the malaysian tax regime: a brief overview/media/ie singapore... · malaysian investment...

27 February 2013

The Malaysian Tax Regime: A Brief Overview

Renuka Bhupalan Managing Director – TAXAND Malaysia

© 2012 Taxand Malaysia Sdn Bhd

1


Tax Framework

Income Tax – Basis of Taxation

A Host of Tax Incentives

Tax Considerations for Foreign Investors

2013 Budget - Impact on Foreign Investors

Outline 2

Tax Framework 3

Direct Taxes Indirect Taxes Income Tax – tax on all types of income Real Property Gains Tax – tax on capital gains from real property and shares in real property companies Petroleum Income Tax – tax on upstream activities Stamp Duty – transaction tax – on instruments

Customs Duties – Import Duties, Excise Duties and Export Duties Sales Tax – on imports and locally manufactured goods Service Tax – on taxable services provided by taxable persons

Administered by the Inland Revenue Board (IRB)

Administered by the Royal Malaysian Customs (RMC)


4

Income Tax: Basis of Taxation

Territorial basis


Basis of Taxation 5

General - Territorial basis of taxation – “income accruing in or derived from Malaysia”

All* foreign sourced income – EXEMPT from tax Always important to determine SOURCE of income

*Exception – Shipping, air transport, banking &

insurance – worldwide basis of taxation


Self Assessment 6

Self assessment – tax returns filed are deemed to be assessments Tax paid via monthly instalments based on estimates furnished one month before the start of the financial year Opportunity to revise estimates in 6th and 9th months Balance of tax (if any) to be paid by filing deadline Penalties for under-estimation and late payment Penalties for incorrect returns Compliance is monitored through tax audits


7

Tax Incentives

A Host of Tax Incentives


Tax Incentives 8

Wide range of incentives – generally industry based, including:

Agencies: Malaysian Investment Development Authority (“MIDA”) Invest KL Multimedia Development Corporation Biotech Corporation

Manufacturing Agriculture Biotechnology MSC Malaysia ICT Regional Operations Trading of petroleum, petroleum

products and approved commodities

Aerospace Private Education Health Tourism Strategic Projects Etc.


Tax Incentives 9

Location based incentives and relevant agencies:

Location Agency Iskandar Region

Iskandar Region Development Authority (“IRDA”)

Tun Razak Exchange Ministry of Finance Northern Corridor Economic Region

Northern Corridor Implementation Authority

East Coast Economic Corridor (“ECER”)

ECER Development Council

Sabah Development Corridor

Sabah Economic Development and Investment Authority

Sarawak Corridor of Renewable Energy

Regional Corridor Development Authority

Labuan Labuan Financial Services Authority


Tax Incentives 10

Nature of tax incentives:

100% or 70% exemption from tax on statutory income (i.e after tax depreciation) 100% or 60% allowance on certain capital expenditure – deductible against 100% or 70% of statutory income Others: double deductions accelerated capital allowances special deductions


Tax Incentives 11

Application process – in several instances, application to be submitted before commencement of business

Time-frame – typically one month to three months

Dependent on merits of the case nature of activity – promoted product/promoted activity creation of employment opportunities and building of human capital capabilities benefits to the economy/nation technology/know-how transfer


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Tax Considerations for Foreign Investors

Tax Considerations


Tax Considerations for Foreign Investors 13

Company vs. branch? Profit repatriation Exit strategy Expatriate taxes Tax treaty network Transfer pricing


Company vs. branch? 14

Key Tax Considerations: Company Branch

Tax rate 25% 25% Tax resident Yes – if control and

management in Malaysia

No – follows tax residence of parent

Eligible for tax incentives

Yes No

Capital requirements Yes: RM2 minimum, but business requirements will dictate quantum

None


Profit Repatriation 15

Parent Company

Malaysia

Malaysian Subsidiary

Overseas


Profit Repatriation 16

Tax Related Issues:

Form of repatriation Tax Issue

Dividends No withholding tax on dividends

Management fees/Technical services fees

Withholding tax if services performed in Malaysia (10%)

Interest Withholding tax (15%); Interest restriction (where debt used for investment) Thin capitalisation (from 1.1.2015)

Royalty Withholding tax (10%)

All of the above (except dividends)

Transfer pricing


Exit Strategy 17

Tax effective exit strategy:

Transfers / disposal of assets Winding up – tax clearance Repatriation of capital


Expatriate Taxation 18

Expatriates are taxable on: employment income derived from exercising employment in Malaysia employment income from employment exercised outside of Malaysia which is incidental to Malaysian employment other sources of Malaysian income

Taxable regardless of where the expatriate is paid Income from short term employment, i.e. less than 60 days, - exempt from tax for non-residents If employment is less than 182 days, treaty relief may be available Important to ensure appropriate documentation (i.e. employment contract/letter, etc.) is in place Immigration documents – work permits/professional visit passes


Double Tax Agreements (DTAs) 19

Extensive network – more than 70 DTAs Certainty of tax treatment for investors Reduced withholding tax rates under several DTAs, including DTA with Singapore Permanent establishment issues


Double Tax Agreements (DTAs) 20

Singapore – Malaysia DTA

Reduced withholding tax rates:

Type of income DTA rate Malaysian domestic rate

Interest 10% 15% Management, technical or consultancy fees

5% 10%

Royalty 8% 10% Dividend n/a nil


Transfer Pricing 21

All related party transactions must be transacted at arm’s length Applies to both domestic and cross-border related party transactions Importance of documentation to support related party transactions


2013 Budget – Impact for foreign investors 22

Concept of Business Trusts

Limited Liability Partnerships – new business vehicle

Tax incentives GIFT programme; Private educational sector; TRX incentives


Why Malaysia? 23

Relatively simple tax structure Tax incentives Legal framework Infrastructure Cost structure Opportunities – development corridors, infrastructure projects, etc. …. and ….


Thank You TAXAND MALAYSIA SDN BHD

Suite 13A.05, Level 13A Wisma Goldhill

67 Jalan Raja Chulan 50200 Kuala Lumpur T: +603-2032 2799 F: +603-2032 3799

www.taxand.com.my

Renuka Bhupalan E: [email protected]

24 Contact Details 24

http://www.taxand.com.my/�

mailto:[email protected]�

mailto:[email protected]�


1. These presentation materials contain general information only based on our understanding of the tax position under current tax legislation and the related practice thereof, all of which are subject to change, possibly on a retrospective basis. We are not obligated to update the presentation slides for any future changes.

2. Independent professional advice should be obtained on any tax matters as the consequences / implications may differ depending on the facts and circumstances of each case.

3. No part of the presentation materials may be disclosed to third parties or copied, reproduced or transmitted by any means, extracted, quoted or included in any other document or communication without our prior consent.

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Disclaimer 25

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