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(Sec Update) Rewarding Long-Serving Employees: A Tax-Efficient Strategy for SME Owners

Sitting in a cozy kopi shop with a close friend, our usual teh tarik session quickly turned into a thoughtful conversation. “How do I reward a long-serving employee when my private limited company makes a profit from holding investment properties, without adding more tax burdens?” he asked, sounding a bit anxious.

I leaned back, smiling. “There are ways,” I said, “but let’s talk about a few tax-exempt employee benefits that could work in your favor. After all, why should you get taxed twice when the gain from the investment is already taxed at the company level, right?”

Tax-Free Benefits: Keep the Gains, Share the Reward

First things first, I explained to my friend that there are tax-friendly ways to reward loyal employees without further increasing the company’s tax liabilities. Simple things like housing loans, leave passage … can be provided tax-free, or with minimal tax implications, to the employee.

One of the most direct approaches? I suggested offering shares of the company. By issuing shares of your Sdn Bhd, the employee becomes a shareholder, giving them (don’t give them FREE) a vested interest in the company’s long-term growth.

It’s more than just a bonus—it’s a slice of the company pie that ties their success to the company’s prosperity.

But if you’re looking for something more flexible, then I had another option that got his wheels turning.

Why Consider an LLP? A Flexible Approach for Employee Incentives

I brought up the idea of using a Limited Liability Partnership (LLP) for employee incentives. It’s not the most common approach, but in some cases, it can be a great alternative for businesses looking for flexibility.

''Why an LLP?'' he asked, intrigued.

“Well,” I started, “with an LLP, your employee gets protection from personal liability, just like with an Sdn Bhd, but with much more flexibility in how you manage profit-sharing.”

Here’s what I laid out for him:

Limited Liability: Employees who become partners in an LLP are shielded from personal liability, which can give them peace of mind.
Flexibility: You have more control over how profits are distributed, making it easier to customize rewards based on the employee’s contribution.
Simplified Compliance: Unlike an Sdn Bhd, LLPs don’t require annual audits unless necessary, which cuts down on paperwork and compliance costs.

The Right Fit for Your Business

As our conversation continued and the coffee cups emptied, he seemed intrigued by the simplicity and flexibility that both options could offer. “It all depends on your business setup,”

I said, “but whether you go with shares in an Sdn Bhd or explore the LLP route, the goal is the same: reward your employees in a way that benefits both them and the company, without overburdening anyone with extra taxes.”

In the end, the takeaway was clear. SME bosses like my friend often find themselves in this situation—balancing tax efficiency with employee motivation. But with the right approach, it’s possible to achieve both, creating a win-win for everyone involved.

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KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

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How to Incorporate a Private Limited Company in Malaysia

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(Sec) How to Incorporate a Private Limited Company in Malaysia: A Step-by-Step Guide for Investors

With over 50,000 private limited companies incorporated in Malaysia in 2023, the country remains a hot spot for new businesses. Whether you're a local or international investor, setting up a company in Malaysia is an attractive option.

To make the process smoother, here are six essential steps to help you get started on your entrepreneurial journey.

1. Company Name
Choosing your company name is the first step. The name must be unique, not identical to an existing company, and must meet the standards set by the Companies Commission of Malaysia (SSM). Your company secretary will handle the name submission to ensure it meets SSM's requirements and is available for registration.

2. Business Activity
When incorporating your business, you will need to select up to three categories from the MSIC (Malaysia Standard Industrial Classification) code. These categories define your business's nature and scope, and getting them right is key to starting off on the right foot.

3. Share Capital
While the minimum paid-up capital in Malaysia can be as low as RM1, it is recommended to have more than RM1,000 to facilitate the opening of a bank account. A higher capital not only reflects better financial standing but also helps in building credibility with banks and clients.

4. Registered Office Address
Every company must have a registered office address for receiving official correspondence. This is usually provided by your corporate secretary, ensuring all legal documents and notifications are properly handled.

5. Director and Shareholder Requirements
Your company needs at least one director and one shareholder, both of whom must be over 18 years old. If your company only has a foreign director, they must reside in Malaysia to meet local regulations.

6. Opening a Company Bank Account
Opening a traditional bank account can be challenging for newly incorporated companies without solid business documentation. Many opt for electronic banking solutions like Payoneer at the start, until they can provide sufficient business evidence, such as contracts and proof of revenue growth. Most banks will also require a valid business address as part of their compliance process.

By following these steps, you’re on your way to incorporating your private limited company in Malaysia. To learn more about how we can assist you with this process, visit our blog at KTP or THKs. We specialize in helping investors navigate company incorporation, and our team is ready to guide you through every step.

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Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

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#Thk

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公司成立后许可证常见问题

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公司成立后许可证常见问题 | THK (www.thks.com.my)

在马来西亚创业？别担心，THK 为您解答公司成立后关于许可证的常见问题。

无论您是刚刚成立公司，还是准备扩展业务，遵守法律法规是非常重要的。

我们将讨论以下关键问题：

我成立公司后，第一项必须完成的强制性注册是什么？
我们公司刚招聘了一名新员工。是否需要注册与员工相关的组织？
计划在实体办公室经营？要合法设立业务场所需要什么许可证？
想要开办制造业？需要申请哪种特定许可证？
如果从事贸易行业，您的业务需要什么许可证？
其他行业需要哪些注册？

保持信息更新，确保合法合规。有关适合您业务的许可证或注册的更多指导，请联系 THK (www.thks.com.my) – 您在柔佛州中小企业合规方面的可靠伙伴。

不要错过专家建议。订阅我们的频道，获取 THK 的最新动态！

点击观看我们的视频：https://youtu.be/-X5_lUPHwSE

(Tax Update) LHDN’s New E-PCB PLUS System

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(Tax Update) LHDN’s New E-PCB PLUS System

Dear Valued KTP Clients,

We hope this newsletter finds you well. We have some crucial updates from the Inland Revenue Board of Malaysia (LHDN) that we believe you should be aware of. LHDN has recently made an early announcement regarding the transition to the new E-PCB PLUS system via the MyTax platform.

This transition is expected to bring significant changes to the way employers handle monthly tax deductions (PCB) for their employees. As your trusted partner in navigating the complex world of taxation, we want to ensure you are fully prepared for these upcoming changes.

Context

The Inland Revenue Board of Malaysia (LHDN) has taken a proactive step by announcing an early transition to the E-PCB PLUS system, a move aimed at modernizing and streamlining the payroll tax deduction process for employers.

