Worldwide Corporate Taxes Summaries(2002-2003)——Malaysia（part1）
Worldwide Corporate Taxes Summaries(2002-2003)——Malaysia（part1）
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The exit levy that was imposed on repatriation of inward investors’ profits from portfolio investments in shares, bonds and other finanCIAl instruments made on or after September 1, 1998, was abolished with effect from May 2, 2001.
TAXES ON CORPORATE INCOME
Income tax/Income tax for resident and nonresident companies is imposed on income accruing in or derived from Malaysia at the flat rate of 28%. As from year of assessment (YA) 2000 a current-year basis of assessment applies.
A company is taxed on income from all sources (whether business or nonbusiness) arising in its financial year ending in the calendar year which coincides with that particular year of assessment. For example, a company that closes its accounts on June 30, 2002 is taxed on income earned during the finanCIAl year ending on June 30, 2002 for the YA 2002.
Self-assessment for companies was implemented from the year 2001. Under the self-assessment system, companies are required to submit a return of income within 6 months from the date of closing of accounts. Particulars required to be specified in the return include the amount of chargeable income and tax payable by specified in the return include the amount of chargeable income and tax payable by the company. An assessment is deemed to have been made on the company on submission of the return. The return is deemed to be a notice of assessment that is deemed to be served on the company on the date the return is submitted.
Petroleum income tax/Petroleum income tax is imposed at the rate of 38% on profits from petroleum operations in Malaysia. No other taxes are imposed on income from petroleum operations.
A company is tax resident in Malaysia in a basis year if at any time during the basis year the management and control of its affairs are exercised in Malaysia. Generally, management and control of a business is exercised at the place where the company’s board meetings are held. Therefore, a single board meeting held in Malaysia at which significant decisions are made is sufficient cause for a company to be regarded as tax resident in Malaysia.
Real property gains tax/Real property gains tax is imposed at scale rates from 5% to 30% on gains arising from the disposal of real property (which includes the disposal of shares in a real property company) situated in Malaysia (see “Capital gains”).
Sales tax/A single-stage ad valorem tax at rates ranging from 5% to 25% is imposed on all goods imported into or manufactured in Malaysia, unless specifically exempted.
Service tax/Service tax is imposed at the rate of 5% on the value of taxable services sold or provided by taxable persons. A list of “taxable persons”and “taxable goods” is found in the Service Tax Regulations, 1975.
Windfall profit levy/From January 1, 1999 a levy is imposed on crude palm oil and crude palm kernel oil at a maximum of RM50 per ton where the price exceeds RM2,000 per ton.
Value-added tax/The government has announced its intention to integrate and restructure the existing sales and service taxes into a consolidated tax to be called the sales and service tax, with features similar to a value-added tax.
Contract levy/A levy of 0.25% on contract works having a contract sum above RM500,000 is imposed on every registered contractor by the Construction Industry Development Board (CIDB).
Exit levy/The exit levy that was imposed on the repatriation of portfolio investments was abolished effective May 2, 2001.
Tax rates on branch profits are the same as those on corporate profits. No tax is withheld on transfer of profits to a foreign head office.
Inventory valuation/Inventories are generally stated at the lower of cost or net realizable value. Cost for this purpose may be determined by using one of several possible bases, such as unit cost, average cost or FIFO, as long as the basis used is consistent from one year to another. LIFO may be used for book purposes but not for tax reporting.
Capital gains/Generally, gains on capital assets are not subject to tax.
However, capital gains on the disposal of real property (which includes shares in a real property company-“RPC”) situated in Malaysia are subject to real property gains tax. The tax is levied at rates ranging from a maximum rate of 30% (for assets held for less than two years) to a minimum of 5% (for assets held for five or more years). Capital losses on the sale of real property (other than losses on the disposal of RPC shares) are allowed to be offset against gains arising on the sale of real property. A real property company is a controlled company that owns real property or RPC shares with a defined value of not less than 75% of its total tangible assets.
Intercompany dividends/Dividends received from Malaysian subsidiaries are taxable on the recipient corporation, but the income tax deducted or deemed deducted from the dividends is available as a credit against the corporate income tax paid by that corporation.
Foreign income/A Malaysian tax-resident corporation and a unit trust are not taxed on their foreign-source income, regardless of whether such income is received in Malaysia. However, income from the businesses of banking, insurance and air or sea transport is assessable on a global basis. Relief from double taxation is available by means of a bilateral credit if there
is a tax treaty, or unilateral relief where there is no tax treaty. The relief is restricted to the lower of Malaysian tax payable or foreign tax paid if there is a treaty, or to one-half of the foreign tax paid if there is no treaty.
Undistributed income of foreign subsidiaries is not taxable.
Stock dividends/A Malaysian corporation may distribute bonus shares tax free to shareholders.
Depreciation and depletion/Tax depreciation on machinery, equipment and industrial buildings is available at specific rates for all types of businesses. Locally acquired machinery and equipment qualify for an initial allowance of 20%, while imported heavy machinery qualifies for 10% when the expenditure is incurred and the asset is in use. An annual allowance ranging from 10% to 20% is calculated on cost for every year during which the asset is in use for the purposes of the business. An accelerated depreCIAtion allowance is available for computers, information technology equipment, environmental protection equipment and waste recycling equipment.
