(Tax Update) Taxation on Limited Liability Partnerships (LLPs) : Simplified Guide

In Malaysia, taxation for LLPs follows specific rules set by the Inland Revenue Board, blending features from companies and partnerships. Notably, the LLP Act is poised for amendments focused on enhancing transparency and accountability.

These amendments will require LLPs to maintain a register of beneficial owners, disclose detailed ownership information, and lodge this with the Registrar. Such changes aim to align with international standards to combat money laundering and improve corporate governance.

We are going to clarify tax implications for clients considering or currently in an LLP under IRB’s Public Ruling 8/2022 Taxation on LLP.

Introduction of LLP

Limited Liability Partnerships (LLPs) provide a hybrid structure with benefits akin to corporations but operate with the flexibility of a partnership.

This format is beneficial for small to medium-sized enterprises (SMEs) or professionals who require a simpler entity with limited liability.

Taxation Basics

LLPs in Malaysia are taxed at the entity level, unlike traditional partnerships where individual partners are taxed.

The profits of an LLP are taxed directly to the LLP, and not to the partners.

Key Features

Formation and Legal Status:

LLPs are registered under the Limited Liability Partnerships Act 2012.

They must end with ''PLT'' after the partnership’s name indicating their status.

Capital Contribution

Partners can contribute capital in cash or kind, but not as loans.

Such contributions determine the financial backbone of the LLP.

Management and Control

Tax residency of an LLP is determined by where the management and control activities are conducted.

Important decisions should be made in Malaysia to maintain local tax residency status.

Tax Implications

Tax rates follow a tiered structure similar to corporate rates.

Special provisions apply for income under RM50 million from business sources and a capital contribution of RM2.5 million or less.

Compliance Requirements

LLPs are not required to audit financial statements but must maintain accurate records for tax purposes.

Proper bookkeeping and financial disclosures are crucial for compliance.

Deductions and Allowances

Specific expenses and capital investments are deductible under the tax law.

It is crucial to document all financial activities in the LLP agreement to claim deductions.

Benefits of LLP

LLPs enjoy limited liability protection, reducing personal risk for partners.

Flexible management structure without the stringent requirements of a corporation.

Final Words

Choosing an LLP structure offers flexibility and protection but requires careful consideration of tax obligations and compliance requirements.

For detailed advice and assistance, consider engaging a tax consultant or visit our website KTP for expert guidance.

Source

IRB’s Public Ruling 8/2022 https://www.hasil.gov.my/media/3wzlz0nl/pr_8_2022.pdf

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