international tax summaries--MALAYSIA（1998）（一）
international tax summaries--MALAYSIA（1998）（一）
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Highlights of the 1997 Budget proposals include:
q Tax incentives for approved companies located in the Multimedia Super Corridor;
q Tax exemption of 65% of statutory income of companies providing qualifying professional services to offshore companies in Labuan (effective assessment years 1997 to 2000);
q Tax exemption of 50% of gross income of foreign managers serving in offshore companies extended up to the year of assessment 2000;
q Tax incentives for construction of medium and budget hotels, expansion or modernization of existing hotels, construction of holiday camps, recreational projects, and convention halls.
INCOME TAXES ON CORPORATIONS
The scope of the Malaysian Income Tax Act 1967 is territorial, i.e., tax is charged on income accruing in or derived from Malaysia. All corporations are subject to income tax at a flat rate of 30% on Malaysian-source income. However, income derived by tax residents from a business of air/sea transport, banking, or insurance is assessable to Malaysian income tax on the worldwide income, whether or not such income is received in Malaysia.
The term malaysia?means the territories of the Federation of Malaysia, the territorial waters of Malaysia and the seabed and subsoil of the territorial waters, and includes any area extending beyond the limits of the territorial waters of Malaysia, and the seabed and subsoil of any such area, which has been or may hereafter be designated under the laws of Malaysia as an area over which Malaysia has sovereign rights for the purposes of exploring and exploiting the natural
resources, whether living or nonliving. Activities carried on outside the territorial waters but within the exclusive economic zone of Malaysia are deemed to be carried on in Malaysia, and any income derived therefrom will be subject to Malaysian income tax.
2. Local Income Taxes
3. Capital Gains Taxes
There is no comprehensive capital gains tax. However, gains from the sale of any land situated in Malaysia and any interest, option, or other right in or over such land?are subject to a real property gains tax. The rate of tax on the gains depends on the period the property was held prior to the date of disposition, as follows:
Asset Disposed of Rate of Tax
Less than two years after acquisition of the asset 30%
In the third year 20
In the fourth year 15
In the fifth year 5
In the sixth year or thereafter Nil
In the case of a corporation, the rate of tax is 5% of gains on
dispositions of real property in the fifth year or thereafter. In the case of a non-citizen and nonpermanent resident individual, the rate of tax is 30% on gains on dispositions after October 27, 1995.
There is no real property gains tax on dispositions as a result of a compulsory acquisition under the law. A real property gains tax exemption is provided for gains on the transfer of assets under a scheme approved by the Director General of Inland Revenue for the reconstruction of corporations, or for gains arising from the distribution of assets on the liquidation of assets or of a company with similar approval. A transferor corporation qualifies for the
exemption only if the transferee corporation is restructured under the plan.
Gains from the disposal of shares in real property companies are subject to real property gains tax at the above rates. A real property company (RPC) is a controlled company (i.e., a company having not more than 50 shareholders and controlled by not more than five persons which holds real property or shares owned in a real property company (chargeable asset), the market value of which is not less than 75% of the value of its total tangible assets as of October 21, 1988, or any subsequent date). If at any time the RPC (the chargeable asset) acquires additional real property or shares in another RPC, the market value of which is equivalent to or exceeds 50% of the market value of the real property or shares in an RPC it already owns, that time is treated as the date of acquisition of the chargeable asset for the purpose of determining the rate of tax on the gain.
4. Branch Profits Taxes
Branch profits of a nonresident corporation in Malaysia are taxed at the regular corporate rates (see items 1 and 16).
5. Foreign Tax Reliefs
Corporations resident in Malaysia and carrying on the business of banking, insurance, shipping, or air transport can claim a credit against Malaysian tax for foreign taxes paid on foreign-source income either under a double tax treaty or by unilateral relief.
q Double Taxation Relief. The credit allowed to a taxpayer may not exceed that proportion of the Malaysian tax payable for the year that the foreign income bears to the total income for the year. The relief is limited to the lesser of the Malaysian tax on the foreign income or the foreign tax paid.
q Unilateral Relief. Unilateral relief may not exceed one-half the foreign tax payable on that income for that year. The relief is limited to the lesser of the Malaysian tax on the foreign income or one half of the foreign tax paid.
6. Classification of Corporations
Corporations are classified for Malaysian tax purposes as resident corporations or nonresident corporations. A corporation carrying on business is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its business are exercised in Malaysia. Any other corporation is resident in Malaysia for the basis year for a year of assessment if at any time during that basis year the management and control of its affairs are exercised in Malaysia by its directors or other controlling authority. A resident corporation is liable for
Malaysian tax on the income accruing in or derived from Malaysia or received in Malaysia from outside Malaysia. A nonresident corporation is not liable for Malaysian tax on income arising from sources outside Malaysia and received in Malaysia. The distinction between resident and nonresident corporations has a bearing on the amount of income tax payable and the treatment of dividends paid.
7. Payment of Taxes
The tax for a year of assessment is due and payable on the service of the notice of assessment. However, the Director General of Inland Revenue allows the tax to be paid in five monthly installments beginning in January or February; January for tax reference numbers ending in odd numbers and February for even numbers. All earlier assessments must be settled as arranged or within 30 days of the service of the relevant notices of assessment.
