Prior to the year of assessment 2009, Special Classes of SME refers to companies resident in Malaysia which has a paid-up capital in respect of ordinary shares of RM2.5mil and less at the beginning of the basis period for a year of assessment is given preferential tax treatment as spelt out in the relevant provisions of the Act.
From year of assessment 2009 onwards, the definition of the “Special Classes of SME” is amended to refer to resident companies that has a paid-up capital in respect of ordinary shares of RM2.5mil and less at the beginning of the basis period for a year of assessment but EXCLUDE companies if more than:
Related company means a company which has a paid up capital in respect of ordinary shares of more than RM2.5 million at the beginning of the basis period for a year of assessment. As such, currently resident SME companies with a paid up ordinary share capital not exceeding RM2.5 million which form part of a group where there is direct or indirect control of/by a related company is not eligible for preferential tax treatment or considered as “Special Classes of SME”.
For Special Classes of SME, the corporate tax rate with effect from year of assessment 2017 to 2018 is as follows:-
For resident company which does not fulfil the definition of being SME, i.e. with paid up capital above RM2.5 million at the beginning of the basis period, will be taxed at rate from 20% to 24% since year of assessment 2017.
For non-resident company, the tax rate will be 24%.
Every company shall submit its tax return within six (6) months from the close of the financial year end. However, commencing from the year of assessment 2002 onwards, the Inland Revenue Board (IRB) has granted an administrative concession for companies to file their tax returns within seven (7) months from the close of the financial year end. In addition, the Revenue has further extended the deadline of submission by one month extra (grace period) for e-filing purpose. For example, the year of assessment for a company with financial year end of 31st December 2017 will be YA 2017. Form C of such company must be submit before or on 31st July 2018 or 31st August 2018.
Under the self-assessment system, a notice of assessment is deemed served upon submission of the Form e-C to the IRB. Therefore, the Form e-C is final and cannot be amended. If an appeal is required, this must be lodged within 30 days from the date of the deemed notice of assessment, i.e. within 30 days of the submission of the Form e-C.
Penalty due to late submission of ITRF
Failure to furnish within the stipulated period will result in the imposition of penalty under subsection 112(3) of the Income Tax Act 1967 (ITA 1967) where a rate of 20% to 35% penalty will be imposed. The penalty would be charged based on the delay duration between 12 and 36 months.
Notice of Appeal
Paragraph 3.1.4 of Public Ruling No. 3/2001 (Appeal Against an Assessment) states that in the case of a deemed assessment, where a person, in the course of making a self-assessment, has compiled with a ruling with which he does not agree, the notice of appeal may be filed together with the return.
The IRB has clarified that if a taxpayer disagrees with a particular stand/opinion of the IRB, and/or has not compiled with any Public Ruling, the taxpayer should submit a letter to the IRB indicating the disagreement in relation to the interpretation and the rationale for such a disagreement, together with the tax return.
The IRB will then issue a Notice of Additional Assessment (relating to the issues in dispute) and the taxpayer will have a 30-day period to lodge a formal appeal.
In the event the taxpayer adopts a different tax position and no notice/letter is submitted indicating the difference, any subsequent tax audit will result in the issuance of a Notice of Additional Assessment and penalties may be imposed.
An individual who is resident in Malaysia is taxable on all income accruing in or derived from Malaysia and on income received from outside Malaysia. The scope of taxation of an individual depends on his resident status.
However, with effect from the year of assessment 2004, income received in Malaysia from outside Malaysia is exempted from tax. Hence, an individual, either or non-resident, is taxable only on income accruing in or derived from Malaysia. Thus, every individual who is liable to tax is required to declare his income to IRBM. With effective from Year 2015, an individual with annual employment income of RM34,000 (after EPF deduction) has to register a tax file.
The taxpayer required to submit the Income Tax Return Form (ITRF) that has been duly completed before 30th April (without business income) or before 30th June (with business income) of every year. A tax year for individual is based on calendar year, i.e. 31st December. For example, the year of assessment of an individual without business income for calendar year end on 31st December 2017 will be YA 2017. The individual need to submit ITRF before or on 30th April 2018 to avoid penalty arises due to late submission.
