2022/2023 Business and Tax Information

Click on the link for the latest version of our Business & Tax Information Booklet, updated with the new legislative proposals and measures contained in the 2023 Malaysian Budget, which was re-tabled on 24 February 2023, and the Finance Bill 2023, which was made available for first reading in Parliament on 14 March 2023.

https://www.bakertilly.my/business-and-tax-information...

Encouraging Businesses - COVID-19 Tax Initiatives

Due to the COVID-19 pandemic which affected many businesses, various tax initiatives were announced since last year through multiple Economic Stimulus Packages for the benefit of these businesses. 

Some of these tax initiatives are only applicable for a certain period of time and as such, businesses may want to explore and take immediate action to take advantage of the benefits from these tax initiatives. 

In this connection, let us go through a select few of the tax initiatives that can be of interest to you and your business –

1. Renovation and Refurbishment cost (R&R cost) 

PLAN the renovation of your business premise. Up to RM300,000 of R&R cost is allowed to be deducted against the Company’s adjusted income on certain “specified” R&R costs incurred from 1 March 2020 to 31 December 2021. Please note that under normal circumstances, such R&R cost does not rank for a tax deduction against the Company’s adjusted income. 

“Deadline”: 31.12.2021 

2. Accelerated Capital Allowance 

PLAN the acquisition of your Company’s fixed assets. Claim “accelerated” capital allowance within 2 years of assessment (YAs) in respect of qualifying plant expenditure incurred from 1 March 2020 to 31 December 2021 for the Company’s business purposes. 

“Deadline”: 31.12.2021 

3. Special Reinvestment Allowance 

PLAN your Company’s reinvestment. For manufacturing or agricultural companies which have exhausted their 15 YAs of reinvestment allowance (RA) claim, a “special RA” is given for a period of 3 YAs, i.e. from YAs 2020 to 2022. This special RA is only applicable for qualifying projects on expansion, modernisation, automation or diversification. 

“Deadline”: YA 2022

As we enter the last quarter of 2021, it is still not too late to PLAN your capital expenditures and investments to be aligned with your business objectives and to maximise the tax deductions and incentives available. It is important to note that the above tax deductions and incentives are subject to certain conditions and rules to be complied with under the income tax legislation in order to make a claim. 

PEMERKASA (“PROGRAM STRATEGIK MEMPERKASA RAKYAT DAN EKONOMI”) STIMULUS PACKAGE

The Prime Minister announced the PEMERKASA Stimulus Package valued at RM20 billion on 17 March 2021, with additional fiscal injection by the Government amounting to RM11 billion. 

Under the PEMERKASA, the focus would be on 20 strategic initiatives to boost economic growth, support businesses and continue targeted assistance to the people and sectors that are still affected due to the COVID-19 pandemic. 

Below are a select few of the highlights and tax initiatives under the PEMERKASA, including extension of a few measures previously announced under the preceding economic stimulus packages –

Special Deduction on Renovation and Refurbishment Expenses

One of the tax measures introduced under the Short-Term Economic Recovery Plan (“PENJANA”) was the Special tax deduction for renovation and refurbishment of business premises, which has recently been gazette under P. U. (A) 381. 

These Rules have the effect from the year of assessment 2020.

Criteria for claiming the special deduction are as follows:-

- The cost of renovation and refurbishment must be incurred for business premise

- The cost is to be incurred from 1 Mar 2020 until 31 Dec 2021 (Qualifying period)

- Subject to maximum of RM300,000 for the entire qualifying period 

- The cost which is entitled for the deduction is specified in the First Schedule of the Gazette Order, as follows:-

    

- It shall not include the cost specified in the Second Schedule, as follows:-

- The cost of renovation and refurbishment incurred must be certified by an external auditor. For the purpose of audit certification, kindly ensure the supporting documents are in place, such as supplier invoices, proof of payment, photo of renovation work (before and after). Site visit may be requested by external auditor for verification purpose. 

