Headline Verdana Bold Deloitte TaxMax The 43 rd series Personal Income Tax Highlights Ang Weina & Chee Ying Cheng l 22 November 2017 by Deloitte Tax Academy
2018 Budget affecting individual Highlights of 2018 Budget Changes to individual tax rate Tax Relief Period Extension: SSPN 2018 Budget proposal 1Malaysia Retirement Scheme Increase In government contribution Tax exemption: Women returning to workforce after career break Tax Exemption: Rental income 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 2
Individual income tax rate 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 3
Individual tax rate comparatives 45 40 35 30 25 45 45 39.6 35 35 30 30 28 25 24 22 20 17 15 10 5 0 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 4
Highlights of 2018 Budget Changes to individual income tax rate Finance (No. 2) Bill 2017 Proposed amendment to Schedule 1, Part 1 Paragraph 1 to the Income Tax Act The marginal tax rates for three chargeable income bands to be restructured as follows: Gross income (RM)* Chargeable income (RM) Current tax rate up to YA 2017 (%) Proposed tax rate wef YA 2018 (%) Estimated tax savings (RM) 35,001-50,000 20,001-35,000 5 3 300 50,001-65,000 35,001-50,000 10 8 600 65,001-85,000 50,001-70,000 16 14 1,000 Effective: Year of Assessment(YA) 2018 and subsequent YAs 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 5
Highlights of 2018 Budget Changes to individual income tax rate Implications Chargeable income (RM) Current tax rate - 2017 (%) Proposed tax rate 2018 (%) Estimated tax savings (RM) 5,001-20,000 1 1-20,001-35,000 5 3 300 35,001-50,000 10 8 600 50,001-70,000 16 14 1,000 70,001-100,000 21 21 1,000 100,001 250,000 24 24 1,000 250,001 400,000 24.5 24.5 1,000 400,001 600,000 25 25 1,000 600,001 1,000,000 26 26 1,000 Exceeding 1,000,000 28 28 Intention: to increase the disposable income of M40. Will increased disposable income be sufficient to cover increasing cost of living? Steep rise in tax rate for RM70,000 RM100,000 tax band Non-resident tax rate remains at 28% 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 6
Tax relief period extension Net savings in the national education savings scheme (SSPN) 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 7
Highlights of 2018 Budget Tax relief period extension: SSPN contribution Proposed legislation Tax relief up to RM6,000 for net savings in the National Education Savings Scheme (SSPN) from YA 2012 until YA 2017. It is proposed that the said income tax relief of up to RM6,000 for net savings in the SSPN be extended for another 3 years. Effective Years of assessment 2018 to 2020 Implication To encourage savings to finance tertiary education of children 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 8
Tax exemption: Rental income 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 9
Highlights of 2018 Budget Tax exemption on rental income Current legislation Proposed Conditions Net rental income received by a resident individual is taxable at progressive tax rates ranging from 0% to 28%. 50% income tax exemption on rental income received by Malaysian resident individuals Rental income received not exceeding RM2,000 per month for each residential home; The residential home must be rented under a legal tenancy agreement; Tax exemption available for a period of maximum 3 consecutive YAs (effective from YA 2018 to YA 2020) Clarifications required : Whether the exemption is given on gross or net rental income? 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 10
Women returning to workforce 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 11
Highlights of 2018 Budget Tax exemption on earnings for women returning to workforce Proposed legislation Personal tax exemption on employment income up to maximum of 12 consecutive months to be provided to women who return to the workforce after a career break. Criteria Career break for at least two years on 27 October 2017 Application must be submitted to TalentCorp from 1 Jan 2018 to 31 Dec 2019 Effective date Year of assessment 2018 to 2020 Clarification from TalenCorp : https://www.talentcorp.com. my/careercomeback Must be a Malaysian citizen; Has min 3 years of working experience Has not been employed or engaged on full time business during the career break 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 12
Highlights of 2018 Budget Tax exemption on earnings for women returning to workforce There are 2 grants provided by TalentCorp to employers : https://www.talentcorp.com.my/grants Type of Grants Resourcing Grant Retention Grant Description For companies that implement or enhance a programme or campaign to recruit women returnees For employers who recruit and retain women returnees for more than six months. Grant period Grant amount Submission period Implementation must be between 1st January 2017 31st December 2017 by the employers. The grant co-funds 75% of the cost incurred to run the programme up to RM100,000.00 per applicant (employer) per year Application must be made by 31st December 2017. On boarding of women returnee(s) must be between 1st January 2017 until 31st December 2017. The grant amount is equivalent to a returnee s one-month salary (up to RM100,000 per employer per year To submit application after the women returnee(s) has been retained/retained for more than six (6) months by the employer but not later than 1st July 2018. Point to note : Eligible applicant may claim one (1) or both grants amounting up to a maximum of RM100,000 per grant. To submit application to: careercomeback@talentcorp.com.my 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 13
