarded. [New Section 44 (5F)] Transition provision to Section 43 and Section 44 of the Act Unabsorbed losses up to the year of assessment 2018 shall be allowed to be carried forward for utilization until the year of assessment Any amount that has not been deducted at the end of the year of assessment 2025 shall be disregarded. Year of assessment Reduction of Corporate Tax Rate for Small and Medium Enterprises (SME) Reduction in income tax rates for SME and LLP is proposed as follows:- Chargeable income (RM) tax rates (%) tax rates (%) Up to RM500, Exceeding RM500, Year of assessment Deduction on Payments made to Labuan Entities Malaysian tax resident who transacts with Labuan entity is entitled for tax deduction on allowable expenditure incurred. A new Section 39(1)(r) be introduced to provide that the Minister may prescribed rules on the deductibility of the expenses paid by a Malaysian tax resident to a Labuan entity. Pursuant to the Income Tax (Deduction Not Allowed for Payment Made to Labuan Company by Resident) Rules 2018 (P.U.(A) 375/2018), the Minister has prescribed the following rules on the deductibility of payments made by a resident to a Labuan Company as follows:- Type of payment Amount disallowed for deduction (a) Interest income 33% of the amount of payment Lease rental 33% of the amount of payment (c) Other payments 97% of the amount of payment 1 January

20 3. TAXATION COMPANIES & UNINCORPORATED BUSINESSES 3.4 Review of the Tax Treatment on Provision of Group Relief A company (surrendering company) may surrender not more than 70% of its current year of assessment adjusted loss to one or more related companies (claimant company) to be set-off against the claimant company's aggregate income subject to certain rules and conditions as contained in the Act. The adjusted loss for any year of assessment may be surrendered without any time restriction. (a) Amendments be made to Section 44A(1) to limit the period where the losses can be surrendered for 3 consecutive years of assessment. A new Section 44(1A) be introduced to specify the commencement of the 3 consecutive years of assessment as follows:- Where the surrendering company (i) first commences operation in a 12 month basis period, the basis period for 3 consecutive years of assessment commences immediately following such 12 month basis period; or (ii) first commences operation in a basis period which is less or more than 12 months ( first basis period ) and the first basis period is followed by a 12 month basis period ( second basis period ), the basis period for 3 consecutive years of assessment commences immediately following the second basis period. Transitional provisions to Section 44A provide that Commencement of YA(s) losses can be surrendered operations of the surrendering company YA2015 YA2019 YA2016 YA2019 & YA2020 YA2017 YA2019, YA2020, YA2021 (c) New subsection 44A(10)(aa) be introduced to preclude the claim of group relief or the surrender of its losses by a company that has unutilised investment tax allowance or adjusted loss from a pioneer business under the PIA. Year of assessment Perbadanan Tabung Pendidikan Tinggi Nasional (PTPTN) Loan Paid by Employers There is no tax relief granted to employers who settle the PTPTN loans on behalf of their employees. Employers who have made repayment of the PTPTN loans on behalf of their full-time employees are eligible for tax deduction, provided the repaid amount is not recovered from the employees. For repayments made between 1 January 2019 to 31 December