- The special tax deduction does not apply where capital allowance or allowable expense under S33(1) ITA 1967 has been claimed in relation to the cost of renovation and refurbishment.

P.U. 381 - Income Tax (Costs of Renovation and Refurbishment of Business Premises) Rules 2020

  

Transfer Pricing Documentation - Submission within 14 days upon request!

In the 2021 Budget proposals, there were some changes made to the Income Tax Act 1967 (“ITA”) and one of the more notable ones was the introduction of new provisions over transfer pricing (“TP”) penalties. The Malaysian TP Guidelines were also updated to stipulate that TP documentation must be submitted within 14 days instead of the 30 days that were given previously.

TP is set to be one of the avenues that the Malaysian tax authorities will be zooming into in 2021. As such, much needed attention must be given to TP to ensure that our clients and taxpayers at large are managing their tax risk well.

TP basically affects companies with related party transaction(s) (“RPT”)” in which prices transacted must be ‘arm’s length’ in nature, i.e. the transacted price(s) must be similar to how independent companies transact with one another.

The Inland Revenue Board Malaysia (“IRB”) has issued TP Guidelines which can be used as a reference point by taxpayers when preparing the TP documentation.

In the abovementioned TP Guidelines, the IRB has recently made two (2) important amendments as follows –

Please note that in Malaysia, there is no requirement in the law for TP documentation to be submitted on any predetermined or annual/regular basis. It is submitted or made available upon request by the IRB, normally when the companies are selected for TP audits. Probably, due to this, there tends to be a relaxed approach taken by many taxpayers that the TP documentation can be prepared as and when the need arises. It is important to note that it is not possible to prepare TP documentation in 14 days or even 30 days for that matter!

The timeline needed to prepare the TP documentation depends on the complexity and volume of RPT transactions. It is also important to take note that unlike other countries, TP in Malaysia also includes “domestic” transaction(s) as well as “cross-border” transactions.  As such, companies must place importance to prepare TP documentation pro-actively to avoid getting things wrong and then scrambling for solutions after the inquest begins!

 
Please take note that there were no specific TP penalties in place prior to the 2021 Budget proposals. The following “NEW” penalty section 113B in the ITA was introduced obviously with strict TP compliance for taxpayers in mind and we provide this below -

In addition to the above penalty under section 113B, new subsections 140A(3A), (3B) and (3C) were also introduced in the ITA. A new concept of imposing a “5% surcharge” is introduced as follows –

The surcharge may make companies which are in a loss-making position or in a non-tax payable position due to tax holidays/incentives to take seriously the need to prepare TP documentation that meets the expected standards under the laws and guidelines.
 
With the shorter 14-day timeframe, it is important for taxpayers to ensure that contemporaneous TP documentation is in place and up to date. ‘Contemporaneous’ refers to ensuring that all data in the TP documentation is valid and updated in the relevant financial period under review. The preparing of contemporaneous TP documentation requires specific expertise and technical knowledge. Baker Tilly Malaysia urges their clients and taxpayers at large to consult advisers on what needs to be the minimum to be put in place to avoid undue problems with the tax authorities. The TP documentation will be subject to scrutiny by the IRB during the course of an audit, and there tends to be greater reliance placed on work of external consultants when assessing the sufficiency and compliance of the documentation with the Rules and Guidelines.  
 
With such severe TP penalties being imposed with effect from 1 January 2021, it is time for companies with RPT to pay careful attention to ensuring, without delay, the preparation of robust TP documentation, if they have not already paid heed.

New Publication | Corporate Liability – It’s Time to Act Now!

Section 17A of the MACC Act 2009 has been enforced on 1 June 2020 as planned by the Malaysian government.

If you’re not sure what the newly enforced section is all about, read our latest publication to find out further, including the amendments that Bursa Malaysia and Securities Commission have made in support of the government’s stance on corporate liability issues.

CTRL+Click on the following image to download a copy of our latest publication: