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Taxation

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All income of companies and individuals accrued in Malaysia are liable to tax. The direct taxes include income tax (personal and company), stamp duty and real property gains tax (RPGT). The indirect taxes include import and export duties. Service and sales tax are to be replaced by GST (Goods & Services Tax) by 1st April 2015.

Sources of incomes that are liable to tax:

 


Direct Tax:

Income Tax (Corporate/Personal)

Personal Tax

Personal Tax also called"direct tax" is a tax imposed on the personal income of a person from his trade, his profession or even from dividends paid on shares held by him. This is payable on the income remaining after deduction of permitted expenses. As every person is liable to pay tax it is important to keep in touch with the Income Tax Act 1967 and Regulations. This Act is often subject to changes at Budget sessions of Parliament.

Chargeable income derived after adjusting for expenses incurred wholly and exclusively in the production of the income. The rate of tax depends on the residential status of the individual which is to be determined by the duration of his stay in the country (as stipulated under Section 7 in the Income Tax Act 1967). An individual is regarded an a resident if is his stays in Malaysia is at least 182 days of calendar year, or he is in Malaysia for a period of less than 182 days but that period is linked to another period of physical presence of at least 182 consecutive days in an adjoining year.

A resident individual is taxed on his chargeable income at graduated rates from 0% to 26% after the deduction of tax relief. However, an individual with chargeable income of less than RM2,500 is taxed at 0%. The chargeable income of an individual resident is derived by deducting from his or her total income of the personal relief. Tax liability of a resident individual is reduced by rebates. Income tax matters in Malaysia are under the jurisdiction of Inland Revenue Board of Malaysia.

(A). Resident Individuals
Resident individuals are subject to income tax which is calculated at scale rates ranging from 0% to 26%. It is proposed that the tax rates be reduced to 1% for chargeable income bands from RM2,501 to RM50,000 with effect from the year of assessment 2013. The comparison of the existing and proposed tax rates is as follows:-

Chargeable Income
(RM)
Existing Rates
(%)
Proposed Rates
(%)
Cumulative Savings
(RM)*
1 – 2,500 0 0 0
2,501 – 5,000 1 0 0
5,001 – 20,000 3 2 75
20,001 – 35,000 7 6 325
35,001 – 50,000 12 11 475
50,001 – 70,000 19 19 475
70,001 – 100,000 24 24 475
Above 100,000 26 26 475

* after tax rebate of RM400 for chargeable income up to RM35,000

Chargeable Income (RM) Calculation Tax Rate
(%)
Tax (RM)
0 – 2,500 On the first 2,500 0 0
2,501 – 5,000 Next 2,500 1 25

5,001 – 10,000

On the first 5,000 25
Next 5,000 3 150

10,001 – 20,000

On the first 10,000 175
Next 10,000 3 300

20,001 – 35,000

On the first 20,000 475
Next 15,000 7 1,050

35,001 – 50,000

On the first 35,000 1,800
Next 15,000 12 3,325

50,001 – 70,000

On the first 50,000 3,800
Next 20,000 19 7,125

70,000 – 100,000

On the first 70,000 7,200
Next 30,000 24 14,325

100,001 and above

On the first 100,000
Next 26

Preferential tax rate of 15% is given to knowledge workers in Iskandar Malaysia. Employment must however have commenced on or after 24 october 2009 but not later than 31 December 2015.

(B). Non-Resident Individuals
Non-resident under Malaysian tax law if you stay less than 182 days in Malaysia in a year, regardless of your citizenship or nationality.Non-resident individual is taxed at a different tax rate on income earned/received from Malaysia.

Types of Income Rate
(%)
Public Entertainer’s Professional Income 15
Interest 15
Royalty 10
Special Classes of Income:
  • rental of moveable property
  • technical or management services fees*
  • payment for services rendered in connection with use of property or
    installation or operation of any plant, machinery or
    other apparatus purchased from a non-resident person
10
10
10
Dividends (Single Tier) Exempt
Dividends (Franked) 26
Business & Employment Income 26
Other Incomes 10

(C). Corporate
This is the tax raised on a Company's profits. Like people, companies that are in operation, exist to earn profits. The Government is empowered under the Income Tax Act 1967 to collect tax from companies which are active.
A company, whether resident or not, is assessible on income accrued in or derived from Malaysia. Income derived from sources outside Malaysia and remitted by a resident company is exempted from tax, except in the case of the banking and insurance business, and sea and air transport undertakings. A company is considered a resident in Malaysia if the control and management of its affairs are exercised in Malaysia.

A company carrying on petroleum upstream operations is subject to a Petroleum Income Tax of 38%.

Aside from company tax payable on profits, a company also pays service tax and sales tax depending on the nature and the volume of its business. These forms of tax are actually collected by the company concerned from its customers and then pay over to the Government.