DepreCIAtion recapture on the sale of plant is taxable as ordinary income.
Tax depreciation is not required to conform to book depreCIAtion.
A depletion allowance is available on natural resource properties.
Net operation losses/The carryforward of business losses and tax depreciation is unlimited in time. Current-year business losses may be utilized against all sources of income. Any unutilized business losses are available for carryforward, but setoff is restricted to income from business sources only. Utilization of tax depreCIAtion is also restricted to income
from the same underlying business source. There is no provision for loss or tax depreCIAtion carryback to previous tax years.
Payments to foreign affiliates/A Malaysian corporation can claim a deduction for royalties, management service fees and interest charges paid to affiliates, provided that these are made at arm’s length (i.e., the amounts it would pay to an unrelated entity).
Taxes/Taxes on income are generally not deductible, whereas indirect taxes, such as sales tax and service tax, are deductible.
Generally, there is no group taxation in Malaysia except that a holding company that has invested in a 100%-owned subsidiary producing approved food products, can opt for group relief for losses incurred by the subsidiary during the period before the subsidiary makes any profit. Application for approval should be made before December 31, 2003.
Inward investment/Incentives for inward investment are as follows.
1. Pioneer status: Corporations in the manufacturing, agricultural, hotel and tourist sectors or any other industrial or commerCIAl sector that participate in a promoted activity or produce a promoted product may be eligible for pioneer status. This incentive is given by way of an abatement of 70% of the profits for five years. The remaining 30% of the profits will
be taxed at the prevailing corporate income tax rate. The profits abated are exempt from tax and will be available for distribution as tax-free dividends.
In the following cases the general rule of tax abatement and period of incentive is varied:
a. Corporations undertaking a project of national and strategic importance involving heavy capital investment and high technology will be granted full exemption on its profits. The tax-relief period may be extended for a further five years. Projects recognized as of national and strategic importance include forest plantation activities, projects with Multimedia
Super Corridor status and production of electronic wafers;
b. High-technology companies engaging in a promoted activity or in the production of a promoted product in areas of new and emerging technologies, as well as companies participating in an industrial linkage program, may be granted pioneer status, which entitles them to full exemption on profits for a period of five years;
c. Corporations with projects eligible for pioneer status that are located in the eastern corridor states of Peninsular Malaysia, Sabah and Sarawak will be granted an abatement of 85% of their profits for five years. An existing pioneer or ex-pioneer corporation that undertakes an expansion program through a subsidiary or controlled company in the eastern corridor states of Peninsular Malaysia, Sabah or Sarawak that involves the same promoted activities or promoted products is eligible for a second round of pioneer status or investment tax allowances if certain conditions are satisfied. The eastern corridor states include Kelantan, Trengganu and certain designated areas in the states of Pahang and Johor.
2. Deduction for export expenses: Resident corporations in the manufacturing, hotel, tourism, and service sectors are entitled to double deduction for expenditure incurred on the promotion of exports, such as overseas advertising, free samples, export market research, participation in trade exhibitions, preparation of tenders, travel, participation in virtual trade
show, participation in trade portals for promotion of local products, maintenance of overseas sales offices and warehouses. Expenses incurred by pioneer companies are aggregated and set off against post-pioneer (taxable) profits.
Capital investment/Incentives for capital investment are as follows.
1. Investment tax allowance: A corporation may be granted an investment tax allowance (ITA) of 60% of capital expenditure incurred on a factory or plant and machinery used for the purposes of an approved manufacturing, agricultural, hotel, tourist, or other industrial or commerCIAl activity (other than one granted pioneer status). ITA is granted on capital expenditure incurred for a period of five years. For an integrated agricultural activity, ITA may be granted to both the agricultural and the processing activities for five years each.
The amount of investment tax allowance to be utilized for each year of assessment will be restricted to a maximum of 70% of the profits, while the balance of 30% of the profits will be taxed at the prevailing corporate income tax rate. Unutilized allowances may be carried forward indefinitely for setoff against future profits of the business. Dividends paid out of
exempt profits are not liable to tax in the hands of shareholders.
The ITA incentive is enhanced for the following types of project:
a. A corporation undertaking a project of national and strategic importance may be granted ITA at a rate of 100% and would be able to utilize the amount of ITA granted for setoff against the whole of its profits each year without restriction;
b. A high-technology company or a company participating in a promoted activity or producing a promoted product in an industrial linkage program may be granted ITA at the rate of 60%, and the amount of ITA would be available for setoff against its profits without restriction. This incentive is an alternative to pioneer status. (See 1(b) under “Inward
c. A company granted ITA in respect of a project located in the eastern corridor states of Peninsular Malaysia, Sabah or Sarawak would be granted ITA at a rate of 80%, and the amount of ITA that could be utilized for each year would be restricted to a maximum of 85% of the profits. An existing ITA or ex-ITA company that undertakes an expansion program through a subsidiary or controlled company in the eastern corridor states of Peninsular Malaysia, Sabah or Sarawak involving the same promoted activities or promoted products is eligible for a se