This transition is set to enhance the efficiency and accuracy of calculating and remitting monthly tax deductions (PCB) through the MyTax platform. Here’s what you need to know about this important development and how it might impact your business operations.

1. What is the E-PCB PLUS System?

The E-PCB PLUS system is an upgraded electronic platform introduced by LHDN to simplify the monthly tax deduction process for employers. Unlike the current system, the E-PCB PLUS system integrates directly with the MyTax platform, offering a more comprehensive and user-friendly experience.

This new system will not only streamline the calculation of PCB but also improve the accuracy of data submission, reducing the likelihood of errors and ensuring compliance with tax regulations.

2. Why is LHDN Making This Transition?

The transition to the E-PCB PLUS system reflects LHDN’s commitment to embracing digital transformation and enhancing its services for taxpayers. By adopting this new system, LHDN aims to provide a more efficient, transparent, and reliable tax filing experience for employers.

The E-PCB PLUS system is designed to reduce administrative burdens, minimize errors in PCB calculations, and facilitate easier access to tax records through the MyTax portal.

3. Key Features and Benefits for Employers

Employers will benefit from several new features with the E-PCB PLUS system. These include automated updates on the latest tax rates, a streamlined interface for submitting employee tax data, and enhanced security measures to protect sensitive information.

The system’s integration with the MyTax platform allows employers to manage all their tax-related activities in one place, from filing tax returns to monitoring payment statuses.

This centralized approach will save time and reduce the hassle associated with managing multiple tax filings.

4. Preparing for the Transition: What Should You Do?

To ensure a smooth transition to the E-PCB PLUS system, we recommend that all employers familiarize themselves with the new system requirements and functionalities. LHDN is expected to provide detailed guidelines and training sessions in the coming months to help employers adapt to the new platform.

We also encourage you to review your current payroll processes and systems to ensure compatibility with the E-PCB PLUS system.

5. How Can KTP Help?

As always, KTP is here to support you through this transition. Our team of experts is ready to assist you in understanding the new system and its implications for your business.

We can provide personalized guidance on how to integrate the E-PCB PLUS system into your existing payroll processes, ensuring a seamless shift and continued compliance with LHDN requirements.

Conclusion

The introduction of the E-PCB PLUS system marks a significant step towards a more efficient and modern tax administration in Malaysia. As we move closer to the implementation date, we encourage all our clients to stay informed and proactive in preparing for these changes.

Should you have any questions or need further assistance, please do not hesitate to reach out to our team.

We look forward to helping you navigate these changes smoothly.

Warm regards,

KTP Team

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KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

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#Thk

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Can intercompany loans be interest free?

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(Tax Update) Interest-Free Loans – Are You at Risk?

Dear Valued Clients,

Are you providing interest-free loans between your companies? If so, it's time to take a closer look! The Malaysian Inland Revenue Board (IRB) has ramped up its scrutiny on these transactions, and they’re not playing around.

What’s Happening?

The IRB is closely examining interest-free loans between related parties, including those from directors to their companies. Even if no interest is charged, the IRB considers these loans as generating ''deemed interest income,'' which is taxable.

This could result in an unexpected tax bill, plus a 5% surcharge tax penalty for what the IRB views as unpaid interest.

Why Now?

Although the rules have been in place for years, the IRB is now strictly enforcing them. Under Section 140B of the Income Tax Act 1967 and Public Ruling No. 8/2015 Loan or Advances to Director by a Company, the IRB has the power to retroactively tax interest income on these loans, with a look-back period of up to seven years.

This means you could be liable for back taxes on past transactions.

Legal and Compliance Risks

If you haven't been reporting these loans or justifying their interest-free nature, you could face penalties. The IRB argues that interest-free loans violate the arm's length principle—meaning they're not conducted on terms that independent parties would agree to.

There is also no guarantee that a company making a payment under such a loan will receive a corresponding tax deduction. Deductions are only allowed if the payment meets the 'wholly and exclusively for the production of income' rule.

But it doesn't stop at loans.

The IRB’s scrutiny also covers other financial arrangements such as cash advances, payments on behalf of related parties, long-outstanding trade debts, financial support, and guarantee fees. It’s essential to determine whether these are genuine loans or could be seen as equity instruments.

IRB’s Active Enforcement

The IRB is actively enforcing these rules, sending letters to taxpayers requesting explanations for their interest-free loan arrangements.

If the IRB isn't satisfied with your explanations or documentation, you could face hefty fines and back taxes.

What Should You Do? Best Practices to Follow

To protect your business from these risks, it’s crucial to:

Keep Proper Documentation

Always have loan agreements in place and maintain clear records justifying any interest-free loans.
Review Your Financial Arrangements

Conduct a thorough review of all transactions to ensure they are properly classified and reported.
Seek Professional Guidance

Engage with tax professionals to help navigate these complex rules and ensure your compliance with all tax regulations.

Transfer Pricing and Tax Evasion

Remember, transfer pricing—pricing transactions between related entities to minimize taxes—is a primary method of tax avoidance that the IRB is targeting. Make sure your transactions are compliant with Malaysian laws to avoid being flagged for tax evasion.

Conclusion

With the IRB’s increased scrutiny, it’s more important than ever to ensure your financial practices are in line with current tax laws. Don’t wait until it’s too late—take action now to review your interest-free loans and related transactions to avoid any surprises.

Stay informed, stay compliant, and reach out to us at KTP if you need any assistance navigating these changes.

Thank you for reading our weekly newsletter!

Best regards,

KTP Team

Credit : 'Interest-Free Loans Blitz Is Now Haunting Taxpayers,' as reported by Thannees.com.''

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KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

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Facebook http://bit.ly/3rPxz9o

#Thk

#KTP

(Tax Update) MIDA Reinvestment Incentive Eligibility

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(Tax Update) MIDA Reinvestment Incentive Eligibility

Dear KTP Clients,

As a licensed tax agent with years of experience, I’ve seen how the right tax incentives can make a significant difference for businesses in Malaysia.

Recently, a client of ours, the boss of a well-established manufacturing company producing automotive spare parts, approached me with a question that I believe many of you in similar industries might be asking: “Am I eligible for the new reinvestment incentive under the New Industrial Master Plan 2030 (NIMP 2030)?”

Let’s walk through the scenario.

This particular company has been in operation for over 10 years, a solid track record in the industry. Previously, they claimed Pioneer Status, a tax incentive that many companies in the manufacturing sector have benefited from.

Now, as they consider expanding their operations to meet increasing demand, the question of eligibility for the new reinvestment incentive arises.

The Incentive: What’s on the Table?