Income Tax Rates
Company with paid up capital of RM2.5 million and below at the beginning of the basis period on first RM500,000 chargeable income 20%
On subsequent chargeable income 25%
Company with paid up capital above RM2.5 million at the beginning of the basis period 25%

For further information, please visit http://www.hasil.gov.my/


Indirect Tax:

Import/Export Duties

Import duties are levied on goods that are subject to import duties and imported into the country at an ad valorem basis, although some items can be imposed at a specific basis. The ad valorem rates of import duties range from 0%-60%. Raw materials, components, machinery, pharmaceutical and essential foodstuffs are entitled for exemptions or else, imposed at a lower rates in line with the trade liberalisation.

Claim to pay duty at preferential rate can be made in respect of qualifying goods originating from country that has free trade agreement with Malaysia. E.g; Jalan-Malaysia Economic Partnership Agreement and the regional agreements under ASEAN-Republic of Korea FTA, and ASEAN-China FTA. In addition, in- and out-quota tariff rate is applicable to certain goods subject to tariff rate quota.

Excise Duty

It is regulated by Excise Act 1976 and levied on selected products manufactured in Malaysia, namely:-

  • beer, stout and other liquors (e.g. cider and perry, rice wine, meat, brandy, whisky, rum and tafia, gin)
  • cigarettes, tobacco and tobacco products
  • motor vehicles
  • playing cards
  • mahjong tiles
  • The rates of excise duties vary for each "excisable" product, for example:

  • RM0.22 per stick and 20% for cigarettes
  • 10 sen per litre and 15% for spirituous beverages with alcohol content exceeding 0.5% vol but not exceeding 1.14% vol
  • RM7.40 per litre and 15% for beer made from malt not exceeding 5.8% vol
  • RM4 per litre and 15%- RM30 per 100% vol per litre and 15% fore rice wine, mead, and wines (from fruit juices other than juice of fresh grapes, or, from vegetable juices)
  • 60% - 105% for motorcars (depending on the engine capacity)
  • Maximum period for deferred payment of excise duty is 4 years.

    For further information, please visit http://www.customs.gov.my

    Goods & Service Tax (GST)

    Goods and Service Tax (“GST”) has been recently introduced under the Budget 2014 at a fixed rate of 6%, is expected to take effect by 1st April 2015 to replace the present consumption tax comprising the sales tax and the service tax (SST). GST is a consumption tax based on the value-added concept which is imposed on goods and services at every production and distribution stage in the supply chain including imports of goods and services. This multiple tax levels feature of GST is the fundamental change from present single stage sales tax and service tax levied at only one stage of the supply chain

    GST operates on a negative concept as all goods and services are subject to GST unless specifically exempted. The sale, purchase and rental collected from residential properties are expected to be exempted from GST. The difference between GST and the present consumption tax is in terms of its scope of charge which is more comprehensive, inclusive of the manufacturing and distribution stages as well as providing a tax credit claim for GST paid on business inputs. When compared with the present consumption tax system, the sales tax is imposed only at the manufacturing stage that is at the time when the goods are manufactured or when the goods are imported. On the other hand, service tax is imposed on specific services at the time when the services are provided to the consumer.

    Goods And Services Tax Act 2014 (Act 762) And Its Subsidiary Legislation

    Goods And Services Tax Act 2014 (Act 762)
    An act to provide for the imposition and collection of goods and services tax and for matters connected therewith


    GST Regulations

    1.P.U. (A) 56 – Goods And Services Tax (Amendment) Regulations 2015
    2.P.U. (A) 188 – Goods And Services Tax (Advance Ruling) Regulations 2014
    3.P.U. (A) 189 – Goods And Services Tax (Review And Appeal) Regulations 2014
    4.P.U. (A) 190 – Goods And Services Tax Regulations 2014



    GST Orders

    1.P.U. (A) 57 – Goods And Services Tax (Exempt Supply) (Amendment) Order 2015
    2.P.U. (A) 58 – Goods And Services Tax (Zero-Rated Supply) (Amendment) Order 2015
    3.P.U. (A) 59 – Goods And Services Tax (Relief) (Amendment) Order 2015
    4.P.U. (B) 319 – Appointment Of Date Of Coming Into Operation
    5.P.U. (B) 320 – Appointment Of Effective Date For Imposition Of Goods & Services Tax
    6.P.U. (A) 183 – Goods And Services Tax (Amount Of Taxable Supply) Order 2014
    7.P.U. (A) 184 – Goods And Services Tax (Rate Of Tax) Order 2014
    8.P.U. (A) 185 – Goods And Services Tax (Application To Government) Order 2014
    9.P.U. (A) 186 – Goods And Services Tax (Tax Agent Application Fee) Order 2014
    10.P.U. (A) 187 – Goods And Services Tax (Imposition Of Tax For Supplies In Respect    Of Designated Areas) Order 2014
    11.P.U. (A) 271 – Goods And Services Tax (Exempt Supplies)
    12.P.U. (A) 272 – Goods And Services Tax (Zero Rated Supplies)
    13.P.U. (A) 272, Item 2, First Schedule – National Essential Medicines List (Revised As    At 19 March 2015)
    14.P.U. (A) 273 – Goods And Services Tax (Relief)
    15.Item 6, First Schedule, Goods And Services Tax (Relief) Order 2014 – Approved    Private Medical Equipment List (Revised As At 14 April 2015)

    Real Property Gains Tax (RPGT)

    This is a tax imposed on transactions in real property, that is, land, which includes flats and apartments. The tax is payable by the vendor of a property according to a scale, upon the profit made out of the sale. The seller is not required to pay this tax if he does not make a profit or has held the property for over 5 years. A seller may apply for exemption once during his life time.