Residency of an individual
Under Section 7(1), an individual is considered as resident if:-
As per Section 7(1A), an individual shall be deemed to be in Malaysia for a day if he is present in Malaysia for part of that day and in ascertaining the period for which he is in Malaysia during any year, any day (within paragraphs 1(a) and (c)) for which he is in Malaysia shall be taken into account whether or not that day forms part of a continuous period of days during which he is in Malaysia. For example, an individual leave Malaysia at 2.30am (1.1.2018), he shall be deemed as being presented in Malaysia on 1.1.2018.
However, notwithstanding subsection (1), Section 7(1B) stated where a person who is a citizen and
He is deemed to be a resident for the basis year for that particular year of assessment and for any subsequent basis years when he is not in Malaysia.
To be noted that nationality of an individual does not affect the residency. This mean a person who is Malaysian may be non-resident if he does not fulfil the Section 7(1).
It is important to determine the residency of taxpayer as benefits are given by IRBM to resident individual. For example,
|No||Individual Relief Types||w.e.f. YA2017 & 2018
|1||Self and dependent||9,000|
|2||Medical expenses for parents||5,000 (max)|
|3||Medical expenses for taxpayer, spouse and children (include RM500 for medical examination)||6,000|
|5||Wife/ Husband/ Alimony payments||4,000|
|7||Education fees (self)||7,000 (max)|
|8||Net saving in SSPN’s scheme||6,000 (max)|
|9||Child care fees to child care centre or kindergarden||1,000|
|10||Life insurance and EPF||6,000 (max)|
|11||Deferred Annuity and Private Retirement Scheme (PRS)||3,000 (max)|
|12||Contribution to Social Security Organization (SOCSO)||250 (max)|
|14||Purchase of breastfeeding equipment||1,000 (max)|
|15||Interest expanded to finance purchase of residential property. Relief of up to RM10,000 a year for 3 consecutive years from the 1st year the interest is paid.||10,000 (max)|
|No||Tax rebate||Year of Assessment
2001 – 2008
|Year of Assessment
|3||Assessment where Husband or Wife does not has any Total Income|
|4||Zakat / Fitrah||Subject to the maximum of tax charged|
|5||Fees / Levy on foreign worker (deleted from year of assessment 2011)||Subject to the maximum of tax charged|
However, there is also allowable deduction from Aggregate Income on donations & gifts given for both resident and non-resident individual as follows:
|1||Gift of money to the Government, State Government or Local Authorities.||Subsection 44(6)|
|2||Gift of money to Approved Institutions or Organisations.
(Amount is limited to 7% of aggregate income)
|3||Gift of money or cost of contribution in kind for any Approved Sports Activity or Sports Body.
(Amount is limited to 7% of aggregate income)
|4||Gift of money or cost of contribution in kind for any Approved Project of National Interest Approved by Ministry of Finance.
(Amount is limited to 7% of aggregate income)
|5||Gift of artifacts, manuscripts or paintings.||Subsection 44(6A)|
|6||Gift of money for provision of Library Facilities or to Libraries.||Subsection 44(8)|
|7||Gift of money or contribution in kind for the provision of facilities in Public Places for the benefit of disabled persons.||Subsection 44(9)|
|8||Gift of money or medical equipment to any healthcare facility approved by the Ministry of Health.||Subsection 44(10)|
|9||Gift of paintings to the National Art Gallery or any State Art Gallery.||Subsection 44(11)|
Tax rates charged for both resident and non-resident individual are as follow:-
What is the difference between winding up and striking off of company?