1Malaysia Retirement Scheme 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 14
Highlights of 2018 Budget Increase in Government contribution towards 1Malaysia Retirement Scheme Current legislation Proposed 1Malaysia Retirement Scheme is governed by Employees Provident Fund ( EPF ) The scheme is applicable to selfemployed Malaysian citizens without fixed income Current government contribution at 10%, subject to a maximum of RM120 per year Government contribution will increase from 10% to 15%, subject to a maximum of RM250 per year. This new contribution rate will be for a 5-year period (i.e., from 2018 to 2022) 2017 Deloitte Tax Services Sdn Bhd Personal Income Tax Highlights 15
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Deloitte TaxMax The 43 rd series One bold step in the right direction Sim Kwang Gek and Stephanie Low l 22 November 2017 By Deloitte Tax Academy
Corporate Tax 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 2
Earning stripping rules to replace thin capitalisation rules 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 3
Thin capitalisation rules (TCR) in Malaysia History 2009 TCR introduced under Section 140A of Income Tax Act 1967 but the rules for its implementation was not gazetted. 2011 Implementation postponed to 31.12.2012. 2012 Implementation postponed to 31.12.2015. 2016 Implementation postponed to 31.12.2017. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 4
Earning stripping rules Appendix 30 to the 2018 Budget Speech Under the Earning Stripping Rules (ESR), the interest deduction on loans between related companies within the same group will be limited to a ratio determined by a country s tax authority, ranging from 10% to 30% of the company s profit before tax, either using the Earning Before Interest and Taxes (EBIT) or the Earning Before Interest, Taxes, Depreciation and Amortisation (EBITDA). Effective date to implement ESR: 1 January 2019 (TCR will be repealed with effect from 1 January 2018) 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 5
Earning stripping rules Comparison between OECD s recommendations and ESR rules announced in the 2018 Budget Speech OECD s recommendations (best practices) Cover debt financing arrangements entered into with related parties and third parties Interest limitation rule should directly limit the level of interest expense that an entity may deduct for tax purposes (as opposed to limiting the amount of the debt with respect to which an entity may claim interest deductions) Interest limitation rule should generally apply to an entity s net interest expense Interest deduction should be limited to a ratio of earnings (EBIT or EBITDA) Under the fixed ratio rule, interest deduction should be limited to 10% - 30% of EBIT or EBITDA ESR rules in 2018 Budget Speech ESR rules announced only cover loans between related companies within the same group ESR rules announced appear to limit the amount of interest deduction directly Unclear whether ESR rules would apply to net interest expense or gross interest expense ESR rules limit interest deduction based on a ratio of EBIT or EBITDA Interest deduction is to be limited to 10% - 30% of EBIT or EBITDA 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 6
Earning stripping rules Supposed that for its ESR, Malaysia adopts the fixed ratio rule based on EBITDA and net interest expense: Step 1 Calculate Tax EBIDTA Calculate Tax EBITDA: Tax EBITDA = Taxable income + Capital allowance (i.e. tax depreciation) + Net interest expense deducted in arriving at the taxable income Step 2 Apply fixed ratio Apply the fixed ratio to Tax EBITDA e.g. 10% of Tax EBITDA Step 3 Compare Compare amount in Step 2 (e.g. 10% of Tax EBITDA) with net interest expense deductible. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 7
Earning stripping rules Example A: Interest expense fully deductible against business income before ESR (i.e. loan used wholly for business purposes) Tax computation (YA2019) Before ESR RM Net profit before tax 2,000,000 RM Less: Interest income (500,000) 1,500,000 Add: Non-deductible expenses Depreciation 600,000 Entertainment expenses 50,000 650,000 Adjusted business income 2,150,000 Less: Capital allowances (400,000 ) Statutory business income 1,750,000 Add: Gross interest income 500,000 Aggregate / chargeable income 2,250,000 RM Chargeable income 2,250,000 Add: Capital allowance 400,000 Add: Interest expense 1,500,000 Less: Interest income (500,000) Tax EBITDA 3,650,000 Net interest expense (RM1,500,000 RM500,000) 1,000,000 10% of Tax EBITDA (365,000) Interest expense not deductible under ESR 635,000 Income statement Interest expense Payable and due to be paid to the holding company 1,500,000 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 8 RM
Earning stripping rules Example B: Interest expense partially restricted under business source (i.e. loan used partially for non-business purposes) Tax computation (YA2019) Before ESR RM Net profit before tax 2,000,000 RM Less: Interest income (500,000) 1,500,000 Add: Non-deductible expenses Depreciation 600,000 Entertainment expenses 50,000 Interest expense (restricted) 900,000 1,550,000 Adjusted business income 3,050,000 Less: Capital allowances (400,000) Statutory business income 2,650,000 Add: Gross interest income 500,000 Less: Interest expense (500,000) Statutory interest income - Aggregate / chargeable income 2,650,000 Balance sheet Investment and lending RM Investment in shares 5,000,000 Loan to related company Interest bearing loan Loan from holding company Income statement Interest expense Payable and due to be paid to holding company 10,000,000 15,000,000 25,000,000 RM 1,500,000 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 9