21 4. TAX INCENTIVES 4.1 Limitation to Reinvestment Allowance (RA) and Investment Allowance for Service Sectors (IASS) RA is given in respect of qualifying expenditure incurred in the basis periods for 15 consecutive years of assessment beginning from the year of assessment for the basis period in which a claim for that RA was first made. IASS is given on qualifying expenditure incurred for the purpose of an approved service project within 5 years of assessment from the date of approval. The unutilized RA and IASS can be carried forward indefinitely until they are fully utilized. (a) Unutilized RA and IASS for a year of assessment be allowed to be carried forward up to 7 consecutive years of assessment commencing immediately after the end of the qualifying period of RA and IASS. Unutilized RA and IASS ascertained up to the year of assessment 2018 where the qualifying period has ended in the year of assessment 2018 and prior, be allowed to be carried forward for a period of 7 consecutive years of assessment commencing from the year of assessment Any amount ascertained for that year of assessment which is not utilized at the end of the period of 7 years of assessment shall be disregarded. Year of assessment Pioneer Losses (PL) The unabsorbed pioneer losses under the PIA can be carried forward indefinitely until it is fully absorbed. (a) Unabsorbed PL for a year of assessment be allowed to be carried forward up to 7 consecutive years of assessment commencing immediately following the year of assessment that relates to the basis period in which the day the post pioneer business falls. Transitional provision Unabsorbed PL ascertained up to the year of assessment 2018 where the post pioneer business falls in the year of assessment 2018 and prior, be allowed to be carried forward for a period of 7 consecutive years of assessment commencing from the year of assessment Any amount ascertained for that year of assessment which is not absorbed at the end of the period of 7 years of assessment shall be disregarded. Year of assessment

22 4. TAX INCENTIVES 4.3 Extension of Tax Incentive for the Issuance of Sukuk Ijarah (leasing) and Wakalah (Agency) (a) Deduction is given on expenses incurred for the issuance of sukuk under the principles of Ijarah (leasing) and Wakalah (agency) approved by the SC or the Labuan Financial Services Authority. The following additional expenses incurred by a company on the issuance of Sukuk under the principles of Ijarah and Wakalah approved by the SC are given further tax deduction:- (i) Professional fees relating to due diligence, drafting and preparation of prospectus; (ii) Printing costs of prospectus; (iii) Advertisement cost of prospectus; (iv) Securities Commission prospectus registration fee; (v) Bursa Malaysia processing fee and initial listing fee; (vi) Bursa Malaysia new issue crediting fee; and (vii) Primary distribution fee. The above tax deductions be extended for another 2 years. Years of assessment 2019 to Extension of Tax Incentive for Issuance of Retail Debenture and Retail Sukuk Double deduction is given on additional expenses incurred for issuance of the following product approved by the SC from the YAs 2016 to 2018:- (a) Retail debenture; and Retail Sukuk under the principle of Mudharabah, Musyakarah, Istisna, Murabahah, and Bai Bithaman Ajil based on Tawarruq. The additional expenses which qualify for deduction are as follows:- (i) Professional fees relating to due diligence, drafting and preparation of prospectus; (ii) Printing costs of prospectus; (iii) Advertisement cost of prospectus; (iv) Securities Commission prospectus registration fee; (v) Bursa Malaysia processing fee and initial listing fee; (vi) Bursa Malaysia new issue crediting fee; and (vii) Primary distribution fee. Double deduction in respect of the above be extended for another 2 years. Years of assessment 2019 to

23 4. TAX INCENTIVES 4.5 Tax Incentives for Industry4WRD Companies adopting advance technology known as Industry4.0 are given Accelerated Capital Allowance (ACA) and Automation Equipment Allowance (AE) to be provided on the first RM10 million qualifying capital expenditure incurred and is fully claimable within 2 years of assessment. Industry4wrd Policy has been introduced to encourage and attract stakeholders towards the application of I4.0 technology, create a comprehensive ecosystem for I4.0 application process by the industry and transform the manufacturing sector holistically. In order to achieve the Industry4WRD Policy aspirations and goals, the following tax incentives be given:- (a) Income Tax Incentive For I4.0 Readiness Assessment (I4.0-RA) Tax deduction on I4.0-RA expenses for up to RM27,000 paid to Malaysian Productivity Corporation. Income Tax Incentive For Industry4WRD Vendor Development Programme Double deduction on operating expenditure incurred in implementing the Industry4WRD Vendor Development Program such as costs in relation to product development, upgrading capabilities of vendors and skill training of vendors, as verified by the Ministry of International Trade and Industries (MITI). The qualifying expenditure are capped at RM1 million per year for 3 consecutive years of assessment. (c) Income Tax Incentive For Human Capital Development (i) Further deduction on scholarships provided by companies to Malaysian students pursuing studies at technical and vocational levels, diplomas and degrees in the fields of engineering and technology. The eligibility criteria of students:- a) a Malaysian and resident in Malaysia; b) receives full time course of study; c) has no means on his own; and d) whose parents or guardian have total monthly income not exceeding RM8,000 per month. (ii) Further deduction on expenses incurred by companies participating in the National Dual Training Scheme for the I4.0 program approved by the Ministry of Human Resources; (iii) Tax deduction on expenses for development of new I4.0 technology and engineering courses by the Private Higher Education Institutions. The new courses must be verified by Ministry of Education; (iv) Further deduction on expenditure incurred by a company in upgrading and developing its employees technical skills in I4.0 technology for training programmes approved by the Malaysian Investment Development Authority (MIDA); 14

24 4. TAX INCENTIVES 4.5 Tax Incentives for Industry4WRD Cont d (c) (v) Further deduction on expenditure incurred by a company in conducting internship programme approved by the Ministry of Human Resources for undergraduate students in fields of engineering and technology; and (vi) Tax deduction on equipment and machinery contributed by companies to Skills Development Centres, Polytechnics or Vocational Colleges certified by the Ministry of Human Resources or the Ministry of Education. Item (a) From year of assessment 2019 to year of assessment For Memorandum of Understanding (MOU) signed between company and MITI from 1 January 2019 to 31 December (c)(i) From year of assessment 2019 to year of assessment (c)(ii) For programmes implemented from 1 January 2019 to 31 December (c)(iii) From year of assessment 2019 to year of assessment (c)(iv) For companies participating in the Readiness Assessment Intervention Plan from 1 January 2019 to 31 December (c)(v) From year of assessment 2019 to year of assessment (c)(vi) For contributions made from 1 January 2019 to 31 December Tax Incentive for Employers to Employ Senior Citizens and Ex-convicts Remuneration paid by employers who employ disabled persons that are certified by department of Social Welfare and workers affected by accidents/ critical illnesses that are certified by The Medical Board of the Social Security Organization (SOCSO) is given further tax deduction. Employer who employs senior citizens (above 60 years old) or exconvicts on full time basis whose monthly remuneration does not exceed RM4,000 is given further tax deduction on the remuneration paid. Years of assessment 2019 to Withdrawal of Investment Tax Allowance (ITA) ITA given shall be withdrawn in the year of disposal if the relevant qualifying expenditure is disposed off at any time within 2 years from the date of acquisition of that qualifying expenditure. ITA given shall be withdrawn in the year of disposal if the relevant qualifying expenditure is disposed off at any time within 5 years from the date of acquisition of that qualifying expenditure. Year of assessment

25 4. TAX INCENTIVES 4.8 Tax Incentives for Venture Capital Tax incentives for the venture capital industry are as follows:- (a) Venture Capital Management Corporation (VCMC) A VCMC registered with the Securities Commission of Malaysia (SC) is exempted from tax on management fees, performance fees and the statutory income derived from the share of profits from a Venture Capital Company (VCC) on any investment made by the VCC. Venture Capital Company (VCC) A VCC which has at least 50% of the funds invested in a Venture Company (VC) in the form of seed, start up and early stage funds is eligible for income tax exemption on the statutory income derived from all sources of income other than interest income arising from deposit placements. The exemption is given for a period of 5 years from the years of assessment 2018 to (c) Investment In VC A company or an individual investing in a VC is given tax deduction equivalent to the amount of investment made in the VC in arriving at the adjusted income. The tax deduction is given at the time the investment is disposed of as certified by the SC, and not at the time the investment is made and the investment was made at least two years prior to the date of its disposal. (d) Investment in VCC funds A company or an individual with business income investing in the VCC funds created by a VCMC be given tax deduction equivalent to the value of investment made subject to a maximum amount of RM20 million per year for each individual or company. The above incentives are eligible to applications received by the Securities Commission Malaysia between the period commencing from 1 January 2018 up to 31 December The application period of the tax incentive above be extended for another one year. Applications received by the SC from 1 January 2019 to 31 December

26 4. TAX INCENTIVES 4.9 Definition of Research and Development (R&D) to Align with OECD There is no definition of research and development in the Act. Public Ruling 5/2004 Double Deduction Incentive on Research Expenditure provides a definition of research which based on the definition of the PIA. The definition of research and development be introduced in Section 2 of the Act and redefined under the PIA as follows:- research and development means any systematic, investigative and experimental study that involves novelty or technical risk carried out in the field of science or technology with the object of acquiring new knowledge or using the results of the study for the production or improvement of materials, devices, products, produce, or processes, but does not include:- (i) quality control or routine testing of materials, devices or products; (ii) research in the social sciences or the humanities; (iii) routine data collections; (iv) efficiency surveys or management studies; (v) market research or sales promotion; (vi) routine modifications or changes to materials, devices, products, processes or production methods; or (vii) cosmetic modifications or stylistic changes to materials, devices, products, processes or production methods. Upon coming into operation of the Income Tax (Amendment) Act Changes to Tax Exemption on Wholesale Money Market Funds Interest paid or credited by a bank, Islamic Bank and Development Financial Institution to unit trust fund and Wholesale Money Market Funds (meeting SC s criteria) are exempted from tax. Tax exemption shall not apply to the interest paid or credited to a Wholesale Money Market Funds (amendment to Paragraph 35 Schedule 6). From 1 January

27 4. TAX INCENTIVES 4.11 Review of Contract R&D Incentive Contract research and development company is eligible to apply for the following tax incentives: (a) Pioneer status with income tax exemption of 100% of the statutory income for 5 years; or Investment tax allowance of 100% of qualifying capital expenditure incurred within 10 years that can be offset against 70% of the statutory income for each year of assessment. New conditions be introduced where at the time of application for the incentives, a contract R&D company is required to have an adequate number of full time employees and have incurred adequate amount of annual operating expenditure in Malaysia for the activity relating to research and development. Transitional provision Where pioneer status has been granted earlier, the new requirements must be met by these companies as follows:- Pioneer status granted Compliance with the new requirements by on or before July 2021 after January 2019 Further, pioneer income of a contract R&D company shall not include any income derived from an intellectual property right if it is receivable as consideration for the commercial exploitation of that right. intellectual property right means a right arising from any patent, utility innovation and discovery, copyright, trade mark and service mark, industrial design, layout-design of integrated circuit, secret processes or formulae and know-how, geographical indication and the grant of protection of a plant variety, and other like rights, whether or not registered or registrable. 1 January

28 5. REAL PROPERTY GAINS TAX 5.1 Acquisition Price of Property Acquired prior to 1 January 2000 Under Schedule 2 of the RPGTA, where the disposal of a chargeable asset which was previously acquired prior to 1 January 1970 is subject to tax, the acquisition price of the asset shall be the market value as at 1 January A new paragraph 2A of the Schedule 2, RPGTA be introduced to provide a new cut-off date to determine the acquisition price of an asset which has been changed to 1 January Reference to 1 January 1970 shall be construed as reference to 1 January January Disposal of Asset by Way of Gift Pursuant to Paragraph 12(2) Schedule 2 of the RPGTA, where an asset is disposed of by way of a gift where the donor and recipient are husband and wife, parent and child or grandparent and grandchild:- (a) The donor shall be deemed to have received no gain and suffered no loss on the disposal if the donor is a citizen; and The recipient shall be deemed to acquire the asset at an acquisition price equal to the acquisition price paid and permitted expenses incurred by the donor if the gift is made within 5 years after the date of acquisition by the donor. The time restriction on when the gift is made under above be deleted. 1 January

29 5. REAL PROPERTY GAINS TAX 5.3 Review of Real Property Gains Tax (RPGT) Rates RPGT rates on gains from disposal of chargeable assets (including shares in real property company) are as follows:- Disposal of chargeable asset: Within 3 years from date of acquisition In the 4 th year from date of acquisition In the 5 th year from date of acquisition In the 6 th and subsequent years, from date of acquisition Companies RPGT rates Other Than Company and Other Than Non-Citizen and Non-Permanent Resident Individual Non-Citizen and Non- Permanent Resident Individual 30% 30% 30% 20% 20% 30% 15% 15% 30% 5% 0% 5% The RPGT rates on gains from disposal of chargeable assets in the 6 th and subsequent years, from date of acquisition (including shares in real property company) be revised as follows:- Disposal of chargeable asset In the 6 th and subsequent years, from date of acquisition Companies RPGT rates Other Than Company and Other Than Non- Citizen and Non- Permanent Resident Individual Non-Citizen and Non- Permanent Resident Individual 10% 5% * 10% * (i) Pursuant to Real Property Gains Tax (Exemption) Order 2018 [P.U.(A) 360], RPGT exemption is given to Malaysian citizens for the disposal of chargeable assets (other than shares in a real property company) costing RM200,000 and below. (ii) Pursuant to Real Property Gains Tax (Exemption) (No.3) Order 2018 [P.U.(A) 372], RPGT exemption is given to any individual who is citizen or permanent resident who disposed of a chargeable asset (other than shares in the real property company) where: a) the contract for the disposal of a chargeable asset is executed before 1 January 2019; and b) the contract for the disposal of the chargeable asset is conditional where the approval by the Government or a State Government for the disposal of the chargeable assets is obtained in the year 2019 or any year thereafter. 1 January

30 6. STAMP DUTY 6.1 Review of Stamp Duty Rates for Transfer of Real Property Stamp duty rates on instrument of conveyance, assignment or transfer of any property (except stock, shares and marketable securities) be revised as follows:- Value of Real Property Stamp Duty Rate (%) Current First RM100, RM100,001 to RM500, RM500,001 to RM1,000, RM1,000,001 and above 3 4* * For instrument of transfer that is stamped between the period 1 January 2019 to 30 June 2019 and where the value of the property is between RM1,000,000 to RM2,500,000, the stamp duty rate on the band shall be remitted by 1%. 1 January Review of Stamp Duty Exemption for the Purchase of First Residential Property (a) Purchase of First residential property with a price not exceeding RM300, % stamp duty exemption on the instrument of transfer and loan agreement. Purchase of First residential property with a price from RM300,001 - RM500, % stamp duty exemption on the instrument of transfer and loan agreement but limited to the first RM300,000 of the value of residential property. The remaining balance of the value is subject to the prevailing rate of stamp duty. Exemptions under (a) and above are effective for sale and purchase agreement (SPA) executed from 1 January 2017 to 31 December (c) Purchase of First residential property with a price above RM500,000 There is currently no stamp duty exemption. and date (a) Stamp duty exemption under (a) above be extended to SPA executed from 1 January 2019 to 31 December Stamp duty exemption under above be extended to SPA executed from 1 July 2019 to 31 December (c) 100% stamp duty exemption be given on instrument of transfer only for the purchase of a first residential property priced between RM300,001 and RM1 million from any housing developer, for SPA executed from 1 January 2019 to 30 June Stamp Duty to be Imposed on Hire Purchase Agreement SA 1949 does not cover conventional hire purchase agreement specifically. Item 22(6) First Schedule of the SA be expanded to impose stamp duty (RM10) on conventional hire purchase agreements. The coming into operation of the Finance Act

31 6. STAMP DUTY 6.4 Redefinition of Small and Medium Enterprise for Stamp Duty Purposes Section 2 of the SA 1949 define "small and medium enterprise" as follows:- (a) in relation to the manufacturing, manufacturing related services and agro-based industries sectors, an enterprise with full-time employees not exceeding one hundred and fifty people or annual turnover not exceeding twenty-five million ringgit; and in relation to the services, primary agriculture, and information and communication technology sectors, an enterprise with full-time employees not exceeding fifty people or annual turnover not exceeding five million ringgit. Small and medium enterprise be redefined as follows:- (a) in relation to the manufacturing activities, an enterprise with sales turnover not exceeding fifty million ringgit or full-time employees not exceeding two hundred people; or in relation to the services, and other sectors, an enterprise with sales turnover not exceeding twenty million ringgit or full-time employees not exceeding seventy-five people. The coming into operation of the Finance Act Stamp Duty to be Imposed on Constitution of a Company Under item 10 and 53, First Schedule of SA, stamp duty of RM100 each is imposed on Articles of Association and Memorandum of Association. Item 10 and 53, First Schedule of SA be deleted and a new item 29A be introduced to impose stamp duty of RM200 on the Constitution of a Company. The coming into operation of the Finance Act Review of Stamp Duty Exemption in Cases of Reconstruction or Amalgamation of Companies Section 15 of Stamp Act 1949 provides relief from stamp duty in cases of reconstruction or amalgamation of companies under certain conditions. Under Section 15(5), the relief from stamp duty will be withdrawn if there are certain breaches in the beneficial ownership of shareholding resulting from the reconstruction or amalgamation within a period of 2 years. (a) The limiting period of beneficial ownership of 2 years be extended to 3 years. In the event of any breach of the 3-year or other qualifying conditions, nullifying any exemption of stamp duty given, companies enjoying the exemption shall notify the Collector of such breaches within 30 days from the date of such occurrence. The coming into operation of the Finance Act

32 6. STAMP DUTY 6.7 Review of Stamp Duty in cases of Transfer of Property between Associated Companies Section 15A of Stamp Act 1949 provides relief from stamp duty in the case of transfer of beneficial interest in property between associated companies. For the purposes of Section 15A, a company is considered to be associated if one company is the beneficial owner of not less than 90% of the issued share capital of the other, or that a third company is the beneficial owner of not less than 90% of the issued share capital of each of the transferee and transferor companies. To qualify for the stamp duty exemption, the following conditions must be satisfied:- (a) the consideration, or any part of the consideration, for the transfer must not be provided or received, directly or indirectly, by a person other than a company which at the time of the execution of the instrument was associated with either the transferor or the transferee; the interest in the property was not previously transferred, directly or indirectly, by other person; (c) the transferor and the transferee must not ceased to be associated by reason of a change in the percentage of the issued share capital of the transferee in the beneficial ownership of the transferor or a third company. Additional conditions be imposed for the stamp duty exemption under Section 15A as follows:- (a) the transfer of the property of the associated companies is to achieve greater efficiency in operation; (c) (d) the transferee company must be incorporated in Malaysia. The transferor and the transferee must not ceased to be associated by reason of a change in the percentage of the issued share capital of the transferee in the beneficial ownership of the transferor or a third company within the period of 3 years from the date of the conveyance or transfer of the property; the transferee company must not dispose the property that it has acquired within 3 years from the date of the conveyance or transfer of the property. Companies that are granted stamp duty exemption under this section and if it is subsequently found that any declaration or other evidence furnished is untrue, the exemption shall be revoked and the stamp duty shall be chargeable together with interest at the rate of 6% per annum. Where any claim of duty exemption has been nullified by breaches of 3-year holding period or other conditions under Section 15A(4), all parties to the instruments of transfer shall notify the Collector of such breaches within 30 days from the date of such occurrence. For the purpose of claiming the stamp duty exemption under this section, the collector requires the delivery of the statutory declaration by: (i) Advocate and Solicitor Peninsular Malaysia (ii) Advocate of High Court Sabah and Sarawak The coming into operation of the Finance Act

33 6. STAMP DUTY 6.8 Stamp Duty Exemption for Perlindungan Tenang Products Insurance policies and takaful certificates attract stamp duty of RM10 for each policy/certificate. Stamp duty exempted for policies with the sum insured of not exceeding RM5,000. Perlindungan Tenang products were launched in December 2017 which is affordable and accessible with simple claiming process. These products are aimed to enable Malaysians especially from the lower income group to have insurance protection which includes life insurance, fire and flood with low premium. Stamp duty exemption be given for insurance policies and takaful certificates under the Perlindungan Tenang products with yearly premium/contribution not exceeding RM100. For policies/certificates issued from 1 January 2019 until 31 December