According to Suruhanjaya Syarikat Malaysia (SSM), the main difference between the processes is as follow:
“For winding up, a liquidator is appointed to be in charge of the winding up process and manage affairs of that wound up company. The liquidator takes full control of the company and is responsible to collect and realize all assets of the company, settle all the creditors’ claims and distribute the surplus asset (if any) to the company’s shareholders according to their entitlements. On the other hand, the striking off process entitles the Registrar to exercise his power under Section 549 CA 2016 (Section 308 CA 1965).”
For both situations, an application for closing of tax files, i.e. number C and number E, must be made to Inland Revenue Board of Malaysia (IRBM) to avoid any penalties or charges which might arise in the future. As such, SPC (Surat Penyelesaian Cukai) to prove that the company has no outstanding amount payable must be applied and obtained from IRBM. SPC will only be issued after the receipt of a complete application and full settlement of tax liability, including employees’ monthly deduction.
Upon applying for SPC, followings are the documents needed to be submitted to IRBM together with the application letter:
Upon receiving of SPC, followings are needed for the closure of number C and number E, if any, of company:
Upon applying for winding up purpose, followings are the documents needed to be submitted to IRBM:
Under self-assessment system, every company is required to determine and submit in a prescribed form (Form e-CP204) an estimate of its tax payable for a year of assessment, 30 days before the beginning of the basis period [S 107C(2)].
Pursuant to Section 107C(3) of the Income Tax Act 1967 (ITA), the estimated tax payable of following year of assessment shall not be less than 85% of the revised estimate of tax payable for the preceding year of assessment or if no revised estimate is furnished, 85% of the estimate of tax payable for the preceding year of assessment.
For newly commence non-SME, the companies are required to submit the CP204 within 3 months from the date of commencement. ing years:
However, there is exceptional for newly commence SME. An exemption is given where the SME is not required to furnish the CP204 for follow
For example, a SME with financial year end of 31st December 2018 commences its business on 7th February 2018, the exemption to furnish such estimation of tax payable will be YA 2018, YA 2019 and YA 2020.
Pursuing to Section 107C(7) of the Income Tax Act, 1967, a company is given chances to revise the estimated tax payable in the 6th or/and 9th month of basis period using CP204A form.
Also, the Inland Revenue Board of Malaysia (IRBM) informed that under the provision of subsection 107C (1A) of the Income Tax Act 1967 (ITA 1967), it is mandatory for companies to furnish Form CP204 (Estimate of Tax Payable) and CP204A (Revised Estimate of Tax Payable) via e-Filing with effect from the Year of Assessment 2018.
Where the tax payable under an assessment exceeds the estimate or revised estimate of tax payable as the case may be, by an amount greater than 30% of the tax payable under an assessment, a penalty of 10% is payable on the excess over 30% of the tax payable under the assessment. The IRB has informed that the said penalty should be paid on or before the due date for filing of the company’s tax return Form C, i.e. on or before 7 months after the company financial year end.
Where a company fails to furnish an estimate or provides an estimate lower than 85% of the estimate or revised estimate of tax payable for the following year of assessment, the company will be liable to prosecution, upon conviction to a fine ranging from RM200 to RM2,000 or to an imprisonment for a term of 6 months or both. With effect from YA 2011, where no prosecution is instituted by the Director General and no direction is issued by the Director General under S 107C(8) of the ITA 1967, but there is a tax payable by that company for that year of assessment for which that amount of tax payable will be subject to a penalty of 10%. In addition, the Director General (DG) is empowered to direct payment on account of tax which is or may be payable by instalments.
When there is a change in accounting period, the company has to notify IRBM on the changes using the Form CP204B.
In the case where such change is notified in the sixth or ninth month of the basis period for that year of assessment, Form CP204A should be furnished together with the notification (Form CP204B).
Where the accounting period is shortened, the revised tax estimate made must not be lower than the original instalment and the notification must be made before the end of the basis period. If otherwise, the revised estimate will be rejected and the original instalment will be continue until the date of notification of the change in accounting period is received by Director General of Inland Revenue (DGIR).
Where the accounting period is extended, the monthly instalment shall not be lesser than the monthly instalment for the original accounting period.
