income tax – OBB Consultancy Sdn. Bhd.

https://obbconsultancy.com Always On The Lookout For A Better Way Wed, 03 Apr 2024 09:02:07 +0000 en-US hourly 1 https://wordpress.org/?v=6.9 https://obbconsultancy.com/wp-content/uploads/2023/05/cropped-favicon-32x32.png income tax – OBB Consultancy Sdn. Bhd. https://obbconsultancy.com 32 32 Entertainment Expense https://obbconsultancy.com/entertainment-expense/ Tue, 19 Sep 2023 05:49:48 +0000 https://obbconsultancy.com/?p=496

Background

Company annual dinner, incentive trip, gift vouchers, lucky draw, hampers for customers during festive seasons, etc are some of the spendings enterprises will be incurred for its employees, customers and/or suppliers.

However, not all above expenses are subject to 100% tax deduction.

Check out below Process Flow Diagram of Entertainment Expense for ease of reference.

Tax Law and Regulations

Section 18 of Income Tax Act 1967 (“the Act”)
“Entertainment, includes:
(a) the provision of food, drink, recreation or hospitality of any kind; or
(b) the provision of accommodation or travel in connection with or for the purpose of facilitating entertainment of the kind mentioned in paragraph (a),by a person or an employee of his, with or without any consideration paid whether in cash or in kind, in promoting or in connection with a trade or business carried on by the person.”
Section 33(1) of the Act
Section 39(1)(l) of the Act
Public Ruling No. 4/2015 (Published on 29 July 2015)

Application

Entertainment expense qualifies for 100% tax deduction
In order to enjoy 100% tax deduction, the entertainment expense must be wholly and exclusively incurred in the production of business gross income and fulfilled either of below conditions:

No.

Conditions

Example

The provision of entertainment to his employees except where such provision is incidental to the provision of entertainment for others.

Free meals and refreshment, annual dinners, outings, family day or club membership for employees.

The provision of entertainment for payment in the ordinary course of business.

Cultural shows provide by restaurants or hotels at their premises to entertain their customers.

The provision of promotional gifts at trade fairs or trade or industrial exhibitions held outside Malaysia for the promotion of exports from Malaysia.

Samples of business products, small souvenirs, bags, and travel tickets provided as gifts to customers or visitors at the trade fairs, trade exhibitions or industrial exhibitions held outside Malaysia.

The provision of promotional samples of products of the business.

Free sample of products of the business given to schools.

The provision of entertainment for cultural or sporting events open to members of the public, wholly to promote the business.

Events	Examples of activities	Entertainment expense
Cultural	Promotion of arts such as painting, sculpture, music, drama and dance.	Cost of passage, accommodation, food and drink for the artistes.
Sports	Badminton tournaments, golf tournaments, motor racing and swimming events.	Sponsorship for food, drink, sports attire and sports equipment for sportsmen.

The provision of promotional gifts within Malaysia consisting of articles incorporating a conspicuous advertisement or logo of the business.

Notes:

Articles given away as promotional gifts need not necessarily be the products of the business.
The logo could be either affixed or embossed on those articles.
Logo of the business refers to company’s logo or the logo of its products.
The promotional gifts should be given to the public on non-discriminatory basis.

The provision of entertainment related wholly to sales arising from the business.

Example:

Expenses on food and drink for launching of a new product.
Redemption vouchers given for purchases made.
Cash vouchers, discount vouchers, shopping vouchers, meal vouchers, concert, or movie tickets.
Redemption of gifts based on a scheme of accumulated points.
Free gifts for purchases exceeding a certain amount.
Lucky draw prizes given to customers for purchases made.
Expenditure on trips given as an incentive to dealers for achieving sales target.
Expenditure incurred on refreshment given to its customer while waiting for their cars to be serviced.

Note:

Vouchers, coupons, tickets, gifts etc are only allowed as entertainment expenses when customers have redeemed them.

The provision of a benefit or amenity consisting of a leave passage benefit (cost of transport fares) provided by an employer to its employees to facilitate a yearly event within Malaysia, which involves the employer, employee and immediate family members of that employee.

Family day trip for employer, employees and immediate family members of the employees.