    Capital gains are generally not subject to tax in Malaysia. Real Property Gains Tax (RPGT) is charged on gains arising from the disposal of real property situated in Malaysia or of interests, options or other rights in or over such land as well as the disposal of shares in real property companies. The tax rates for Malaysian citizens and permanent residents are as follows:

    REAL PROPERTY GAIN TAX FOR THE YEAR 2014

    Disposal Period Individual (Citizen/PR)
    Company
    Disposed within 3 years 30% 30%
    Disposed in the 4th year 20% 20%
    Disposed in the 5th year 15% 15%
    Disposed in the 6th and subsequent years 0% 0%

    Note:

    For non-citizen, disposal within 5 years is subject to a flat RPGT of 30%. Disposal after 5 years is at a 5%.

    The RPGT rates increase is applicable to disposal of property taking place on or after 1st January 2014.

    Allowable Loss
    Allowable loss is defined as loss incurred prior to disposal. Hence, tax relief shall be allowed in respect of the followings:-

  • Price of disposal < Price of acquisition
  • Price of disposal = Price of acquisition
  • Exemptions

    1.RPGT exemption on gains from the disposal of one residential property once in a lifetime to individuals who are citizens or permanent residents in Malaysia;

    2.RPGT exemption of up to RM10,000 or 10% of the net gains, (whichever is higher) from the disposal of real property by individuals; and

    3.RPGT exemption on gains arising from the disposal of real property between family members (e.g. husband and wife, parents and children, and grandparents and grandchildren).

    4.RPGT is charged only on net gains after deducting all related costs such as purchase price, renovation costs and incidental costs. Eg; legal fees

    5.Gift made to the Government, State Government, local authority or approved charity.

    Finance Bill (No.2) 2012: Changes to the RPGT Regime

    Application of Real Property Gains Tax Act 1976 to Limited Liability Partnerships (LLP)

    On enforcement of the new LLP Act 2012, a registered limited liability partnership will be included in the Real Property Gains Tax Act as a person chargeable to tax.

    Requirement to furnish returns for disposals exempt from RPGT
    Where a disposal of real property is not subject to tax or is exempt from the imposition of RPGT, a disposer must furnish a notification on a prescribed form to the Director General of Inland Revenue ("DGIR") and must serve the notification to the acquirer within 60 days from the date of the disposal.

    Reduction of Time Period For Assessments, Additional Assessments, Relief on Error/Mistake and Refund Applications
    Previously, the DGIR was empowered to make an assessment or additional assessment within 6 years after the end of the year of assessment unless there has been fraud, willful default or negligence on the part of the taxpayer. The time period for making an assessment has now been reduced to five (5) years.

    Consequently, the taxpayer's right to apply for a relief on any error or mistake made on a return or statement for any year of assessment has also been reduced from six (6) years to five (5) years.

    The time period for a person to apply for a refund of overpayments of tax has also been reduced from six (6) years to five (5) years after the end of the year of assessment to which a claim for a refund relates.

    The Finance Bill (No.2) 2012 provides that the reduction of time period for assessments, additional assessments, relief on error/mistake and refund applications will only be in effect from 1st January 2014.

    Directors'Liability
    A director of a company with a controlling interest of more than 50% will be jointly and severally liable for debt or tax that is due by a company.

    In respect of LLP, a compliance officer appointed amongst the partners of a LLP (or where no compliance officer is appointed), then any of its partners shall be jointly and severally assessable and chargeable to RPGT.

    NOTE :
    The Malaysia Property Gains Tax for foreigners takes into account of bills for legal fees, stamp duties, maintenance for the property as well as the commissions payable to the real estate agents which you would have paid when placing deposit for the property. It is therefore important to keep all bills paid for submission of the tax efficiency prior to the disposal process. RPGT does not apply to transferring property between parents and children, husband and wife , grandparents and grandchildren.

    Stamp Duty

    Updating soon....

    Legislation

    1. Income Tax 1967
    2. Inland Revenue Board of Malaysia Act 1995
    3. Real Property Gains Tax Act 1976
    4. Stamp Tax Act 1949
    5. Sales Tax Act 1972. (Repealed on 1st April 2015)
    6. Service Tax Act 1975. (Repealed on 1st April 2015)
    7. Excise Duty Act 1976
    8. Good & Service Tax Act 2014


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