For new companies, instalment payments must commence in the 6th month of the basis period for the year of assessment, i.e. payable in the 6th month after the company commences operations.
For existing companies, the estimated tax payable must be paid in equal monthly instalment from the second month of the basis period but before 15th of each following month.
A penalty of 10% will be imposed if the balance tax payable is not paid by the due date. An additional penalty of 5% will be imposed on the tax and penalty outstanding if the tax payable and penalty remained unpaid within 60 days from the due date.
However, an application to appeal can be submitted to Inland Revenue Board of Malaysia (IRBM) if the company does not agree with the late payment penalty imposed. This appeal must be made in writing within 30 days from the statement of account. Yet the tax liability need to be paid before any appeal to be made.
CP500 Notis Bayaran Ansuran is also known as Prepayment of Income Tax by Instalment which is issued under subsection 107B(1) of Income Tax Act.
CP500 instalment scheme arises when a taxpayer is having income other than employment such as business, rental and royalties. The taxpayer is required to make a 6 bi-monthly instalment payments, commencing from March. The instalment date will be prescribed in the notice of instalment and the amount to be paid is estimated by IRBM.
If the taxpayer does not satisfy with the amount estimated by IRBM, an application to amend the instalment can be made by filing Form CP502. However, such application must be made before 30th June for relevant year.
Penalty of 10% of the outstanding amount will be charged upon the failure of making payment within 30 days from the due date, i.e. for March instalment, payment must be made before or on 30th March.
Difference between actual tax payable and instalments paid
A comparison between actual tax payable and instalments paid must be made. If there is shortfall (i.e. actual tax payable more than instalment paid), the shortfall must be paid when submitting the Income Tax Return Form (ITRF) in the following year of assessment. If there is overpayment (i.e. instalment paid more than actual tax payable), the overpaid amount will then be returned to taxpayer by claiming tax refund from IRBM.
The tax refund voucher for non-companies must be banked-in within 3 months from the date of cheque. Upon expiry of refund voucher, an application to IRBM to cancel the expired voucher and to request for new voucher or direct bank-in need to be made.
Late payment of instalments
Upon late payment or no payment is made after the due date for both the instalment of company or individual, letter notifying the late payment will be issued by IRBM:
Since 1st April 2015, Malaysia implemented Goods and Services Tax (GST).
What is GST?
According to Royal Malaysian Custom Department (RMCD): “GST which is also known as VAT or the value added tax in many countries is a multi-stage consumption tax on goods and services. The basic fundamental of GST is its self-policing features which allow the businesses to claim their Input tax credit by way of automatic deduction in their accounting system.”
A person who carries on a business of making taxable supplies with annual taxable supply of more than RM 500,000 for a period of 12 months is compulsorily to be registered under GSTA.
However, a person carrying on a business of making taxable supplies can apply for voluntary registration even though he didn’t reached the prescribed threshold, i.e. RM 500,000. A person who voluntarily registers for GST is eligible to credit the GST paid or to be paid on his purchases as input tax credit and charges GST on his supplies as output tax.
We, as the licensed tax agent, will help you in the registration of GST. By providing the necessary information as requested by us, we will solve your GST registration process. You only have to wait for the GST identification and password registered.
Change of GST taxable period
GST must be submitted to GST office not later than the stipulated time, i.e. last day of the following month after the end of the taxable period.
Taxable period can either in quarterly (3 months once) or monthly basis. In some special cases, the taxable period may be six months.
|Quarterly basis||All taxable turnover not exceeding RM5 million.|
|Monthly basis||Annual taxable turnover exceeding RM5 million.|
|Six months||Special cases.|
However, in order to change the taxable period due to the achievement of prescribed taxable turnover threshold, application for the change of taxable period is needed.
We do provide services in helping registrant for updating the latest information as well as the taxable period of GST. We will then follow up on the status of the amendment applied to RMCD.
What is e-Filing?
e-Filing application is a system which allows taxpayer to fill and send the Income Tax Return Form (ITRF) and estimation form online.