Earning stripping rules Example B: Possible workings to compute interest disallowed under ESR Method 1: Apply ESR and then followed by interest restriction Method 2: Apply interest restriction then followed by ESR Method 1: Method 2: Chargeable income 2,250,000 2,650,000 Add: Capital allowance deducted in arriving at chargeable income Add: Interest expense deducted in arriving at chargeable income 400,000 400,000 1,500,000 1,100,000 Less: Interest income (500,000) (500,000) Tax EBITDA 3,650,000 3,650,000 Net interest expense (Interest expense Interest income) 1,000,000 600,000 10% of Tax EBITDA (365,000) (365,000) Interest expense not deductible under ESR 635,000 235,000 Add: Interest expense not deductible under interest restriction (RM1,500,000 RM635,000) x 15/25 RM500,000 19,000 400,000 Total interest expense not deductible 654,000 635,000 RM900,000 RM500,000 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 10
Earning stripping rules Current provisions on disallowance of interest expense: Withholding tax not remitted Transfer pricing Interest due to be paid? Interest restriction 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 11
Accelerated capital allowance for purchase of ICT equipment and software and software development 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 12
Accelerated capital allowance for purchase of ICT equipment and software Income Tax (Accelerated Capital Allowance) (ICT equipment) Rules [PU(A)217/2014] A resident who incurred capital expenditure in relation to the purchase (includes installation) of ICT equipment for the purpose of his business can claim capital allowances at the following rates: a) Initial allowance 20% b) Annual allowance 80% ICT equipment include: Access control system Banking systems Barcode equipment Bursters / decollators Cables and connectors Computer Assisted Design Computer Assisted Manufacturing Computer Assisted Engineering Card readers Computers and components Central Processing Units (CPU) Storages Screens Printers Scanners / readers Accessories Communications and networks Software systems or software packages 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 13
Accelerated capital allowance for purchase of ICT equipment and software Public ruling No. 12/2014 Paragraph 8.2(ii) The following do not qualify as plant for the purpose claiming capital allowances:- Payment for developing software such as consulting fees, right to use the software such as licence fee and other incidental charges are not part of the cost for the provision of computer software. Example 20 further provides that payment made for a licence to use software (which appears to be unrelated to software development) is also not regarded as qualifying expenditure incurred for the provision of plant. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 14
Accelerated capital allowance for purchase of ICT equipment and software Proposed Type of qualifying capital expenditure Expenditure incurred on the purchase of ICT equipment and computer software packages Expenditure incurred on the development of customized software comprising of consultation fee, licensing fee and incidental fee for software development ACA rate Initial allowance = 20% Annual allowance = 20% Initial allowance = 20% Annual allowance = 20% Effective date Year of assessment 2017 Year of assessment 2018 Issue to consider Expenditure incurred on development of customized software and put to use in business in YA 2017 can claim ACA? Licensing fee for the use of software that is unrelated to software development - Claim tax deduction? 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 15
Accelerated capital allowance (ACA) and automation equipment allowance (AEA) for automation equipment used in qualifying projects 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 16
ACA and AEA for qualifying capital expenditure incurred in relation to automation Qualifying Company ACA AEA Incorporated under Companies Act 2016 and resident in Malaysia Engages in manufacturing activity in compliance with Industrial Co-ordination Act 1975 Holds a business license issued by the relevant local authority Qualifying project for rubber, plastic, wood, furniture and textile IA = 20% AA = 80% (Capped at RM4 million) Qualifying project for rubber, plastic, wood, furniture and textile 100% (Capped at RM4 million) Has carried on a qualifying project (modernization / automation of existing activity) for at least 36 months Incurred qualifying capital expenditure in the basis periods for a) YAs 2015-2017 (Rubber, plastic, wood, furniture and textile) Budget 2015 Budget 2018 Extension to YA 2020 for qualifying project relating to rubber, plastic, wood and textile b) YAs 2015-2020 (Others) Apply through MIDA Budget 2018 - Applications received by MIDA from 1.1.2018 to 31.12.2020 Other qualifying project IA = 20% AA = 80% (Capped at RM2 million) Other qualifying project 100% (Capped at RM2 million) Can be offset against up to 70% of statutory income, and unutilized allowance can be carried forward for future utilisation 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 17