34 7. INDIRECT TAXES 7.1 Introduction, Definition and Review of Scope of Imported Taxable Service Imported taxable service is not defined nor included in the scope of the Service Tax Act 2018 (STA). The scope of service tax be widened to include any imported taxable service as follows:- (a) Services imported by business (B2B), where the recipient of the imported service shall account, declare and pay the service tax to the RMCD; and Digital products and services imported by consumers (B2C), where the foreign suppliers who provide such digital products and services to consumers in Malaysia shall register, charge service tax on the services provided and pay the service tax collected to the RMCD (as proposed in Appendix 20 of the Budget Speech). Consequential proposals/amendments be introduced as follows:- (i) Definition Imported taxable service be defined as any taxable service acquired by any person in Malaysia from any person who is outside Malaysia. (ii) Value of imported taxable services Section 9(d) be introduced to provide that the value of imported taxable services shall be as prescribed by the MOF; (iii) Date when service tax is due Section 11(1) be enhanced to provide that the service tax on an imported taxable service shall be due at the time when payment is made or invoice is received for the service, whichever is the earlier; (iv) Duty to keep records The compliance on duty to keep records under Section 24 be extended to include all records of imported taxable service and it shall also apply to any person other than a taxable person who, in carrying on his business, acquires any imported taxable service; (v) Furnishing of declaration and payment of service tax due A new section 26A be introduced to govern the compliance of furnishing of declaration and payment of service tax due and payable by person other than taxable person on the imported taxable services; Penalty on failure to comply Any person who fails to comply with the above, commits an offence and shall, on conviction, be liable to a fine not exceeding RM50,000 or to imprisonment for a term not exceeding 3 years or to both The punitive provisions for failure to make service tax payment within the stipulated due date by person other than taxable person on the imported taxable services be introduced as follows:- 25

35 7. INDIRECT TAXES 7.1 Introduction, Definition and Review of Scope of Imported Taxable Service Cont d Cont d Penalty on failure to comply Section Period of default Penalty rate 26A(4)(a) First 30 days after the stipulated due date 10% of the amount of service tax which remains unpaid 26A(4) Second 30 days after the stipulated due date Additional 15% of the amount of service tax which remains unpaid 26A(4)(c) Third 30 days after the stipulated due date Additional 15% of the amount of service tax which remains unpaid (vi) Power of DG to assess Section 27 be amended to provide that the DG s power to assess is extended to include any person other than a taxable person who, in carrying on his business, acquires any imported taxable service but fails to furnish a declaration under section 26A or furnishes a declaration which appears to the DG to be incomplete or incorrect. Item (a): From 1 January Item : From 1 January Item (i) to (vi): From 1 January Newly Prescribed Taxable Services Taxable services are prescribed by the Minister under Service Tax Regulations (a) The prescribed taxable services be expanded to include the following services:- Category Services Amusement park service I Brokerage and underwriting services Cleaning services G Training or coaching services under consultancy services Where there is a change in any taxable service as specified in the First Schedule, the effect of the change on service tax shall be as follows:- (i) In the case where a service is newly specified as a taxable service and the provision of such service is spanning after the change, service tax shall be charged on the proportion of the service which is attributed to the part of the period after the change. (ii) In the case where payment is received before 1 January 2019 in connection with the newly prescribed services and such taxable service will only be provided on or after the date of change, no service tax shall be charged on the payment received. 1 January