Followings are forms which can be done electronically through internet:
|Types of form||e-Form||Purpose|
|Form B / BT||e-B / e-BT||Receive income form business / knowledge / expert worker|
|Form BE||e-BE||Without business|
|Form P||e-P||Partnership tax return form|
|Form M / MT||e-M / e-MT||Return form for non-resident individual / knowledge worker|
|Form E||e-E||Employer tax return form|
|Form C||e-C||Company tax return form|
|Form C1||e-C1||Cooperative society tax return form|
|Form R||e-R||Statement of revised 108 balance|
|Form CP204||e-CP204||Company / Co-operative/ Trust Body tax estimation form|
|Form CP204A||e-CP204A||Company / Co-operative/ Trust Body tax estimation form for 6 th or 9 th amendment|
|Form TF||e-TF||Return form of association|
|e-Application for amended BE||e-Application for amended BE is an application to amend error or mistake for a return form that has been submitted through e-Filing or m-Filing before the due date|
|Acknowledgement Receipt||Review acknowledgement receipt of the form that was sent via e-Filing. User can save or print the acknowledgement receipt.|
In order to apply for e-filing pin number, followings need to be present during the application at any IRBM branch:
Under self-assessment system, tax audit is a primary activity of the Inland Revenue Board of Malaysia (IRBM). It is aimed at enhancing voluntary compliance with the tax laws and regulations. A taxpayer can be selected for an audit at any time. However, it does not necessarily mean that a taxpayer who is selected for an audit has committed an offence.
A tax audit is an examination of a taxpayer’s business records and financial affairs to ascertain that the right amount of income should be declared and the right amount of tax should be calculated and paid are in accordance with tax laws and regulations.
Letter from IRBM
IRBM might request documents of a company or an individual for the purpose of tax audit by sending letter:
Under S 83(1) & 83(1A), every employer must furnish the return (Form E) of its employees’ employment income for the year of assessment must not later than 31st March of the following year of assessment. In addition, the employer must also prepare and deliver to his employee the statement of remuneration (Form EA) on or before the last day of 28th February of the following year of assessment.
However, a grace period of 30days for Form E submission via e-filing is given by IRBM. Thus, the due date for submission of Form e-E will be on 30 April.
The IRBM has announced that all employers which are companies (including Labuan companies) are mandatory to submit Return Form of an Employer (Form E) via e-Filing for the Year of Remuneration and onwards in accordance with subsection 83(1B) of the Income Tax Act (ITA) 1967. LHDNM no longer send out Form E to the employer. Employers which are companies are compulsorily required to furnish Form E via e-Filing (Form e-E) with effect from the Year of Remuneration 2016. The e-filing program for respective year of assessment will be started on 1st March of the following year of assessment. Any Form E submitted manually will be deemed not received under subsection 83(1B) of the ITA.
Under S 120(1)(b) of the ITA 1967, any person who, without reasonable excuse fails to submit the return by employer as well as prepare and deliver the statement of remuneration shall be guilty of an offence and upon conviction, be liable to a fine ranging from RM200 to RM2,000 or to imprisonment for a term not exceeding six months or both.
Employers are required to complete Form CP8D on all their respective employees for the year of assessment. Employers who have submitted information via e-Data Praisi need not complete and furnish Form CP8D.
Please be reminded that employers are still required to complete and submit the Form E within the stipulated deadline even though the companies are dormant/have no employee. As a concession, compound on companies which are dormant or under liquidation and have yet to resolved will be withdrawn provided that the employers furnish to the IRB a written confirmation signed by the director/sole- proprietor or relevant supporting documents that the companies are dormant or under liquidation.
Please note that employers should notify the IRB if their companies are no longer active or under liquidation so that the IRB could update their records.
What is withholding tax?
Withholding tax is an amount withheld by the 3 rd party making payment (payer) on income earned by non-resident (payee) and paid to the Inland Revenue Board of Malaysia (IRBM).