ACA and AEA for qualifying capital expenditure incurred in relation to automation Income Tax (Exemption) (No. 8) Order 2017 Other key conditions Automation equipment certified by SIRIM AEA withdrawn in the year of disposal if automation equipment disposed within 5 years from acquisition Disposal of automation equipment to related company qualifying capital expenditure deemed to be zero Separate source and separate account 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 18
ACA and AEA for qualifying capital expenditure incurred in relation to automation Non-application: Claimed reinvestment allowance Granted Section 127 exemptions Granted incentives under Promotion of Investments Act 1986 Claimed Section 154 deductions Except: Capital allowance Audit / tax / company secretary fees ACA for ICT equipment 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 19
New tax incentive for transformation to Industry 4.0 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 20
New tax incentive for transformation to industry 4.0 Big data analytics Autonomous robots ACA and AEA Artificial intelligence Elements of Industry 4.0 Internet of things On the first RM10 million of qualifying capital expenditure incurred in the basis periods for YAs 2018 2020 Fully claimable in 2 years Cloud computing Cyber security Applications received by MIDA from 1 January 2018 to 31 December 2020. Additive manufacturing Augmented reality 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 21
New requirement to notify change in accounting period 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 22
New requirement to notify change in accounting period New Section 21A(3A) under Income Tax Act 1967 Where a company, limited liability partnership, trust body or co-operative society has made up the accounts of its operations for a period of 12 months ending on a day in a basis year, and has failed to make up its accounts ending on the corresponding day in the following basis year ( hereinafter referred to as the new accounts ), the company, limited liability partnership, trust body or co-operative society shall notify the Director General of such failure in the prescribed form (a) in the case where the new accounts are made up ending before the corresponding day, thirty days before the end of the new accounts; or (b) in the case where the new accounts are made up ending after the corresponding day, thirty days before the corresponding day. New accounting period When to notify IRB? < 12 months 30 days before end of new accounting period > 12 months 30 days before end of old accounting period following the change Effective from: Year of assessment 2019 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 23
New requirement to notify change in accounting period Example: Original accounting period - 1 June 2019 to 31 May 2020 (YA 2020). a) Change of accounting period to December 2020 (< 12 months) Income Tax Act 1967 Section 2 New Notify by 1.12.2020 Double Taxation Agreement between Japan and Malaysia 01.06.2019 31.05.2020 31.12.2020 Old year end New year end b) Change of accounting period to August 2021 (> 12 months) Notify by 1.5.2021 01.06.2019 31.05.2020 31.05.2021 31.08.2021 Old year end New year end 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 24
New requirement to notify change in accounting period Penalties Offences Penalty Effective date Failure to notify IRB on change in accounting period Late submission of tax return RM200 RM20,000 or imprisonment of not more than 6 months or both Coming into operation of Finance (No. 2) Act 2017 3 times of tax payable Year of assessment 2019 Late payment of monthly tax instalments Underestimation of tax payable 10% on the amount paid late 10% x [(Tax payable less tax estimate) - 30% tax payable] Year of assessment 2019 Year of assessment 2019 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 25
Refund for REIT s unit holders who are tax exempt 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 26
Refund for REIT s unit holders who are tax exempt Section 109D Amendment to Section 127(5) Income distributed by REIT is subject to withholding tax if the REIT is exempt from income tax (where it distributes more than 90% of its total income) Withholding tax is a final tax in the hands of the unit holders What if the unit holder is exempted from tax under Section 127? Current No provision for withholding tax refund Proposed Withholding tax refund is now available Effective: Upon coming into operation of the Finance (No. 2) Act 2017 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 27
Green Sustainable and Responsible Investments (SRI) sukuk 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 28
Green Sustainable Responsible Investments (SRI) sukuk Current position Green SRI sukuk grant to finance external review is taxed in the hands of the recipient Proposed amendment Grant is exempted from tax [Application to be made to Securities Commission ( SC ) from 1 January 2018 to 31 December 2020] Fund managers providing management services for Shariah principle fund:- Exemption on statutory income derived from business of providing fund management services to the following:- Exemption to fund managers providing management services for SRI Funds (both Shariah principle and conventional) [Effective from YA 2018 to YA 2020] a)foreign investors b)local investors c)business trusts or REIs in Malaysia by a company 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 29
Asset held for sale computation of residual expenditure 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 30
Asset held for sale computation of residual expenditure When deemed ceased to be used? What is the disposal value? What is the residual expenditure in the following basis period? In the following basis period Where the asset is sold in the following basis period; or Where the asset is not sold after the end of the following basis period Asset sold in the following basis period Market value at the end of the basis period such asset is held for sale or net proceeds of the sale, whichever is greater. Asset not sold in the following basis period Market value of the asset at the end of that following basis period. Current Qualifying expenditure notional allowance Proposed Qualifying expenditure initial allowance annual allowance - notional allowance Effective from: Coming into operation of Finance (No. 2) Act 2017 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 31
Asset held for sale computation of residual expenditure Example: 1.1.2013 Purchase factory for RM1,000,000 1.5.2018 Factory classified as Asset held for sale 15.10.2019 Factory sold for RM800,000 Market value As at 31.12.2018 As at 31.12.2019 RM900,000 RM850,000 Capital allowances claimed As at 31.12.2017 RM250,000 Notional allowance claimed in YA 2018 RM30,000 Deemed ceased to be used in YA 2019 How to compute balancing allowance / balancing charge? 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 32
Asset held for sale computation of residual expenditure Example: Disposal in YA 2019 Current RM Proposed RM Qualifying expenditure 1,000,000 1,000,000 Less: Initial allowance and annual allowance claimed - 250,000 Less: Notional allowance 30,000 30,000 Residual expenditure 970,000 720,000 Disposal value 900,000 900,000 Balancing allowance / (balancing charge) 70,000 (180,000) 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 33
Tax incentives 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 34
Review of tax incentive for medical tourism Incentives for private healthcare service providers - Current Qualifying company Locally incorporated Licensed with Malaysian Ministry of Health Registered with Malaysian Health Tourism Council Qualifying Capital Expenditure (QCE) Building a) cost of purchase or construction of a new building, or b) cost of modification or refurbishment of existing building, the building being in accordance with the standards required under, and approved and licensed under the Private Healthcare Facilities and Services Act 1998. Medical device Cost of expenditure for medical device (each costs more than RM50,000) and verified by the Minister of Health. Qualifying project means: a) A business of providing private healthcare services at a new private healthcare facility; b) A project of expansion, modernization or refurbishment of existing business of providing private healthcare services, which has been approved by the Minister of Health and registered with the Malaysian Healthcare Travel Council. Type of incentive Investment tax allowance equal to: 100% of QCE incurred for 5 years offset against 100% of statutory income 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 35
Review of tax incentive for medical tourism Incentives for private healthcare service providers Conditions Current For each year of assessment, a) Number of health travelers who received private healthcare services is at least 5% of total patients; and b) At least 5% of gross income of qualifying company is generated from health travelers. Proposed For each year of assessment, a) At least 10% of total number of patients receiving private healthcare services are comprised of qualified healthcare travelers; b) At least 10% of the company s gross income is derived from qualified healthcare travelers. Health traveler a) A non-malaysian citizen who participates in Malaysia My Second Home program and his dependents; b) An expatriate who is a non-malaysian citizen holding a Malaysian work permit and his dependents; c) A non-malaysian citizen who visits Malaysia. Application submitted to MIDA up to 31 December 2020. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 36
Review of tax incentive for export of private healthcare services Qualifying Services Private healthcare provided to foreign clients, either provided in Malaysia or provided from Malaysia. Foreign client - a company, a partnership, an organisation or a cooperative society which is incorporated or registered outside Malaysia, or an individual who is a non-malaysian citizen and does not hold a Malaysian work permit or an individual who is a non-resident Malaysian citizen living abroad. Type of incentive Current Allowance equal to 50% of value of increased export of services, set off against up to 70% of statutory income Proposed Allowance equal to 100% of value of increased export of services, set off against up to 70% of statutory income (Effective: YAs 2018 2020) Conditions Current None Proposed For each year of assessment, a) At least 10% of total number of patients receiving private healthcare services are qualified healthcare travelers; and b) At least 10% of the company s gross income is derived from qualified healthcare travelers. (Effective: YAs 2018 to 2020) 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 37