36 7. INDIRECT TAXES 7.3 Redefinition of Management Services for Service Tax Purposes Provision of all types of management services including project management or project coordination is prescribed as taxable services under Category G, Item (i) of the Service tax Regulations The management services for service tax purposes be redefined as provision of any of the following management services:- (a) (c) (d) (e) (f) (g) (h) (i) (j) Project management services, full or part of the project; Tourism management services; Logistics management services; Maintenance management services; Warehousing management services; Collection and debt management services; Car park management services; Sports facilities management services; Secretarial management services; Any management services other than specified in (a) to (i) made on behalf of another person. 1 January Service Tax Exemptions for Specific Business- To-Business (B2B) Service Tax Registrants Service tax exemption is only given on the professional services provided by any company to its related companies within the same group of companies. Service tax exemption be given to a service tax registered person under the following professional and other service provider groups in Schedule 1, Service Tax Regulation 2018, who acquires the same taxable services from another service tax registered person. Item Taxable person Item Taxable services G(1) Advocates and G(a) Legal services solicitors G(2) Syarie Lawyer G Legal services on Islamic matters G(3) Public Accountant G(c) Accounting, auditing, bookkeeping, consultancy G(4) Surveyors, valuers, appraisers, estate G(d) Valuation, appraisal, estate agency, consultancy agent G(5) Professional engineer G(e) Engineering consultancy services G(6) Architect G(f) Architectural consultancy services G(7) Consultant G(g) Professional consultancy G(8) Information technology G(h) Information technology services G(9) Management G(i) Management services I(8) Advertiser I(8) Advertising services 27

37 7. INDIRECT TAXES 7.4 Service Tax Exemptions for Specific Business- To-Business (B2B) Service Tax Registrants Cont d 7.5 Determination of Sale Value of Taxable Goods 1 January In the case the provision of such service is spanning after the change, service tax shall be charged on the proportion of the service which is attributed to the part of the period before 1 January Where any registered manufacturer under the Sales Tax Act 2018 receives taxable goods from any person to be manufactured and subsequently returns the goods so manufactured to such person, the sale value of the goods so manufactured shall, subject to approval of the DG, be the amount that the manufacturer charges for work performed by him. The determination of the above sale value of taxable goods be extended to any manufacturers who receive taxable goods from any person to be manufactured and subsequently returns the goods so manufactured to such person. 1 January Power to Assess under Sales Tax Act The DG may assess to the best of his judgment the amount of sales tax due and payable, and the penalty payable under subsection 27(9), if any, by the taxable person and shall forthwith notify him of the assessment in writing. The DG s power to assess be extended to include any person and not limiting to a taxable person. 1 January Deduction of Sales Tax Sales tax in respect of taxable goods purchased by any registered manufacturer is given deduction based on the following rates: - Category For any taxable goods charged and levied with sales tax at the rate of 5% For any taxable goods charged and levied with sales tax at the rate of 10% Rate of sales tax deduction 2% of the total value of the taxable goods purchased 4% of the total value of the taxable goods purchased Conditions and manner of sales tax deduction is prescribed under the Sales Tax (Amendment) Regulations 2018 [P.U.(A) 399]. Any registered manufacturer may make an application for the deduction of sales tax paid in respect of taxable goods purchased by the registered manufacturer which are raw materials, components or packaging materials used solely in the manufacturing of his taxable goods. 1 January

38 7. INDIRECT TAXES 7.8 Excise Duty on Sugar Sweetened Beverages There is no excise duty imposed on sugar sweetened beverages. An excise duty of RM0.40 per litre be charged on the sugar sweetened beverages as follows:- (a) Fruit juices and vegetable juices whether or not containing added sugar or other sweetening substances under the tariff heading of 20.09, which contains sugar exceeding 12 grams per 100 millilitres; and Beverages including carbonated drinks containing added sugar and other non-alcoholic beverages under the tariff heading of 22.02, which contains sugar exceeding 5 grams per 100 millilitres. 1 April Review of Import Duty Rate on Bicycles Bicycles are subject to import duty rates as follows:- Tariff Code Description Import Duty Rates Racing bicycles 0% Bicycles designed to be ridden by children 0% Other bicycles 25% The import duty rate for bicycles under the tariff code be reduced from 25% to 15%. 1 January

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