Entertainment expense qualifies for 50% tax deduction
Entertainment expense which wholly and exclusively incurred in the production of business gross income and NOT fulfilled either of above conditions, is subject to 50% tax deduction.
Promotion expense is part of entertainment expenseWith effect from YA 2014, promotional expense which carries entertainment element is allowed for:
a) 50% tax deduction; or
b) 100% tax deduction, if the expense fulfilled any of above conditions (1) to (8), item A above.Promotional expenses which wholly and exclusively incurred in the production of business gross income and do not have entertainment elements is allowed for 100% tax deduction.
Process Flow Diagram of Entertainment Expense

Process-Flow-Diagram-of-Entertainment-Expense

Conclusion

It is important for business to assess the nature and criteria of the spending on entertainment in order to benefit from tax deductions.

Contentious Tax Issue

Based on your understanding, are following transactions allow for tax deduction?

No.	Transactions	Allowed for tax deduction (50% / 100%)?	Not allowed for tax deduction
1	Entertainment allowance paid to employee to reimburse them for entertainment expenses incurred on behalf of the employer.
2	Entertainment expenses for annual general meeting (AGM) of company.
3	Free trips as an incentive to sales agent for achieving sales target.
4	Cash contribution for customer’s annual dinner.
5	Gift with business logo for customer’s annual dinner.
6	Gift without business logo for customer’s annual dinner.
7	Gifts of flower for customer’s opening of new outlet.
8	Hampers for customers during festive seasons.

Any questions, please feel free to reach us.

Tag

]]> Are You A Tax Resident in Malaysia? https://obbconsultancy.com/are-you-a-tax-resident-in-malaysia/ Wed, 06 Sep 2023 07:36:01 +0000 https://obbconsultancy.com/?p=469

Background

Residency status of an individual can impact on his/her tax liability.

Individual who is a tax resident is entitled for personal reliefs and tax at scale rate; however, this is not applicable for non-tax resident.

Therefore, it is crucial for taxpayer to understand his/her residency status.

Check out below on the Process Flow Diagram of Individual Residency Test for ease of reference.

Tax Law and Regulations

Section 3 of Income Tax Act 1967 (“the Act”)
“Subject to and in accordance with this Act, a tax to be known as income tax shall be charged for each year of assessment upon the income of any person accruing in or derived from Malaysia or received in Malaysia from outside Malaysia.”
Paragraph 28, Schedule 6 of the Act, amended with effective from 1 January 2022.
“The income arising from sources outside Malaysia and received in Malaysia by any person who is not resident in Malaysia.”
Section 7 of the Act, on residence of individuals

Application

	RESIDENT	NON-RESIDENT
Scope of charge	Tax on income: accruing in or derived from Malaysia; or received in Malaysia from sources outside Malaysia.	Tax on income accruing in or derived from Malaysia.
Eligible for tax exemption on income received in Malaysia form sources outside Malaysia (“foreign source income”)	No	Yes
Eligible for tax exemption on income from short-term employment of ≤60 days	No	Yes
Eligible for personal reliefs	Yes	No
Eligible for double tax relief	Yes	No
Income tax rate	Graduated rates: 0% – 30%	Flat rate: 30%

Tax residency status of the individual has no connection with his/her nationality, place of domiciled.
An individual is a resident in Malaysia in the basis year for a year of assessment under following circumstances:

Process-Flow-Diagram-of-Individual-Residency-Test

An individual is deemed to be present in Malaysia for a day if he/she is present in Malaysia for part or parts of that day.

Contentious Tax Issue

Based on your understanding, is the individual a tax resident in Malaysia?

No.

Transactions

Yes / No

Mr. A arrives in Malaysia for the first time on 1 March 2022. His period of stay in Malaysia is as follows:

1 March 2022 to 30 June 2022
1 August 2022 to 30 October 2022

Mr. A leaves Malaysia on 31 October 2022.
Is Mr. A a tax resident in Malaysia?

Mr. B arrives in Malaysia for the first time on 1 September 2022. His period of stay in Malaysia is as follows:

1 September 2022 to 31 December 2022
1 January 2023 to 30 May 2023

Mr. B leaves Malaysia on 31 May 2023.
Is Mr. B a tax resident in Malaysia?

Any questions, please feel free to reach us.

Tag

]]> Foreign Source Income https://obbconsultancy.com/foreign-source-income/ Tue, 05 Sep 2023 06:40:39 +0000 https://obbconsultancy.com/?p=173

Background

In Budget 2022 (29 October 2021), Government of Malaysia has announced tax imposition on income derived from sources outside Malaysia and received in Malaysia by resident person.

This announcement was implemented though Finance Act 2021, with effective 1 January 2022.