The Income Tax Act, 1967 provides that where a person (referred herein as "payer") is liable to make payment as listed below (other than income of non-resident public entertainers) to a non-resident person (NR payee), he shall deduct withholding tax at the prescribed rate from such payment and (whether such tax has been deducted or not) pay that tax to the Director General of Inland Revenue within one month after such payment has been paid or credited to the NR payee.
|Payment Type||Income Tax Act 1967||Withholding Tax Rate||Payment Form|
|Contract Payment||Section 107A(1)(A)||10%||CP 37A|
|Interest||Section 109||15%||CP 37|
|Royalty||Section 109||15%||CP 37|
|Special classes of income||Section 109B||CP 37D|
|Interest (except exempt interest) paid by approved financial institutions||Section 109C||5%||CP 37C|
|Income of non-resident public entertainers||Section 109A||15%||Payment memo issued by Assesment Branch|
|Real Estate Investment Trust (REIT)||Section 109D||CP 37E|
|Effective from 01.01.2007|
|Family Fund/ Takaful Family Fund/ Dana Am||Section 109E||CP 37E(T)|
|Income under section 4(f) ITA 1967||Section 109F||10%||CP 37F|
Among the above stated types of withholding taxes, the most common withholding taxes incurred among companies are:-
According to IRBM, royalty is defined as “any sums paid as consideration for the use of or the right to use:
The gross amount of royalty paid to a NR payee is subject to withholding tax at 10% (or any other rate as prescribed under the Double Taxation Agreement between Malaysia and the country where the NR payee is tax resident). This is a final tax.
According to IRBM, “special classes of income include:
Provided that in respect of paragraph (a) and (b), this section shall apply to the amount attributable to services which are performed in Malaysia.”
As defined, only technical services are imposed with withholding tax. Thus, any material/ purchase imported or exported is not subject to withholding tax.
The gross amount of "Special Classes of Income" paid for the above services rendered by a NR payee is subject to withholding tax at 10% (or any other rate as prescribed in the Double Taxation Agreement between Malaysia and the country in which the NR payee is tax resident). This is a final tax.
However, since 17 th January 2017, withholding tax for technical services is no longer limited to services performed in Malaysia. Thus, income derived by a non-resident under Section 4A (i) and (ii) of the ITA 1967 deemed derived from Malaysia irrespective whether the services were performed in Malaysia or outside Malaysia.
Remittance of withholding tax
The payer must, within one month after the date of payment / crediting of the payment to the NR payee, remit the withholding tax (whether deducted or not) to the Inland Revenue Board Malaysia. Failure to pay withholding tax within the stipulated period will be imposed an increase in tax of a sum equal to 10% of the amount he fails to pay.
Besides, there will be no deduction given for the payment made to NR payee against the business income incurred by him.
Double Taxation Agreement (DTA)
DTA is an agreement or a contract regarding double taxation or, more correctly, the avoidance of double taxation. It is an agreement signed by 2 countries to avoid or alleviate territorial double taxation of the same income by the 2 countries.
Below are some of the examples of DTA for royalties and technical fees:
|Country||Withholding tax rate (%)|
|France||10 or N/A||10|
Does withholding tax impose on Facebook and Google advertising?
What made most taxpayer confused is whether Facebook and Google advertising is chargeable with withholding tax. After some debates and confusions, it is then been concluded by IRBM that Facebook and Google advertisement fall under the scope of royalty and is subject to section 109 of the ITA 1967. This is because, Facebook and Google advertising is more like the usage of self-service software. The user does not need to manually serve and it’s all done by the software, hence, it should be classified under royalty instead of services.
Instead of the standard 10% withholding tax for royalty, DTA does applied for this. Facebook is billing from Ireland whereas Google is billing from Singapore. Thus, only 8% withholding tax is imposed for both Facebook and Google advertisement:
Does withholding tax imposed for online payment made to NR payee?
Yes. Any withholding tax incurred by taxpayer must be remit to IRBM within the stipulated period even though payment is made through online banking.