Under the NIMP 2030, the government has introduced a tiered Investment Tax Allowance (ITA) aimed at encouraging businesses to reinvest in high-growth, high-value activities.

The incentive is split into two tiers:

✅ Tier 1: Offers an ITA of 100% of qualifying capital expenditure (QCE), which can be set off against 100% of statutory income (SI).

✅ Tier 2: Provides an ITA of 60% of QCE, set off against 70% of SI.

Both tiers come with a 5-year incentive period, a substantial benefit for companies looking to expand or diversify their operations.

Are You Eligible?

Here’s where it gets interesting. To qualify for this incentive, your company must meet several criteria:

✅ Operational History

Your company must be a resident manufacturing company incorporated under the Companies Act 2016 and must have been in operation for at least 36 months. Given that your company has been running for over 10 years, this criterion is clearly met.

✅ Previous Incentives

If your company has previously claimed a tax incentive, such as Pioneer Status under the Promotion of Investment Act 1986, the incentive period for that must have ended. With your Pioneer Status period now behind you, this opens the door to new opportunities like the NIMP 2030 incentive.

✅ Project Type

The incentive applies if your company is undertaking an expansion (increasing production capacity or market share) or diversification (introducing new products) project within the manufacturing sector.

✅ Timing

This is crucial. The company must submit the incentive application to MIDA before the commencement of the proposed project. In this context, ‘commencement’ is specifically defined as the issuance of the first sales invoice related to the proposed project.

If you’re planning an expansion or diversification project, I strongly recommend that you prepare your application as soon as possible to ensure it is submitted to MIDA before you issue the first sales invoice for the project.

Past blog

15 August 2024 New Tax Incentive Under the Industrial Master Plan 2030

https://www.ktp.com.my/blog/reinvestment-incentive-under-the-industrial-master-plan/15aug2024

Note: The information provided in this newsletter is for general guidance only and should not be considered as professional advice. Always consult with a tax professional before making any business decisions.

PS : Authored by Mr Koh Teck Peng, the Group Principal, in his personal LinkedIn post https://bit.ly/3YT8GgA

What are allowable expenses in Hungry Ghost praying expenses?

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(Tax Update) Tax Deductible for Hungry Ghost Praying Expenses

In Malaysia, many businesses observe the Hungry Ghost Month by holding prayer sessions, which may include offerings and ceremonies.

Understanding the tax implications of these expenses is crucial, especially given the cultural significance of this period. Most taxpayer

Here’s a detailed explanation of how these expenses can be categorized and which are tax-deductible.

1. Tax Deductible Expenses (Section 33, Income Tax Act 1967)

Under Section 33(1) of the Income Tax Act 1967, expenses that are ''wholly and exclusively incurred in the production of income'' are deductible. For businesses, this includes expenses that are directly related to operations and maintaining employee morale or customer relations.

a) Staff Refreshments

Expenses for food, drinks, and other refreshments provided during the prayer sessions can be classified as staff refreshments. These expenses are generally deductible under Section 33(1) if they are part of the company’s customary practice to foster goodwill and maintain good working relationships with employees.

The deductibility is further supported by Public Ruling No. 1/2003 on ''Perquisites From Employment,'' which clarifies that reasonable staff welfare expenses, such as refreshments during events, are allowable.

b) Expenses for Staff Welfare

Related expenses, such as venue setup and basic offerings that are part of the staff’s well-being during the prayer ceremony, can also be considered deductible under the same section. These are seen as necessary for maintaining a harmonious workplace, thus directly contributing to the production of income.

2. Non-Deductible Expenses (Section 39, Income Tax Act 1967)

Under Section 39(1) of the Income Tax Act 1967, certain expenses are specifically disallowed as deductions, even if they are related to business activities.

a) Ceremonial Items

Expenses incurred for ceremonial items such as papercraft, incense papers, and other related materials used during prayers fall under this category. These items are considered non-business expenses, primarily personal or cultural, and therefore, do not qualify for a deduction under Section 39(1).

b) Excessive Expenditure

If the expenses for refreshments or other related items are deemed excessive or extravagant, they could also be disallowed under Section 39(1) as they may not be seen as wholly and exclusively for business purposes.

3. Other Relevant Sections and Public Rulings

Beyond Sections 33 and 39, Public Ruling No. 3/2013 on ''Entertainment Expenses'' provides additional insights. It clarifies that expenses on food and beverages for employees during work-related events are generally allowable, provided they are reasonable and not excessive.

Summary

In conclusion, when it comes to tax-deductible expenses during the Hungry Ghost Month:

Expenses for food, drinks, and related items provided during prayers can be tax-deductible under Section 33(1) and can be categorized as staff refreshments or staff welfare.
Expenses for papercraft, incense papers, and similar items are not deductible under Section 39(1).

Businesses should ensure that these expenses are reasonable, directly related to the production of income, and properly documented to support their tax filings. For further guidance, consulting with a licensed tax agent is advisable to ensure compliance with the Income Tax Act 1967 and related public rulings.

(Tax Update) Consolidated Self-Billed for Import of Goods or Services

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(Tax Update) Consolidated Self-Billed for Import of Goods or Services

According to the Inland Revenue Board of Malaysia (IRBM) letter dated 12 August 2024, addressed to the Chartered Tax Institute of Malaysia (CTIM), the following key issues were clarified regarding the implementation of consolidated self-billed e-invoices for the import of goods or services:

Timing During Relaxation Period

Even during the six-month interim relaxation period, taxpayers must issue consolidated self-billed e-invoices monthly, within seven days after the end of the month.

Importation of Goods

For goods cleared by customs in August 2024, self-billed e-invoices must be issued as follows:

Individual e-invoice: By 30 September 2024.
Consolidated e-invoice: By 7 October 2024.

Importation of Services:

For services either paid for or invoiced in August 2024:

Individual e-invoice: By 30 September 2024.
Consolidated e-invoice: By 7 October 2024.

Clarifications

No e-invoice is required if goods/services were paid for or invoiced before the mandatory implementation date.

Further Action

IRBM will provide more details in upcoming FAQs to clarify the e-invoice requirements.

This should provide a clear and concise understanding of the recent e-invoicing updates.

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KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

Instagram https://bit.ly/3u2PxHg
Facebook http://bit.ly/3rPxz9o

#Thk

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(Tax Update) Understanding the Manufacturing License in Malaysia: What You Need to Know

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(Tax Update) Understanding the Manufacturing License in Malaysia: What You Need to Know

If you're running a manufacturing business in Malaysia or planning to start one, understanding the manufacturing license is crucial.