Tax Law and Regulations

Paragraph 28, Schedule 6 of Income Tax Act 1967 (“the Act”), was amended:
“The income arising from sources outside Malaysia and received in Malaysia by any person who is not resident in Malaysia.”
Prior to that, the Act was read as:
28(1): “Income of any person, other than a resident company carrying on the business of banking, insurance or sea or air transport, for the basis year for a year of assessment derived from sources outside Malaysia and received in Malaysia.”
IRBM Guideline: Tax Treatment in relation to Income Received from Abroad (Amendment), 29 December 2022
Income Tax (Exemption) Order 2022 [P.U. (A) 96/2022], 1 April 2022
Income Tax (Exemption) (No.5) Order 2022 [P.U. (A) 234/2022], 18 July 2022
Income Tax (Exemption) (No.6) Order 2022 [P.U. (A) 235/2022], 18 July 2022

Application

With effective from 1 January 2022, generally all types of income which derived from sources outside Malaysia (hereinafter refers to as “foreign source income (“FSI”) and received in Malaysia by resident person is subject to tax.
The foreign income is made reference to Section 4 of the Act, as below:
- Gains or profits from a business;
- Gains or profits from an employment;
- Dividend, interest or discounts;
- Rent, royalty or premium;
- Pension, annuity or periodic payments; and
- Other income other than (a) to (e) above.
  This means, foreign income from any of above sources which is derived from outside Malaysia and received in Malaysia, is subject to tax.
Foreign income received in Malaysia which has been taxed by other jurisdiction either through withholding tax or income tax, can claim bilateral or unilateral tax credit.
- The tax credit for a year of assessment must be claimed within two years after the end of that year of assessment.
- Any claim for bilateral credit for a year of assessment must be made in writing to Director General of Inland Revenue.

Tax rate on FSI

Period	Tax Rate	Foreign Tax as a Relief
1 January 2022 to 30 June 2022	3% from gross income	No
1 July 2022 onwards	Prevailing tax rate	Yes

Following prevailing tax rate apply on FSI received on or after 1 July 2022:

	Income tax rate
Resident individual
Chargeable income ≤ RM 2 million	0% – 28%
Chargeable income > RM 2 million	30%

Company & LLP
Paid up capital ≤ RM 2.5 million; Gross business income ≤ RM 50 million Chargeable income First RM 600,000 Excess	17% 24%
Others	24%

Exemption
Tax exemption granted on FSI received in Malaysia from 1 January 2022 to 30 June 2026.

Taxpayer’s Category	Types of Tax-Exempt Income	Qualifying Conditions
Company incorporated or registered under the Companies Act 2016 Limited liability partnership (“LLP”) registered under the Limited Liability Partnerships Act 2012 Individual partner (in relation to a conventional partnership business in Malaysia)	Dividend	i) The dividend income has been subjected to tax in the country of origin; ii) The highest tax rate (headline tax) in the country of origin is not less than 15%; iii) Comply with the economic substance requirements.
Individual	All types of income other than partnership income	The income has been subjected to tax in the country of origin.

Taxpayer’s Category

Types of Tax-Exempt Income

Qualifying Conditions

Company incorporated or registered under the Companies Act 2016

Limited liability partnership (“LLP”) registered under the Limited Liability Partnerships Act 2012

Individual partner (in relation to a conventional partnership business in Malaysia)

Dividend

i) The dividend income has been subjected to tax in the country of origin;

ii) The highest tax rate (headline tax) in the country of origin is not less than 15%;

iii) Comply with the economic substance requirements.

Individual

All types of income other than partnership income

The income has been subjected to tax in the country of origin.

Tax Reporting
FSI received must be reported as prescribed below:

Period of FSI received Form or Tax Return

1 January 2022 – 30 June 2022 Prescribed form, submit by 31 July 2022

1 July 2022 onwards Tax return for respective year of assessment

Period of FSI received	Form or Tax Return
1 January 2022 – 30 June 2022	Prescribed form, submit by 31 July 2022
1 July 2022 onwards	Tax return for respective year of assessment

Contentious Tax Issue

Based on your understanding, are following transactions subject to tax under FSI?

No.	Transactions	Yes / No
1	Payment by overseas trade debtors on payment for goods and/or services.
2	Individual working in Singapore bring money back into Malaysia.
3	Parents in Malaysia received money from children staying overseas.
4	Interest income credited by overseas bank.
5	Loan or advances from related companies outside Malaysia (non-resident) into Malaysia.
6	Gains on realisation from disposal of overseas investment.

Any questions, please feel free to reach us.

Tag

]]>