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TAXATION OF COMPANIES IN MALAYSIA
10 June 2013
Corus Hotel, Kuala Lumpur
By:
YVONNE SING SAI HOI Corporate Tax Department Inland Revenue Board, Malaysia
SCOPE OF PRESENTATION
1. Contribution of Corporate Tax to Nation Building
2. Meeting Tax Obligations
3. Assistance in Tax Compliance 4. Common Audit Findings
5. Inland Revenue Board Malaysia (IRB) Website
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58.4%
17.8%
23.8%
2012/2013 ( RM208,650 MILLION)
Direct Taxes Indirect taxes Non Tax revenue
Source : Economic Report 2012/2013 , Ministry of Finance Malaysia
Federal Government Revenue
49.79%
21.21%
26.34%
2.66%
2012 ( RM115,826 Million)
Corporate Tax Personal tax Petroleum Stamp Duty
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MEETING TAX OBLIGATIONS
1. Filing of income tax return form on time :
• Submit within 7 months after the close of the accounting period
• Late filing - penalty imposed under S112(3), Income Tax Act, 1967
No. of months Penalty Rate
< 12 months 20%
12 – 24 months 25%
24 – 36 months 30%
> 36 months 35%
2. Submission/Payment of tax due on time:
• Submitting tax estimation and paying installment within the stipulated period
• Payment of actual tax within the stipulated time
• Failure to pay on due date - increase in tax will be imposed
MEETING TAX OBLIGATIONS
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3. Record keeping for tax audit purposes a. Direct relationship between the quality of
record keeping and the risk of tax adjustments
• Expenses disallowed due to lack of supporting documents
• Credits in accounts/deposits in banks treated as income due to insufficient documents to prove they are non-taxable receipts
MEETING TAX OBLIGATIONS
b. Importance of proper record keeping:
• Provide information for measuring business performance
• Provide audit trail
• Defense against audit findings
MEETING TAX OBLIGATIONS
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ASSISTANCE IN TAX COMPLIANCE
• Taxpayer Education
• Tax Audit Activities 1. Desk Audit
2. Field Audit
1. DESK AUDIT
• Examine the audited accounts and documents in IRB’s office
• Conduct meetings with tax payers in IRB’s office if necessary
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2. FIELD AUDIT
• Examine the audited accounts and documents in taxpayer’s premise
• Tax Audit Framework
SELECTION OF CASES FOR FIELD AUDIT
1. Predetermined criteria set by IRB computerized system at HQ
2. Criteria may include:-
• Tax risk analysis
• Specific businesses/industries
• Specific tax issues
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COMMON AUDIT FINDINGS
1. Capital Allowance 2. Tax Incentives
3. Interest Income 4. Retirement Funds 5. Director’s Benefits 6. Provision Accounts 7. Interest Restriction
8. Transfer Pricing Issues
1. CAPITAL ALLOWANCE (CA)
• CA can be claimed on plant and
machinery used for business purposes
• CA has been claimed on non qualifying capital expenditure
• Public Ruling No.
• 1/2001,
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2. TAX INCENTIVES
a. Reinvestment Allowance
• Capital expenses incurred do not qualify for reinvestment allowance
• Disposal of assets used for less than 2 years
• Public Ruling No. 6/2012
2. TAX INCENTIVES
b. Double Deductions
• Marine insurance expense – stamp duty not qualified for double
deductions
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3.INTEREST INCOME – SECTION 4(c)
• Generally interest is taxed as passive income
• Interest income is declared as business source (Section 4(a)) though it should be under Section 4(c)
4. RETIREMENT FUNDS
• Unapproved retirement funds are not added back in the income tax computation
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5. DIRECTOR’S BENEFITS
• Director’s benefits are not
declared in the EA form
6. PROVISION ACCOUNTS
• Provision of revenue expenses is not added back in the tax computation as a disallowable expense
• Example : 1. bonus
2. customer loyalty program
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7. INTEREST RESTRICTION
• No calculation of loan interest restriction for non business purposes
• Interest restriction not added back in the income tax computation
8. TRANSFER PRICING ISSUES
a. Pricing policy is not based on arm’s length principle
• Non Arm’s length price of tangible
goods, intangible goods and services
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8. TRANSFER PRICING ISSUES
Example: Purchase price of the goods - based on the selling price less 3% commission/profit
Co. A
Manufacturer
Co. B
Marketing Arm Customers
(3rd party) RM100
RM97
profit = RM3
Co. A & Co. B are related
RM150 profit = RM4.50
RM145.50
8. TRANSFER PRICING ISSUES
b. Set up companies in tax havens to avoid paying income tax
• Substance Vs. Form
• Example : Re-invoicing
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8. TRANSFER PRICING ISSUES
Re-invoicing
Co. E (Europe)
Co. BVI (BVI) Co. M (Malaysia) Payment
Payment
Sale –high price
Sale -low price
All companies are related
8. TRANSFER PRICING ISSUES
c. Intra group services – no services provided
d. Services provided but charge is not arm’s length
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8. TRANSFER PRICING ISSUES
Co. M (Malaysia)
Co. E (Europe)
Co. P & Co. M are related Service Provider
Service Recipient Management service
Management Fee
Services provided but charge is non arm’s length
8. TRANSFER PRICING ISSUES
Calculation of management fee charged
Sales of Co. M x Total cost of Co. E Total Global sales
Co. M = service recipient Co. E = service provider
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8. TRANSFER PRICING ISSUES
e. Provide services on behalf of related party but no service income paid by the service recipient
8. TRANSFER PRICING ISSUES
Example: No charge for services provided on behalf of related party
Co. C (3rd Party) (East Malaysia)
Co. P (Hong Kong)
Sales services on behalf Co. P & Co. M are related
www. hasil.gov.my
Company section :
• Tax payment
• Update of company information
• Tax rate of company
• Non resident company
INLAND REVENUE BOARD MALAYSIA
WEBSITE
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Tax matters:
• Tax Chargeability
• Tax file registration
• Forms
• Basis period for company
• Withholding tax
• Tax refund
• Company resident status
• Frequently asked questions
INLAND REVENUE BOARD MALAYSIA
WEBSITE
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