Review of tax incentives for venture capital Current Individual Venture Company (VC) Tax deduction on amount invested Company With business income Venture Capital Management Company (VCMC) Invested funds Return on investment Venture Capital Company (VCC) Income tax exemption on statutory income from all sources (except interest from savings / deposits and profits from Syariah based deposits) for 10 years or the life of the fund established for investment in the VC, whichever is shorter. Condition: Income tax exemption on profit sharing Profit sharing Registered with SC Invest at least 70% of its invested funds in VC at the seed, start up or early stage or at least 50% in the form of seed capital. VCC and VC are not related Individual Company 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 38
Review of tax incentives for venture capital Proposed Venture Company (VC) Venture Capital Management Company (VCMC) Invested funds Return on investment Income tax exemption on profit sharing (include management fee and performance fee from YA 2018 to YA 2022) Profit sharing Venture Capital Company (VCC) Tax deduction on amount invested from YA 2018 to YA 2022 (capped at RM20 mil per year) Individual Company Individual Tax deduction on amount invested Company With business income Income tax exemption on statutory income from all sources (except interest from savings / deposits and profits from Syariah based deposits) for 5 years or the life of the fund established for investment in the VC, whichever is shorter. Condition relaxed: VCC to Invest at least 50% of its invested funds in VC at the seed, start up or early stage and the 50% balance is allowed for other investments. Effective date: Applications received by Securities Commission from 1 January 2018 to 31 December 2018. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 39
Extension of tax incentive period / application period 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 40
Extension of tax incentive period / application period Current Incentive for tour operating companies 100% income tax exemption on statutory income derived from business of operating tour packages Tour packages within Malaysia not less than 1,500 local tourists annually Tour packages to Malaysia not less than 750 foreign tourists annually From Year of Assessment 2007 to 2018 Proposal Extended to Year of Assessment 2020 Incentive for new 4 and 5 star hotels Exemption of 70% / 100% of statutory income for 5 years ; or Investment tax allowance of 60% / 100% of qualifying capital expenditure incurred within 5 years and can be offset against 70% / 100% of statutory income. Application to MIDA extended to 31 December 2020 Application submitted to MIDA before 31 December 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 41
Extension of tax incentive period / application period Current Proposal Principal hub Revised guideline issued on 7 July 2017 Applicants are categorized into new and existing companies Tax exemption in value added income for existing companies Removal of minimum 70% export condition Regional P/L / Business unit management is a mandatory activity Annual business spending Application to MIDA extended to 31 December 2020 Applications submitted to MIDA before 30 April 2018 Incentive for angel investors Exemption from income tax on the amount of investment (in the form of ordinary shares) made in the investee companies Application to MOF extended to 31 December 2020 Application can be made to Ministry of Finance ( MOF ) from 1 January 2013 to 31 December 2017. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 42
Other tax incentives 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 43
Other tax incentives Current Double deduction on remuneration paid to disabled employees (certified by Department of Social Welfare) Proposal Extended to include employment of those affected by accidents / critical illness (certification from the Medical Board of SOCSO that these employees are able to work within their capabilities) Double deduction on expenses incurred by private healthcare companies registered with the Malaysia Healthcare Travel Council (MHTC) in obtaining certification for quality systems and standards. In 2016, MOF approved 5 certification bodies Extended to include companies registered with MHTC that provide dental and ambulatory healthcare services Effective: Year of Assessment 2018 Malaysian Society for Quality of Health Malaysia Joint Commission International USA CHKS Accreditation Unit UK The Australian Council on Health Care Standard Accreditation Canada Management expenses incurred in connection with general business carried out in accordance with principle of wakalah is allowable To allow management expenses to be deducted from income of other fee receivable Effective: Year of Assessment 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 44
Real Property Gains Tax Finance Bill (No.2) 2017 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 45
RPGT rate for non-citizen and non-permanent resident Current: An individual who is not a citizen and not a permanent resident is taxed at: (a) 30% for disposal within 5 years (b) 5% for disposal in the 6th year onwards. Proposed: The above tax rate shall also apply to an executor of the estate of a deceased person who is not a citizen and not a permanent resident. Effective: 1 January 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 46
Current RPGT rates Schedule 5 Part I. Except where Part II and III applies.. Part II. In the case where the disposer is a company. Part III. In the case of an individual who is not a citizen and not a permanent resident. Changed to: In the case of a disposer who is not a citizen and not a permanent resident, or an executor of the estate of a deceased person who is not a citizen and not a permanent resident. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 47
Conditional Contracts Current Disposal Date = Date of approval if the conditional contract requires approval by the Government or a State Government; or an authority or committee appointed by the Government or a State Government Proposed What is Government or State Government? The above applies to approval by the Government or a State Government only. Effective: 1 January 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 48
Conditional Contracts Date of SPA EPU approval obtained Last day to submit RPGT return Before proposed change After proposed change 1.1.2018 1.4.2018 31.5.2018 2.3.2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 49
Disposal of real property by non-citizen and non-permanent resident Proposed Current Acquirer is required to retain lower of the whole sum (in money) or 3% of the total value of the sales consideration Where the disposer is not a citizen and not a permanent resident, acquirer to retain the lower of whole sum (in money) or 7% of the total value of the sales consideration. Effective: 1 January 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 50
No Gain No Loss transactions Amongst others, the following are treated as a no gain no loss :- Current Transfer between spouses Transfer by an individual / his wife / jointly with a connected person to a company controlled by the said persons for a consideration consisting of shares in the company Proposed To only apply to an asset owned by a citizen or jointly owned by citizens. Effective: 1 January 2018 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 51
Stamp Duty 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 52
Extension of stamp duty exemption on abandoned projects Current Stamp Duty Exemptions: 1 January 2013 to 31 December 2017 Rescuing contractor Loan agreements to finance the revival of abandoned housing projects Transfer of title for land and houses Original house purchaser Loan agreements for additional financing Instrument of transfer for the houses Extended for another three years Effective: Instruments executed between 1 January 2018 to 31 December 2020 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 53
Stamp duty exemption for trading of Exchange Traded Funds (ETF) and Structured Warrants (SW) Current: Contract notes on sale of shares, stocks or marketable securities stamped at 0.1% and capped at RM200. Proposed: Contract notes in relation to trading of ETF and SW be exempted. Effective: ETF and SW contract notes executed from 1 January 2018 to 31 December 2020 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 54
Other Developments 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 55
Director s Liability 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 56
Director s Liability Section 75A Notwithstanding anything contrary to this Act or any other written law A director shall be jointly and severally liable for such tax or debt during the period in which that tax or debt is liable to be paid by the company 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 57
Director s Liability Section 75A A Director means Occupying the position of director (by whatever name called) Includes any person who is concerned in the management of the company's business AND individually or jointly, directly or indirectly, owns or control 20% of ordinary share capital 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 58
Director s Liability Section 75A Mr B acquired 25% of Company X from Mr A Form JA dated 15.5.2017 issued for YA 2012 to YA 2015 Date the Form JA was served on Company X IRB issued notice of civil proceeding to recover outstanding tax 1.1.2017 15.5.2017 1.6.2017 22.11.2017 Polling question: 1)When is tax liable to be paid? A)15.5.2017 B)1.6.2017 C)22.11.2017 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 59
Director s Liability What can the IRB do? Bankruptcy Min amount of RM50,000 Recovery by suit (Section 106) Garnishee Earnings / Money in bank IRB Travel Ban (Section 104) Judgment Debtor Summons / Writ of Seizure Winding Up 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 60
100% Penalty 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 61
100% Penalty with effect from 1 January 2018 The IRB had on 17 April 2017 issued a Clarification Regarding The Imposition Of 100% Penalty For Failure To Declare Income And Correct Information which will be implemented from 1 January 2018. The IRB is empowered under Section 113(2) to impose a maximum 100% penalty for tax understated for the offence of declaring an incorrect return. Such measure is meant to elevate the level of voluntary compliance among taxpayers by dealing with taxpayers who are hardcore tax law defaulters. Will the DGIR impose a 100% penalty every time? Can the penalty be appealed on? 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 62
Cases on Penalty under Section 113(2) For the IRB For the taxpayer Syarikat Ibraco-Peremba Sdn Bhd v KPHDN [W01-177-04/2013] Syarikat Pukin Ladang Kelapa Sawit v KPHDN (2012) 6 MLJ 411 Dr. Zanariah bt Ramli v KPHDN [R1-14-1-2011] Sri Binaraya Sdn Bhd v KPHDN [W-01-448- 10/2012] Office Park Development Sdn Bhd v KPHDN (2011) 9 MLJ 479 Piramid Intan Sdn Bhd v KPHDN (2015) 10 MLJ 436 Pasdec Corporation Sdn Bhd v KPHDN (2016) 12 MLJ 555 Kyros International Sdn Bhd v KPHDN (2013) 2 MLJ 650 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 63
Judicial Review 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 64
Judicial Review F Sdn Bhd v. KPHDN (2017) MSTC 30-144 - Applicant is a contract manufacturer of electronic components and being part of a global multinational group, receives a host of regional support services. - IRB conducted a desk and field audit for YA2000 to YA2005 on 25 May 2007. - After a long drawn correspondence, the IRB issued a letter on 10 December 2014, informing that Notices of Assessment for YA2004 to 2006 will be issued together with penalties. The Taxpayer has 14 days to respond. - The Taxpayer filed for judicial review to quash the letter. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 65
Judicial Review F Sdn Bhd v. KPHDN (2017) MSTC 30-144 Held: High Court dismissed the judicial review. This was affirmed by the CoA. High Court held that, amongst others, the taxpayer failed to show exceptional circumstances for the judicial review Judicial review can be used if the Applicant is able to demonstrate: - Clear Lack of Jurisdiction - Failure on the part of the decision maker to perform statutory duty - Breach of natural justice - Illegality 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 66
Intention of Parliament 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 67
RPGT v Income Tax CC Sdn Bhd & Anor v. KPHDN (2017) MSTC 10-061 - CC Sdn Bhd, with another partner, incorporated and acquired shares in BD Sdn Bhd, a land development company. - BD purchased a land in 2004 with the intention to develop it and had classified the land as Current Assets and the expenses were treated as property development expenditure. - CC subsequently disposed off the shares in BD, and the IRB subjected the gains from the shares to RPGT. - CC appealed, contending that the gains derived from the disposal of shares in BD should not be subject to RPGT, as BD is not a Real Property Company (RPC). - Issue: Whether BD is a RPC pursuant to para 34A, Schedule 2 of RPGT Act. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 68
RPGT v Income Tax CC Sdn Bhd & Anor v. KPHDN (2017) MSTC 10-061 - Para 34A, Schedule 2 of RPGT Act was enacted to prevent a person from acquiring land in the name of a company and disposing the shares to avoid RPGT. - Cannot simply apply literal interpretation intention of Parliament as recorded in Hansard and Explanatory Note to amendment bill should be taken into account. - BD is a land development company since incorporation and intended to develop the land - BD has classified the land as Current Assets (never as Fixed Assets) - CC only disposed the shares due to differences with its partner - High Court judgement in Binastra Holdings remains good law. - Court of Appeal judgement should not be relied upon as no written judgement. 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 69
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Deloitte TaxMax The 43 rd series One bold step in the right direction Tan Eng Yew and Senthuran Elalingam l 22 November 2017 By Deloitte Tax Academy
Contents 2018 Budget announcements Recent GST developments GST updates 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 2
2018 Budget announcements 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 3
GST collection 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 4
Budget announcements Key updates Relief from paying GST upon importation of certain goods by certain persons Effective from 1 January 2018 Description Importation of big ticket items Companies in the aviation, shipping and oil & gas industries to be granted GST relief for importation of big ticket Items List of items and conditions will be stipulated by the MOF Importation of goods under lease agreements from companies located in a DA Relief for companies in the oil & gas industry GST relief on importation of goods under lease from Designated Areas List of items and conditions will be stipulated by MOF Handling services rendered to operators of cruise ships Relief for cruise ship operators GST relief on handling services acquired (e.g., stevedoring, loading, unloading, and reloading and the inspection of cargo) provided by sea port operators in Malaysia Effective date end 31 December 2020 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 5
Budget announcements Key updates Customs appeal tribunal and GST appeal tribunal merger Effective from 1 January 2019 Description Customs Appeal Tribunal (CAT) and the GST Appeal Tribunal (GSTAT) will be merged All appeals pertaining to the decision of the Director General of Customs be heard by a single Tribunal Exemption of duty and relief of GST for air courier parcel The de minimis value for GST/duty free import of goods (excluding cigarette, tobacco and intoxicating liquor) via air courier service be increased from RM500 to RM800 Only mentioned in speech 2017 Deloitte Tax Services Sdn Bhd One bold step in the right direction 6