MAJOR DEVELOPMENTS
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
1. Rates
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
None.
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. F
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