February 2012 Newsletter – New CP58, Withholding Tax

In this issue:

NEWS
1. Form CP58 – Furnishing of particulars of payment made to an agent, etc.
2. New Public Ruling – Compensation for Loss of Employment
3. GST is still a long way off – says minister

TECHNICAL REVIEW
1. Withholding Tax
2. Deductibility of Entertainment Expenses

In particular, it is highly recommended that you familiar yourself with the new form CP58, especially if you had paid any commissions, or if you deal with agents, distributors and dealers. Failure to comply may lead to unnecessary penalties not just for you but also for your business partners.

We would also like to inform you that e-filing for Form e-BE, e-B, e-M, e-P, e-E will be available starting on 1 March 2012.

Starting this month, we will review two common accounting or tax issues faced by our clients.

In this month, We would like to remind clients about withholding tax. If you make any payments to overseas companies other than for normal trading goods, it is recommended that you check with our tax department on whether you may be liable to withholding tax.

Furnishing of particulars of payment made to an agent, etc (Form CP58), 21 February 2012

With the introduction of s83A (Duty to furnish particulars of payment made to an agent, etc) in the Income Tax Act 1967 pursuant to the 2012 Budget announcement, every company is required to prepare and provide copies of the prescribed form (Form CP58) to its agent, dealer or distributor containing the following information:

• particulars of payment (whether in monetary form or otherwise) made during that year of assessment to that agent, dealer or distributor
• name and address of that agent, dealer or distributor, and
• such other particulars as may be required by the Director General.

The form is to be provided to the agent, dealer or distributor no later than 31 March in the year immediately following the year payments were made. This form will be kept and retained by them in safe custody and shall be made readily accessible to the Director General.

The Form CP58 (in both PDF and Excel format) is downloadable from the Inland Revenue Board (IRB) website. The Guide Notes for filling up the said form is also available on the IRB website.

For payments made from 1 January 2011 to 31 December 2011, an extension of time up to 31 May 2012 is granted to taxpayers to complete the said form. Please refer to the press release by the IRB dated 23 December 2011.

Putting it simply

The CP58 is works similarly to Form EA for employees – but for agents, dealers or distributors. Like the Form EA, the form does not require submission to the IRB annually and is issued to your agents, dealers or distributors for their notice and agreement. The signed CP58 must be then retained in case of future tax audits.

Note that the definition of distributors is very general. “An agent, dealer or distributor means any person appointed in writing or verbally, and the incentive payment is made by the payer company to the agent, dealer or distributor for products/services sold on its behalf”

Note that the form applies to payments made in 2011. The form places additional responsibility on the payer to ensure that the accounting records of the recipient are consistent. In our opinion, clients with year ends in November and December must be extra careful as if you finalise your accounts after April, it may be too late to backdate the CP58 as the recipient may have filed his personal tax return already and may have forgotten to include your payments, resulting in disagreement on the form. Non-compliance can result in fines between RM 200 to RM 2000 or imprisonment.

We can help you prepare your CP58 forms if you require. Please contact us at tax@mswongco.com for more information.

Compensation for Loss of Employment (PR1/2012)

The Ruling explains the characterisation of lump sum payments received by employees upon the termination of their employment as compensation for loss of employment and the tax treatment of compensation for loss of employment. The relevant provisions of the Income Tax Act 1967 for this Ruling are sections 7, 13, subsection 83(3) and paragraph 15 of Schedule 6.

Refer here for the public ruling.

GST still a long way off, says Minister

KUALA LUMPUR: The Goods and Services Tax (GST) will not be implemented any time soon as discussions and awareness programmes are still ongoing, said Minister in the Prime Minister’s Department Datuk Seri Idris Jala.

“No target date has been set yet. It will take at least a year from the time of announcement to the date of actual implementation,” he said at the National Transformation Summit.

“The GST is not a new tax as it is meant to replace the sales and service tax.

“Most countries that implemented the GST did so while protecting the poor. They made sure that staple items such as rice and flour were exempted.”

Idris added that the GST would boost the country’s economy. “I am of the view that we must introduce the GST. We have 28 million people but only one million are paying tax,” he added.

WITHHOLDING TAX “WHT”

WHT is an amount withheld by the payer while making payment to a non-resident payee and remit to the IRB.

Payments made to non-residents in respect of contract payments, royalty, interest, and special classes of income such as technical services, rent for use of any moveable properties, commission etc. may be subject to WHT. The rate of WHT is stated in the Act. However, where a DTA has been signed with a particular country, the preferential rate in the DTA would apply.

The payer must within one month upon paying or crediting the recipient pay the WHT so deducted to the IRB using the prescribed Form which can be downloaded from the IRB’s website while making WHT payment.

Where the payer fails to deduct and remit any amount of WHT due to the IRB, that amount which he fails to pay shall be increased by 10%. In addition, such payment will be disallowed as a deduction in the tax computation of the Company.

With effect from the year of assessment 2011 onwards, th Director General is empowered to impose a penalty for incorrect returns if a tax deduction for the expenses is claimed and the withholding tax and penalty are not paid by the due date of submission of the tax return that relates to such expenses.

In other words, from 2011, if you wish to claim a tax deduction on an expense that is liable to withholding tax in a particular financial year, you must pay the withholdting tax on the expense before the due date of your tax return (i.e. within 7 months of the close of your accounting period).

Tax Deductibility of Entertainment Expenses

The steps in determining the allowable entertainment expense set out in Public Ruling No 3/2008 are:

(1) Determine whether the expense falls within the definition of entertainment as provided under s 18 ITA 1967. If not, no deduction is allowed.

(2) If the expense amount falls within the definition determined in step (1), the taxpayer has to determine whether the expense is wholly and exclusively incurred in the production of gross income under s 33(1) ITA 1967. If not, the expense is not allowed as a deduction.

(3) If the expense is allowable under s 33(1), determine whether that expense falls under any categories of entertainment expense specified under proviso (i) to (viii) of s 39(1)(l) ITA 1967. If yes, a deduction of 100% against gross income is allowed. Entertainment expense which does not fall within the stated proviso is allowed a 50% tax deduction.

Compliance requirements:

To ensure that we apply the correct treatment in your tax computation, we highly recommend that you provide information on all your entertainment expenses in the form of the following table: