Goods and services tax (“GST”)

w.e.f. 1 April 2015

Announcement of GST:

• Sales tax and service tax will be abolished and will be replaced by GST at 6%
• Businesses making taxable supplies must register for GST where annual sales turnover exceeds RM500,000
• However businesses below the threshold may voluntarily register for GST

Visit the Royal Malaysian Customs Department GST official website here.

Our Opinion: GST is not far away and will affect all types of businesses whether individuals, sole-proprietor, partnerships or companies. Poor planning and  implementation can result in significant penalties, lost monies or worsening cash flow. GST compliance will require enhancement of accounting system, updated accounting records and improvement in accounting controls. The Government has provided incentives to soften the burden of implementation and is expected to provide subsidies or increased deduction in the future. In 2014, we will be organising affordable seminars for our clients so please register your interest with us.

Real property gains tax (“RPGT”)

w.e.f. 1 Jan 2014

Increase in RPGT Rates: the RPGT rates on the disposal of properties and shares in real property companies from 1 January 2014 will be reviewed as follows:

Corporate Income Tax

w.e.f. YA2016
Review of corporate income tax – Tax rate for a company is reduced by 1% from 25% to 24%. This applies to a trust body, an executor of an estate, a receiver appointed by the court and a limited liability partnership.

w.e.f YA2016
Review of corporate (SME) income tax – Tax rate for companies with a paid-up capital of up to RM2.5m will be reduced by 1% from 20% to 19% in respect of chargeable income up to RM500,000 and the remaining chargeable income will be taxed at 24%.

w.e.f. upon coming into operation of the Finance (No.2) Act 2013
Interpretation / definition of director – Director who own not less than 20% of the ordinary share capital of the company will be jointly and severally liable for the company’s tax liabilities.

w.e.f. YA2014
Deemed interest income on loan or advance to directors – Deemed interest income (monthly basis) on the company for any loan or advances of any money from internal funds of the company to a person who is a director of that company.

Our Opinion: In simple terms – this means that if a a director (as defined as director owning 20% and above shareholding) owes money to a company at month end, interest income will be deemed to be charged at market rate (whether charged or not) and this income will be taxable on the company. Please watch out for this! Do contact our Tax department if you have any queries on this.

w.e.f. YA2014
Interest income from loan transactions between related parties – Interest on loan transactions between related parties is deemed obtainable on demand when the interest is due to be paid.

w.e.f. YA2014
Deduction for interest expense on money borrowed –

• Taxpayer is only eligible to claim a deduction in respect of interest from money borrowed against its income when such interest is due to be paid (applicable to all interest expenses)
• However the deduction would be given in the year the interest is payable

w.e.f. YA2014
Deduction not allowed for failure to furnish information requested – Deduction is not allowed if a person fails to furnish any information as requested by DG to justify the person’s claim for deduction within the time specified in the notice

Our Opinion: In recent years, the change income tax laws have given increasing powers to the IRB on tax audits and investigations. Therefore it is highly important that clients notify your tax agents immediately if you receive any notice from IRB.

w.e.f. YA2014
Amendment to definition of “entertainment” – Definition of “entertainment” has been widen to include any expenses incurred by a person for the purpose of promoting his business with or without consideration as entertainment

Our Opinion: The definition of entertainment has been widened so expenses incurred to suppliers, agents, and customers for promotion of business is only to subject to 50% deductibility. This means that even costs of promotional gifts with logo; ; cash incentives paid to marketing agents to motivate and increase sales and other expenses for promotion of business may not be fully deductible. This presents some uncertainty and judgement on what expenses fall under promotion of business.

w.e.f. YA 2015
Deduction for secretarial and tax filing fees – Secretarial fee up to RM5,000 and tax compliance fee up to RM10,000 will be tax deductible.

Individual income tax

w.e.f. YA 2014
Monthly tax deduction as final tax – Employees whose total income tax is equivalent to the amount of monthly tax deductions made in the assessment year are no longer required to submit tax returns. The amount of monthly tax deduction is considered as the final tax paid.

w.e.f YA 2013 only
Relief for middle income taxpayers – A special relief of RM2,000 will be provided to resident taxpayers earning up to RM8,000 a month (aggregate income of up to RM96,000 a year).

w.e.f. YA 2015
Review of individual income tax – Income tax rates for resident individuals will be reduced by 1% to 3% for all chargeable income bands. The current maximum tax rate at 26% will be reduced to 25%.

w.e.f. upon coming into operation of the Finance (No.2) Act 2013
Taxation of withdrawals of contribution made to deferred annuity and Private retirement scheme (“PRS”) – Withdrawal of contribution from a deferred annuity scheme & PRS by an individual prior to attaining the age of 55 (other than by reason of permanent total disablement, serious disease, mental disability, death or permanent departure from Malaysia), the withdrawal will be taxed at a rate of 8%.

Tax incentives

w.e.f. 1 Jan 2014 to 31 Dec 2014
Incentive for minimum wage policy – To encourage the compliance to the Minimum Wage Policy, which was implemented on 1 January 2013, the difference (ie. 31 Dec 2013 vs 1 Jan 2014) between the original salary and the minimum wages paid by employers (SMEs, cooperatives, associations and organisations) for the period of 1 January 2014 to 31 December 2014 will be given further deduction.

w.e.f 3 consecutive years upon receiving approval
Flexible work arrangements (“FWA”) – The expenses incurred for the training of employees, supervisors and managers as well as consultancy fees to design FWA to be implemented by employers be given further deduction. The incentive is given for three years of assessment and is effective for FWA status applications received by Talent Corporation Malaysia Berhad from 1 January 2014 to 31 December 2016.

w.e.f. YA 2014 – 2015
Double deduction for expenses incurred on GST related training – Employers be given double deduction on the expenses incurred for GST related training of employees in accounting and ICT.

w.e.f. YA2014 – 2016
Extension of ACA on ICT equipment – To encourage companies to invest in the latest ICT equipment and software, the current ACA (initial allowance of 20% and annual allowance of 80%) is proposed to be extended to YA2016.

w.e.f. 5 consecutive years upon approval
Extension of tax incentives for new 4-star and 5-star hotels – New investments in 4-star and 5-star hotels in Peninsular Malaysia, Sabah and Sarawak will be given extended pioneer status and investment tax allowance for another three years until 31 December 2016. The incentives are effective for applications received by the Malaysian Investment Development Authority (MIDA) from 1 January 2014 to 31 December 2016.

w.e.f. to be determined
New tax incentives for green technology – To strengthen the development of green technology, it is proposed that investment tax allowance be given for the purchase of green technology equipment and income tax exemption be given on the use of green technology services and system.