This license isn't just a formality; it's a key requirement that can impact your business operations, particularly when dealing with local authorities.

In this blog, we'll break down what a manufacturing license is, how to apply for it, why it's important, and who MIDA is.

What is a Manufacturing License?

A manufacturing license is an official permit issued by the Malaysian Investment Development Authority (MIDA) that allows businesses to carry out manufacturing activities in Malaysia.

This license is mandatory under the Industrial Coordination Act 1975 for any manufacturing company with a share capital of RM2.5 million and above or employing 75 or more full-time workers.

How to Apply for a Manufacturing License?

Applying for a manufacturing license is a straightforward process but requires careful preparation. Here’s a step-by-step guide:

Prepare Your Documentation

Ensure all your company documents are in order, including your business plan, company profile, and relevant financial statements.

Submit an Online Application

Applications for the manufacturing license must be submitted through MIDA's online system, which includes filling out the necessary forms and uploading your documents.

MIDA Review

Once submitted, MIDA will review your application. This process may involve a site visit to verify your operations.

Approval and Issuance

If your application is successful, MIDA will issue the manufacturing license. This license should be renewed periodically as required.

Why is the Manufacturing License Important?

The manufacturing license is essential for several reasons:

Compliance with the Law

Operating without a license can lead to penalties, including fines or business shutdowns.

Local Council Requirements

It's rumored that local councils in Malaysia are increasingly requiring manufacturing licenses as part of the criteria for approving business and signboard licenses. Without it, your business may face difficulties in obtaining these necessary approvals.

Facilitating Investment

A valid manufacturing license can also make it easier to attract investors, as it demonstrates that your business complies with Malaysian regulations.

Who is MIDA?

The Malaysian Investment Development Authority (MIDA) is the principal government agency responsible for promoting the manufacturing and services sectors in Malaysia. MIDA assists companies in the application process for manufacturing licenses and provides support in navigating the regulatory environment. Established in 1967, MIDA has been pivotal in driving Malaysia's industrial development.

When Should You Apply?

You should apply for a manufacturing license as soon as you plan to engage in manufacturing activities that meet the criteria under the Industrial Coordination Act 1975.

Early application ensures you can legally operate your business and avoid delays in starting your operations.

Conclusion

Securing a manufacturing license is a critical step for any manufacturing business in Malaysia. Not only does it ensure compliance with local laws, but it also supports your business in obtaining necessary approvals from local councils.

If you're unsure where to start, KTP is here to guide you through the process. Contact us today to learn more about how we can assist you in securing your manufacturing license.

For more detailed information on manufacturing licenses, visit our website at www.ktp.com.my.

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Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

An internal community for our colleagues on work and leisure.

KTP Career

An external job community on vacancies in Johor Bahru for interns, graduates & experienced candidates.

Instagram https://bit.ly/3u2PxHg
Facebook http://bit.ly/3rPxz9o

#Thk

#KTP

(Tax Update) New Tax Incentive - Reinvestment Incentives

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(Tax Update) New Tax Incentive Under the Industrial Master Plan 2030

Dear KTP Clients,

We hope this newsletter finds you well. At KTP, we are committed to keeping you informed about the latest developments in tax regulations that could impact your business operations.

Today, we would like to bring to your attention a significant new tax incentive under the New Industrial Master Plan 2030 (NIMP 2030), which could benefit your company.

Introducing the Reinvestment Incentive

The Malaysian government, through the Malaysian Investment Development Authority (MIDA), has introduced a reinvestment incentive aimed at encouraging companies to continue investing in high-growth and high-value activities.

This incentive comes in the form of a tiered Investment Tax Allowance (ITA) and is particularly beneficial for companies that have exhausted their Reinvestment Allowance (RA) period.

Who Is Eligible?

To qualify for this incentive, your company must meet the following criteria:

Incorporated and Operating

Your company must be a resident manufacturing company incorporated under the Companies Act 2016 and must have been in operation for at least 36 months.

If your company has previously received tax incentives under the Promotion of Investment Act 1986 or the Income Tax Act 1967, those incentive periods must have ended.

If your company is currently claiming Reinvestment Allowance under the Income Tax Act 1967, you can choose to claim either RA or the new reinvestment incentive under the NIMP 2030 for a particular year of assessment. However, the 15-year RA incentive period will continue, even if you opt for the new incentive.

Expansion or Diversification

Your company must be involved in an expansion or diversification project within the manufacturing sector. This means either increasing production capacity or venturing into new product lines that require different sets of skills, knowledge, or machinery.

One Round Only

Your company is eligible for only one round of the reinvestment incentive under the NIMP 2030. If a related company has already been approved for this incentive, your company can only apply for a different product or activity.

Eligible Sectors:

Aerospace, Automotive, Chemical, Electrical & Electronics, Food Processing, Halal, Machinery & Equipment, Medical Devices, and more.

How Does the Incentive Work?

The reinvestment incentive is available in two tiers, depending on the nature and scope of your investment:

Tier 1

Offers an ITA of 100% on qualifying capital expenditure (QCE), which can be set off against 100% of your statutory income. This tier is available for five years.

Tier 2

Offers an ITA of 60% on QCE, which can be set off against 70% of your statutory income, also available for five years.

The tiering is based on an outcome-based approach, where Tier 1 requires companies to meet additional conditions, such as:

Creating high-value jobs with a basic monthly salary of MYR 10,000 for Malaysian employees.
Utilizing local suppliers and service providers.
Adopting green technologies or contributing to sustainable economic development.

Application Process

Applications for this incentive can be submitted to MIDA between 1 January 2024 and 31 December 2028. It is important to note that your application must be submitted before issuing the first sales invoice for the proposed project.

What Should You Do Next?

If your company is planning an expansion or diversification project, we highly recommend exploring this incentive to maximize your tax benefits. This could be an excellent opportunity to reduce your tax burden while contributing to Malaysia's industrial growth.

At KTP, we are here to help you navigate the application process and ensure you meet all the necessary conditions. Please do not hesitate to contact us if you need further information or assistance.

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Tax Update) Key Changes and Updates for Employers - New Employee and Resignee

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(Tax Update) Key Changes and Updates for Employers - New Employee and Resignee

Dear KTP Clients,

We hope this newsletter finds you well.

Here are the latest updates from the Inland Revenue Board of Malaysia (IRBM) concerning employer tax matters, effective from January 1, 2024:

1. Mandatory Use of e-Services for Selected Tax Matters

IRBM has mandated the use of e-services for certain tax matters via the MyTax Portal. This includes various employer-related tax transactions to streamline processes and ensure efficiency.

2. Application for Employee Tax Clearance Letter (SPC) via e-SPC

New Guidelines for SPC Applications

Updated guidelines for SPC applications by employers were published on April 1, 2024. Employers can access these guidelines on the IRBM Portal under https://www.hasil.gov.my/en/employers/ section.

Exemptions from SPC Applications

Employers are exempted from applying for SPC for employees whose remuneration is not taxable or who have already had their tax deducted via the Monthly Tax Deduction (MTD) scheme and received no additional compensation.

3. New CP22A/CP22B Submission Format

Starting September 1, 2024, submissions of CP22A/CP22B in batches through e-SPC must follow the new format specified by IRBM.

4. Amendments and Additional Applications for SPC

From August 1, 2024, employers can make amendments or add to SPC applications through e-SPC. Manual applications for amendments or additional SPCs will no longer be accepted starting September 1, 2024.

5. Mandatory e-CP22 for New Employee Notifications

Implementation Date

Submission of new employee notifications via e-CP22 will be mandatory from September 1, 2024.

Access Right

Authorized individuals and tax agents can access e-CP22 through the MyTax Portal starting from August 1, 2024.

Submission Methods

Notifications can be submitted either through a web form or by uploading a data file in .txt format. The data file format can be downloaded from the e-CP22 application.

Employee Departures Exceeding 3 Months

Notification Requirement

Employers must submit Form CP21 if an employee, chargeable to tax on their employment income, plans to leave Malaysia for more than 3 months.

Form CP21 must be submitted at least 30 days before the employee’s departure date.

Online Submission

Starting January 1, 2024, Form CP21 must be submitted online via the MyTax portal using the e-SPC application.

Frequent Travelers Exception

Employers do not need to submit Form CP21 if the employee frequently leaves Malaysia as part of their job and IRBM is satisfied with this arrangement.

Withholding Employee Payments

Employers must withhold any payments to employees leaving Malaysia for more than 3 months without intending to return.

These payments can only be released with IRBM’s permission, and only after 90 days from IRBM’s receipt of Form CP21.

IRB Assistance

For further inquiries, you can contact the HASiL Contact Centre at 03-8911 1000 or utilize the HASiL Live Chat and Feedback Form available on the official IRBM Portal.

These updates aim to enhance the efficiency and accuracy of tax-related processes for employers. We encourage all our clients to familiarize themselves with these changes and make the necessary preparations to comply with the new requirements.

Thank you for your attention and cooperation.

Warm regards,

KTP Team

(Tax Update) Summary of High Court Ruling on Public Ruling No. 4/2011 Rental Income

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(Tax Update) Summary of High Court Ruling on Public Ruling No. 4/2011 Rental Income

In the landmark case of BAZ Consolidated Sdn Bhd v Ketua Pengarah Hasil Dalam Negeri [2024] 1 AMR, the High Court made significant rulings on several critical tax issues concerning rental income and related deductions.

Here are the key takeaways that are relevant to our clients at KTP :

1. Classification of Rental Income

The court determined that rental income should be classified under Section 4(d) of the Income Tax Act (ITA), not Section 4(a). This classification is important due to the nature of the property rental activities, which lacked comprehensive maintenance and support services.

This decision clarifies that properties rented out without extensive services should not be treated as business income under Section 4(a), but rather as rental income under Section 4(d).

2. Disallowance of Administration Expenses and Capital Allowances

The court upheld the Revenue's decision to disallow the appellant's claims for administration expenses and capital allowances. This decision underscores the importance of correctly categorizing expenses for tax purposes.

Property owners and investors must ensure that their expense claims are well-documented and justified, as incorrect classifications can lead to disallowed deductions.

3. Interest Expense Deduction

Significantly, the court ruled that the appellant was entitled to deduct bank overdraft and term loan interest under Section 33(1)(a)(ii) of the ITA. These expenses were incurred for the purpose of earning rental income, even though no rental income was generated during the period.

This ruling is crucial for property investors who may have periods without rental income but still incur loan interest expenses. It affirms that such expenses can be deductible, provided they are genuinely for the purpose of generating rental income.

4. Application of Public Ruling No. 4/2011

The court clarified that Public Ruling No. 4/2011 applies only from the year of assessment (YA) 2011 onwards and cannot be applied retrospectively to YA 2010. This means that taxpayers must be aware of the effective dates of public rulings and ensure compliance only from the applicable YA onwards. Public rulings should be seen as guidance and not as retrospective law.

Tax Impact and Implications

This ruling highlights several important tax implications for property owners and investors:

Correct Income Classification

Ensuring rental income is accurately classified under the appropriate section of the ITA can significantly impact tax liabilities. Misclassification can lead to incorrect tax filings and potential disputes with tax authorities.

Expense Deductibility

Proper documentation and justification of expenses are crucial for claiming deductions. This includes maintaining clear records of interest expenses on loans intended for generating rental income, even during periods without rental income.

Public Rulings vs. Principal Act

Public rulings are not law themselves; they must align with the Principal Act and prevailing tax principles. Staying updated with case law and understanding how public rulings apply is essential for accurate tax compliance.

We strive to keep our clients informed about the latest developments in tax law. This recent case serves as a reminder to review and ensure compliance with current tax regulations. Proper tax planning and accurate classification of income and expenses are vital for optimizing tax positions and avoiding disputes.

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(Tax Update) E-Invoice Guideline (Version 3.2)

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(Tax Update) E-Invoice Guideline (Version 3.2)

This e-Invoice Guideline (Version 3.2) dated 30 July 2024 replaces the e-Invoice Guideline (Version 3.1) issued on 19 July 2024. The key changes made to this Guideline are

Key Updates in E-Invoice Guidelines ( Version 3.2)

Interim Relaxation Period:

A new Section 16 introduces a six-month interim relaxation period from the mandatory e-Invoice implementation date for each phase, offering taxpayers greater flexibility in adopting e-Invoice practices.

Consolidated e-Invoices:

Taxpayers can now issue consolidated e-invoices for all transactions, including self-billed e-invoices, during the relaxation period.

Flexibility in Description Field:

During the relaxation period, there's more leniency in the ''Description of Product or Service'' field, eliminating the need for specific receipt/statement/bill references.

No Individual e-Invoices Required on Request:

Taxpayers are not obligated to issue individual e-invoices upon buyer/supplier requests during the relaxation period, provided they comply with consolidated e-invoice requirements.

Suspension of Prosecution:

IRBM will not pursue prosecution under Section 120 of the Income Tax Act 1967 for non-compliance with e-Invoice requirements during the interim period, as long as consolidated e-invoice rules are followed.

Implementation Timeline:

Specific dates for the interim relaxation periods:
- Large businesses: 1 August 2024 to 31 January 2025
- Medium-sized businesses: 1 January 2025 to 30 June 2025
- All other taxpayers: 1 July 2025 to 31 December 2025

Exemption Expansion:

Taxpayers with an annual turnover of less than RM150,000 are now exempted from issuing e-Invoices, including self-billed e-Invoices.

Consolidated Self-Billed e-Invoices Specifics:

Issued monthly, within seven calendar days after month-end, with required details such as supplier’s name (''General Public''), TIN number (''EI00000000010''), and MSIC code (''00000'').

These updates aim to ease the transition to the e-Invoice system, giving businesses more time and flexibility to adjust their processes.

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LHDN announces six-month grace period for einvoicing

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(Tax Update) E-Invoicing : Grace Period for 6 Months

The Inland Revenue Board (IRB) has announced significant concessions on e-invoicing, providing much-needed relief and flexibility to taxpayers. Based on a recent press conference by Hasil, here are the key points:

Key Concessions

Consolidated E-Invoicing Allowed

All industries and activities can issue consolidated e-invoices, including self-billed e-invoices. In other words, consolidated e-invoice can be in importation of goods and services, payments to agents, dealers and distributors.

Sellers are permitted to issue consolidated e-invoices even if buyers request individual e-invoices for each transaction.

Flexible Product and Service Descriptions

Any type of description can be entered in the ''description of product or service'' data field, offering more flexibility in invoicing details.

Grace Period for Compliance

There will be no prosecution for non-compliance with e-invoicing rules under Section 120 of the Income Tax Act 1967 from August 2024 to January 2025, provided taxpayers comply with the consolidated e-invoicing requirements.

Implications for Taxpayers

These concessions offer substantial breathing room for businesses to transition to e-invoicing smoothly and with minimal disruption. By allowing consolidated e-invoicing and flexible descriptions, the IRB is reducing the immediate administrative burden on businesses, making the initial adoption phase more manageable.

Incentives for Early Compliance

To encourage timely adoption, taxpayers who implement e-invoicing as per the August 2024 timeline, without relying on the concessions, will be eligible for accelerated capital allowance. This benefit reduces the claim period from three years to two years for the Years of Assessment 2024 and 2025, applicable to capital expenditure on ICT equipment and software related to e-invoicing.

Government Support and Commitment

These measures reflect the government’s responsiveness to taxpayer concerns and its commitment to supporting the transition to more efficient tax governance. The relaxation of rules and the introduction of incentives highlight the government’s proactive approach in facilitating a smoother e-invoicing implementation process.

Stay informed and take advantage of these concessions to ensure a seamless transition to e-invoicing while maximizing potential benefits for your business.

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Income tax incentive for agriculture in malaysia

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(Tax Update) Unlock the Benefits of Tax Incentives for Your Food Production Business

At KTP, we understand the value that strategic investments in the agricultural sector can bring to your business. With the release of Public Ruling No. 5/2023, the Inland Revenue Board of Malaysia has introduced enticing tax incentives for approved food production projects, designed to encourage investments and boost the agricultural industry’s growth.

Here’s how you can capitalize on these incentives to enhance your business prospects:

Overview of Tax Incentives

The Malaysian government provides significant tax relief for approved food production projects, encompassing a variety of agricultural activities. Whether you are planting crops, engaging in aquaculture, or rearing livestock, these incentives are tailored to support and mitigate the risks associated with agricultural investments.

Approved Projects for Tax Incentives

The tax incentive covers a wide range of agricultural activities aimed at increasing food production in Malaysia. Here are some of the projects that qualify under Public Ruling No. 5/2023:

Crop Plantation : Includes planting of kenaf, vegetables, fruits, herbs, spices, and other industrial or cash crops. Specific commencement dates apply to each type of planting.
Aquaculture and Livestock Rearing : This encompasses the aquaculture of various species and the rearing of animals such as cows, buffaloes, goats, sheep, and deer.
Fishing Activities : Both deep sea and high seas fishing activities are eligible for the tax incentives.
Specialized Farming : Projects such as apiculture (beekeeping) and the cultivation of feed mill crops identified and approved by the Ministry of Agriculture and Food Security (MAFS).

Who Can Undertake These Projects?

Eligibility to participate in these incentive-backed projects extends to:

Incorporated Entities : Companies and cooperatives incorporated under the Malaysian Companies Act 2016.
Agricultural Associations : Includes Area, Federal, and State Farmers’ and Fishermen’s Associations.
Individuals and Partnerships : Sole proprietors and partnerships engaged solely in agricultural or fisheries activities for the approved project.

Key Tax Benefits

Tax Exemption : Enjoy a 100% tax exemption for up to ten consecutive years for new projects, and five years for expansion projects. This exemption applies from the first year of assessment in which you derive statutory income from the project.
Capital Allowances : Claim deductions for capital expenditures involved in your project, ensuring that your initial investment is economically feasible.
Loss Carry Forward : Adjusted losses incurred before and during the exemption period can be carried forward, offsetting future taxable income once the exemption period concludes.

Eligibility Criteria

Type of Projects : The incentive covers a wide range of agricultural activities, from planting and aquaculture to livestock rearing and deep-sea fishing.
Qualifying Entities : Eligible applicants include companies, cooperatives, and sole proprietors engaged solely in agricultural or fishery activities.
Application Process : Applications must be submitted to the Ministry of Agriculture and Food Security (MAFS) before project commencement and within specified deadlines.

How to Apply

Visit the MAFS website for detailed criteria and application procedures. Ensure that your project meets all stipulated requirements and that you maintain separate financial records for the activities under the incentive.

Strategic Investment

Investing in related companies undertaking approved projects can also yield tax deductions, enhancing the financial viability of your broader corporate structure.

Conclusion

Leveraging these tax incentives can substantially decrease the financial risks associated with agricultural projects, making it an attractive investment opportunity. At KTP, we are ready to guide you through the application process and help optimize your tax position.

For further information, please visit our website at www.ktp.com.my or contact us directly. Seize this opportunity to grow your business and contribute to Malaysia’s agricultural advancement with the support of KTP, your trusted tax agent.

Source

IRB Public Ruling 5/2023 AGRICULTURAL SECTOR INCENTIVE – TAX INCENTIVE FOR APPROVED FOOD PRODUCTION PROJECT Sector https://www.hasil.gov.my/media/tkqlzbit/draft-public-rulling-agricultural-sector-incentive.pdf

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What is TIN number Malaysia?