A penalty of 10% is imposed on any tax that is not paid within 30 days after service of the assessment notice. Any balance remaining unpaid on the expiration of 60 days from the imposition of the penalty is liable to a further 5% of the balance unpaid. If withholding tax is required to be deducted from payments to nonresidents but is not paid to the Director General of Inland Revenue within one month of crediting or paying the amount, a penalty of 10% of the amount subject to
withholding tax is imposed on the payor.
Every taxpayer (individuals and businesses) subject to tax must make payments by installments, as the Director General may direct, whether or not the tax has been assessed. A penalty of 10% will be imposed if:
q The taxpayer underestimates his tax liability by more than 30% compared with the actual assessment made by the Director General; orq The taxpayer fails to settle the tax installment within 30 days from the date stipulated by the Director General.
8. Other Matters
Payment of Dividends. A resident corporation may distribute its profits by declaration of dividends. Although there is no withholding tax applied to such dividends, tax at the rate of 30% is deemed to have been deducted at source. The tax deducted from the dividends is franked by the tax payable (tax credit? by the corporation on its profits. If there is insufficient tax credit to frank the dividend distribution, the corporation has to create it by paying the shortfall to the Inland Revenue Board. The tax cannot be used to offset future tax liabilities
of the corporation. Dividends paid out of profits that are exempt or subject to a concessionary tax rate are not subject to any further tax.
INCOME TAXES ON INDIVIDUALS
Individuals resident in Malaysia are subject to tax at graduated rates on taxable income derived from or accruing in Malaysia or income from foreign sources received in Malaysia after deducting personal allowances. The rates of tax applicable to the various brackets of taxable income beginning at RM2,500 are:
Tax on Percentage
Over Not Over Lower Amount on Excess
RM 2,500 RM 5,000 RM 0 2%
5,000 10,000 50 4
10,000 20,000 250 6
20,000 35,000 850 10
35,000 50,000 2,350 16
50,000 70,000 4,750 21
70,000 100,000 8,950 26
100,000 150,000 16,750 29
150,000 31,250 30
A nonresident individual is taxed at a flat rate of 30% on gross income.
Individuals resident in Malaysia are entitled to the following personal reliefs:
Disabled self (additional) RM5,000
Dependent (automatically given with self relief) RM1,000
Disabled wife (additional) RM2,500
?First to fifth child RM 800 (each)
?Physically or mentally disabled children RM5,000 (each)
Insurance premiums and contributions to approved pension
funds RM5,000 (maximum)
Medical expenses for parents RM5,000 (maximum)
Medical expenses for self, spouse, or child suffering from a
serious disease RM5,000 (maximum)
Purchase of any necessary basic supporting equipment for own
use or for the use of a wife, child, or parent who is disabled
Fees expended by resident individual for any course of study
in any institution in Malaysia recognized by the government
undertaken for the purpose of acquiring technical, vocational,
or industrial skills RM2,000 (maximum)
Premiums paid on education and medical insurance policies RM2,000
The wife may elect in writing to claim child relief, instead of the husband, for a year of assessment. If any child is over the age of 18 and receiving full-time instruction at a university, college or other establishment (similar to a university or college) in a place outside Malaysia, the relief is up to twice the usual deduction. If within Malaysia, the relief is up to four times the usual deduction. A tax rebate of RM110 is given to resident individuals. A wife is assessed separately on all of her income unless she elects a combined assessment. In this case, she is allowed a tax rebate of RM60, while her husband is entitled to a rebate of RM110. However, the income tax rebates are given only for taxable income not exceeding RM10,000.
A tax deduction scheme applies to employees who are liable for tax.
The tax for a year of assessment is due and payable on the service of a notice of assessment. However, arrangements may be made beginning each calendar year for settlement of the tax in monthly installments. Failure to make installment payments on time will result in the imposition of a late payment penalty of 10% of the tax so unpaid after 30 days and a further 5% of the unpaid balance after a further 60 days.
10. Local Income Taxes
11. Capital Gains Taxes
There is no capital gains tax other than the tax on real property gains. An individual is assessed on net chargeable gains in the year of assessment after a deduction equal to the greater of RM5,000 or 10% of the gain. The rate of tax is inversely proportional to the duration of ownership (see item 3).
12. Foreign Tax Reliefs
Same as item 5.
13. Tax Period
December 31 is the standard tax year-end. For Malaysian tax purposes, the calendar year immediately preceding a year of assessment constitutes the basis year for that year of assessment. For individual employees, the basis of assessment for any year is the income of the preceding year. In the case of individuals deriving income from a business or profession, the basis depends on the accounting or finanCIAl year of the business or profession.
INCOME TAXES ON NONRESIDENTS
15. Liability to Tax
A nonresident is liable to Malaysian tax on all income accruing in or derived from Malaysia. Income arising from foreign sources and received in Malaysia by a nonresident is not subject to Malaysian tax. A person (including a corporation) resident in a country that has a double taxation treaty with Malaysia is not liable to Malaysian tax on the income from business carried on in Malaysia unless the person has a permanent establishment in Malaysia. The liability is on the income or profits attributable to that permanent establishment. However, Malaysian tax is nevertheless imposed on other income accruing in or derived from Malaysia whether or not there is a permanent establishment.