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(Tax Update) Understanding Taxpayer Identification Number (TIN) for E-Invoicing in Malaysia

Introduction

As Malaysia embraces the new era of e-invoicing starting from 1st August, understanding the integration and utilization of the Taxpayer Identification Number (TIN) becomes essential for all business entities.

This guide, brought to you by KTP (www.ktp.com.my), aims to simplify the TIN formats for both individuals and businesses, ensuring that our clients are well-prepared and compliant with the upcoming changes.

What is a Taxpayer Identification Number (TIN)?

The Taxpayer Identification Number (TIN) is an alphanumeric code essential for tracking business transactions and ensuring tax compliance in Malaysia. With the shift to e-invoicing, having a TIN will become indispensable for all financial and tax-related activities.

TIN Formats in Malaysia

For Individuals:

Current Format: Post-2nd January 2023, the TIN for individuals starts with ''IG'' followed by a 9-11 digit unique identifier.

Previous Format: Before this date, it began with ''OG'' or ''SG.''

Example: IG845462070, IG57303584070

For Companies and Other Entities:

Format Overview: Begins with a prefix that denotes the entity type, followed by a 10 or 11-digit number. An extra ''0'' has been included after the TIN number for non-individual entities since 2nd January 2023 to standardize the format.

Entity Prefixes:

Companies: C

Cooperative Societies: CS

Partnerships: D

Employers: E

Associations: F

Examples:

Company: C20830570210

Cooperative Societies: CS1234567890

How to Apply for a TIN in Malaysia

For new taxpayers, obtaining a TIN involves visiting the official tax authority's website or office, providing necessary documentation, and submitting an application form. This process ensures that all your business dealings are recorded and taxed appropriately.

Finding Your Existing TIN

Existing taxpayers can locate their TIN by checking previous tax returns, accessing the tax authority's online portal, or contacting the tax authority directly for assistance.

Importance of TIN in the E-Invoicing System

The integration of TIN into the e-invoicing system ensures as TIN is one of compulsory fields under E-Invoicing system

Compliance: Streamlines tax compliance and simplifies audits.
Accuracy: Enhances the accuracy of financial transactions.
Security: Minimizes the risk of errors and fraud.

Conclusion:

As Malaysia progresses towards a more digitalized economy, understanding and applying the correct TIN format is crucial for seamless business operations.

KTP is committed to assisting our clients through these transitions, ensuring that your business remains compliant and efficient in handling all tax-related matters. For more insights and support on e-invoicing in Malaysia, visit us at www.ktp.com.my or contact our support team for personalized assistance.

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(Tax Update) E-Invoicing Update: A Breakthrough for Micro-SMEs in Malaysia

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(Tax Update) E-Invoicing Update: A Breakthrough for Micro-SMEs in Malaysia

Early Development to MSME

In early July 2024, during a parliamentary session, Finance Minister II Datuk Seri Amir Hamzah Azizan announced new e-invoicing regulations and supports for MSMEs. These regulations exempt MSMEs with annual revenues below RM150,000 from the obligation to issue e-invoices.

However, they also permit these MSMEs to issue consolidated e-invoices that summarize monthly sales transactions, offering flexibility in managing their invoicing requirements.

Latest Development to MSME

Abu Tariq, CEO of the Inland Revenue Board of Malaysia (LHDN), has announced a important update to e-invoicing regulations, marking a significant development for small enterprises nationwide on 16 July 2024

Major Update

Micro-SMEs with annual revenues below RM 150,000 are now completely exempt from e-invoicing mandates.

Impact of the Exemption:

No requirement to issue e-invoices: Micro-SMEs are relieved from the obligation of generating electronic invoices, allowing them to continue using their current billing systems without additional upgrades or changes.
No need to consolidate e-invoices: These enterprises are not required to merge multiple e-invoices into a single document, which typically helps in reporting and compliance, thus saving time and reducing complexity.
Full exemption from adopting the e-invoicing system: This complete waiver frees micro businesses from the financial and logistical challenges associated with setting up and maintaining a compliant e-invoicing system.

This amendment substantially alleviates the administrative load for thousands of micro businesses, enabling them to concentrate on growth and sustainable development.

Our Thoughts

This initiative indicates LHDN's acknowledgment of the unique hurdles that micro businesses encounter, demonstrating a commitment to support the smallest economic contributors in our country.

To secure tax deductions from purchases made from MSMEs, taxpayers should meticulously document transactions and retain detailed invoices as proof for claims. However, potential abuse, such as overstating expenses, could occur.

Buyers also need to conduct thorough due diligence on MSME transactions to ensure legitimacy and accuracy. This approach allows buyers to responsibly benefit from tax deductions while maintaining the integrity of the tax system.

Final Words

While larger enterprises will see the continued rollout of the e-invoicing system as planned, aimed at simplifying tax procedures and increasing transparency with effect from 1 August 2024.

We will continue to monitor the progress of e-invoicing in Malaysia and provide further updates. Should you have any queries regarding your business’s e-invoicing obligations, please consult LHDN or your tax advisor.

(Tax Update) Understanding Controlled Transfers in Taxation: A Guide for Businesses

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(Tax Update) Understanding Controlled Transfers in Taxation: A Guide for Businesses

Controlled transfers, as outlined by the Inland Revenue Board of Malaysia, refer to the disposal and acquisition of assets between related parties under common control. This blog post explains the significance of these transfers, particularly in relation to plant and machinery, within the context of Malaysian tax law.

Objective:

Our aim is to demystify the tax implications of controlled transfers, helping businesses and accounting professionals grasp how such transactions affect their tax calculations and obligations.

What is a Controlled Transfer?

A controlled transfer occurs when assets are transferred between parties that are related or under common control. This could be due to ownership, partnership shares, or company management structures. In taxation terms, such transfers are handled uniquely to ensure tax fairness and prevent manipulation of tax liabilities.

Tax Implications of Controlled Transfers:

Tax neutrality

In controlled transfers, the actual sale price is often disregarded. Instead, tax calculations are based on the residual expenditure of the asset, ensuring that tax outcomes remain neutral regardless of the transaction price.

Capital Allowances

The buyer in a controlled transfer inherits the seller's tax basis in the asset. This means the buyer steps into the shoes of the seller regarding capital allowances, which can impact the buyer's future tax deductions.

Avoidance of Balancing Charges

Normally, when an asset is sold for more than its tax-written value, a balancing charge arises, increasing taxable profits. However, in controlled transfers, these balancing charges (or allowances) are typically not recognized, avoiding unexpected tax liabilities.

Where a disposal of an asset is subject to control, the sale price and the purchase price are ignored and no balancing allowance or balancing charge is imposed on the disposer. The qualifying expenditure (QE) incurred by the acquirer and the date the asset is deemed to have been acquired by the acquirer is determined.

Benefits for Business Planning

Understanding these rules can significantly aid in tax planning, particularly for groups of companies or partnerships where assets frequently change hands internally. Strategic planning of asset transfers can optimize tax positions across the group without triggering additional tax costs.

Conclusion

Controlled transfers, while complex, offer a mechanism for businesses to manage their assets within a controlled group without adverse tax consequences. By aligning with a knowledgeable tax agent, businesses can ensure compliance and optimize their tax positions effectively.

Source

IRB Public Ruling 1/2018 Disposal of Plant and Machinery Part II - Controlled Sales https://phl.hasil.gov.my/pdf/pdfam/PR_1_2018.pdf

(Tax Update) Reinvestment Allowance Common Mistakes

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(Tax Update) Reinvestment Allowance Common Mistakes

The Reinvestment Allowance (RA) offers a significant tax incentive for Malaysian companies committed to reinvesting in qualifying projects related to agricultural, manufacturing, and integrated activities.

Here are more common mistakes businesses make when claiming the Reinvestment Allowance (RA), based on detailed findings from the Inland Revenue Board of Malaysia (IRB):

Insufficient Supporting Documentation:

Lack of comprehensive documentation

Many businesses rely solely on purchase invoices. The absence of project papers, feasibility studies, business plans, budgets, directors' resolutions, and other relevant documents supporting the project can lead to disqualification of the RA claim.

Documentation retention

Failure to keep supporting documents for at least seven years as required by Malaysian tax law.

Misalignment of Investment and Usage

Mismatch of entities

Sometimes, the company that incurs the investment is not the same as the company that uses the plant and machinery, leading to ineligible RA claims.

Related party transactions

Claiming RA on the transfer of assets from related parties who have previously claimed RA on the same assets is a significant error, as it can be seen as double-dipping into tax benefits.

Improper Allocation of Expenditures

Benefit to related companies/directors

Claiming RA on assets incurred for the benefits of related companies or directors, rather than for qualifying business activities.

Non-Qualifying activities

Businesses sometimes mistakenly claim RA on activities or assets that do not qualify under the RA guidelines.

Issues with Payment Records

Absence of payment records

Not maintaining proper payment records to support the acquisition and use of qualified assets can lead to RA claims being rejected during audits.

Concurrent Claims with Other Tax Incentives

Overlap with other incentives

Businesses often err by claiming RA concurrently with other tax incentives like Pioneer Status (PS) or Investment Tax Allowance (ITA), without understanding the exclusivity clauses that might apply.

Lack of Detailed Project Documentation

No written or pictorial production flow

Failing to provide a written or pictorial representation of the production flow for the qualifying project, which is essential to demonstrate the direct application of the investment towards eligible activities.

Final Words

These common errors underscore the complexity of tax planning and compliance. Businesses should ensure thorough documentation, accurate allocation of expenses, and clear understanding of the IRB's regulations regarding RA.

Engaging with a tax professional can provide the necessary guidance and support to navigate these challenges effectively.

Source

Public Ruling 10/2022 Reinvestment Allowance Part 1 - Manufacturing Activity
Public Ruling 11/2022 Reinvestment Allowance Part 2 - Agricultural and Integrated Activity

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(Tax Update) Reinvestment Allowance Public Ruling

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(Tax Update) Reinvestment Allowance Public Ruling

This guide simplifies the complex aspects of RA and explains how businesses can capitalize on this opportunity to reduce their tax liabilities.

Objectives of RA

Our primary goal is to ensure that businesses are well-informed about the benefits of RA and the conditions under which they can claim this allowance.

This is particularly pertinent for companies planning substantial reinvestment into their operational capabilities.

Eligibility Criteria of RA

Company status

Taxpayer must be a resident company in Malaysia.

Operational duration

Must have been in operation for at least 36 months.

Project types

Investment must be directed towards expansion, modernization, or automation of existing business operations within the same industry, or diversification into related products within the same industry.

Qualifying Expenditures

Capital expenditure

Costs associated with the acquisition of new machinery, upgrading existing facilities, diversification or expanding production capacity are eligible.

Specific activities

For agricultural businesses, eligible expenses might include land preparation, crop planting, and installation of irrigation systems.

Financial Advantage:

Tax deduction

RA allows for a claim of 60% of qualifying capital expenditure incurred during the year, which can be deducted against the statutory income of the business.

Limitation

The amount of RA claimed is restricted to 70% of the statutory income from the business for the year.

Tax Implications:

By reducing taxable income, RA not only decreases the immediate tax burden but also improves cash flow, enabling further investment in business growth and innovation. This fosters a cycle of reinvestment and development, enhancing long-term business viability and competitiveness.

How to Claim

Documentation

Companies need to include RA claims in their annual tax returns using the specific forms provided by the Inland Revenue Board of Malaysia (IRBM).

Compliance

It is essential to retain all documents related to RA claims as these may be required for audit purposes.

Latest Development RA

Budget 2021 has announced that a special Reinvestment Allowance (RA) will be given for eligible manufacturing and agricultural projects in Years of assessment (YA) 2020 to YA 2022.

This means that eligible companies that have fully utilized their 15-years RA can enjoy additional RA claims for 3 years (YA2020 to YA2022).

Conclusion

The RA provides a tangible incentive for businesses to reinvest in enhancing their operational capacities. By understanding and utilizing this tax incentive, companies can significantly benefit from reduced tax liabilities while strategically positioning themselves for future growth.

Source

Public Ruling 10/2022 Reinvestment Allowance Part 1 - Manufacturing Activity
Public Ruling 11/2022 Reinvestment Allowance Part 2 - Agricultural and Integrated Activity

Visit Us

Wisma KTP, 53 Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru
Wisma THK, 41, Jalan Molek 1/8, Taman Molek, 81100 Johor Bahru

KTP (Audit, Tax, Advisory)

An approved audit firm and licensed tax firm operating under the KTP group based in Johor Bahru providing audit, tax planning, advisory and compliance services to clients

THK (Secretarial, Bookkeeping, Payroll, Advisory)

A licensed secretarial firm in Johor Bahru providing fast reliable incorporation, secretarial services, corporate compliance services, outsourcing bookkeeping, and payroll services to clients

Website www.thks.com.my
Facebook https://bit.ly/3nQ98rs

KTP Lifestyle

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KTP Career

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